Introduction of Management Accounting for Connect Catering Services

This report introduces and integrates management accounting systems and tools within Connect Catering Services, a family-based company in Oxfordshire. It explores cost accounting, inventory management, job order costing, and price optimization systems. The report analyzes financial information using marginal and absorption costing methods, including cost information, break-even analysis, and budgetary control. It presents financial statements, identifies fixed and variable costs, and calculates the margin of safety. The report also examines the impact of changes in costs on the break-even point and sales value. The analysis includes material variance and a break-even graph to illustrate the company's financial performance and planning tools for sustainable success.

Introduction of Management
Accounting to Connect
Catering Sevices

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Management accounting systems............................................................................................3
1.a Management accounting reporting and implementation.......................................................5
2. Financial Reporting and Interpretation...................................................................................6
2. a Cost Information..................................................................................................................8
2. b Break-even Graph................................................................................................................9
3. Planning tools for accounting...............................................................................................11
4. Analysis of the financial problems and its use to lead organisations to sustainable success.
...................................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Managerial control is an important element that helps in the management of the
organisations. The tools and systems are the integral part of the management accounting and the
integration of it is popular among the organisations. The use of financial instruments results in
the improvement of the organisations performance. Management accounting focuses on the
efficient use and allocation of the resources by keeping the cost drivers in check (Charifzadeh,
and Taschner, 2017). In this report the evaluation of the financial information of the Connect
Catering Services a family-based company of the Oxfordshire is conducted. The management
accounting systems and tools is being introduced and integrated within the company. Further in
this report the use of various methods viz. Marginal costing, absorption costing and analysis of
the variance is made and a new product in the portfolio of the company is added to find-out the
increment in cost and revenue.
MAIN BODY
1. Management accounting systems
Management accounting systems are play an important role in the reformation of the
organisation's strategies. An effective system helps in the achievement of the organisations
objectives (Pasch, 2019).
Cost Accounting
It is a accounting method used to calculate costs of the activities. Variable costs, fixed
cost and Semi-variable costs of an operation is being calculated and used to ascertain the revenue
and per unit contribution (Holm, 2018). This system helps Connect Catering Services to find out
how much cost the manufacturing of a product is incurring and helps the managers to make
strategies accordingly to reduce the cost.
Advantages
This method is used as the system can be adopted easily and can be changed according to
the need of the organisation. Connect Catering Services through implementation of this system
will able to monitor the various cost drivers which helps the company in controlling the cost.
Disadvantages
The accounting method is complex and rigid and to adopt this accounting method
managers has to highly skilled.

Inventory Management System
The system helps Connect Catering Services in the management of the stock that the
organisation procure and produces. The system uses different inventory management methods
viz. FIFO, LIFO, Average inventory method, XYZ method and so on.
Advantages
Inventory management systems reduces the time and hassle to manage and storage of the
inventory. Thus, it helps Connect Catering Services to save much more time in managing the
stocks that are unused and also helps in the execution of the orders in time (Charifzadeh, and
Taschner, 2017).
Disadvantages
Use of the inventory systems can be expensive to some of the organisations as it requires
complex software systems and professional assistance.
Job order Costing System
The takes cost of each and every activity separately according to the specification of the
customers. It help Connect Catering Services optimize its costs for every job and will
significantly increase the revenue.
Advantages
By assigning the cost to each and every job the system helps Connect Catering Services
to accurately measures the activities and results in reduction of the overall expenses. Through
this the company will able to sort out which jobs are more profitable to use in the operations.
Disadvantages
Measuring each and every task is a lengthy and time consuming process. The managers
has to go through each level of process to identify the jobs and assign the cost to each task
individually. At the initial level of the production process the cost is not accurately estimated. It
relies on the observed and factual data which needed a good expertise in the field of management
accounting (Cooper, 2017).
Price Optimisation System
The system is used to find out optimum pricing of the product. By implementation of
different pricing of the product the Connect Catering Services will discover various price levels
that influence the consumer demand (Das 2019).
Advantages

This system helps in the discovery of the optimum price. The Connect Catering Services
with the implementation of the system helps in the identification of the pricing that increase its
customer base through attractive pricing.
Disadvantages
Different pricing models can be used by the management at the initial levels that will
incur cost. Improper implementation will results in the loss of the existing customer base.
1.a Management accounting reporting and implementation
Types of reporting
Budget reporting
A Budget report is prepared in this process. It contains information related to the
allocation of the resources to the various departments of the organisation. This reporting helps
the Connect Catering Services to monitor and allocate the resources efficiently within the
company.
Accounts receivables reporting
The report is prepared to find out the credit cycle of the organisation. Bad debts are
identified and creditors are sort-out accordingly. It helps Connect Catering Services to device a
policy that reduces the bad debts creation (Smith, 2019).
Job costing reporting
The preparation of the report is based on the cost related to each job in an activity
process. The managers identifies the useful jobs and assign priorities accordingly. The report will
help Connect Catering Services to reduce overall cost of the manufacturing process.
Performance reporting
A hypothetical standards are set and according to the actual production the standards are
compared to prepare the performance report. Those variables are identified that influences the
production performance and necessary actions are taken by the management to improve the
performance.
Inventory and manufacturing reporting
The report contains the information regarding different production lines, time, cost
labour and overhead information. It provide a detailed overview of the production process. The
company Connect Catering Services can identify the lead time, order processing, wastage and
various other factors that can be reduces by taking effective measures.

Order information reporting
The report is prepared to track the order transactions in particular time period. It help
Connect Catering Services monitor the order processing and execution. The pending orders and
orders in transit can be traced and proper measures is being taken for the execution of those
orders.
Business situation or opportunity reporting
It represent the detailed analysis of the different market scenarios which creates an
opportunity for a business or project. Market variables are sought and strategies are build around
the variables to take effective measures and procurement of the necessary resources when the
opportunity arises and market conditions are favourable (Cooper, 2017).
2. Financial Reporting and Interpretation
Statement of Marginal Cost
All
Amounts
in GBP
Particulars
Amount
(April)
Sales 16000
Cost of Goods Sold:
Opening inventory 0
Direct Material 0
Direct Labour 0
Variable Overhead 10000
Closing Inventory 500
Contribution 5500
Fixed Selling and Administration Overheads 4000
Selling 0
Administration 0
Variable sales Commission 0
Profit 1500

Statement of Marginal Cost
All
Amounts in
GBP
Particulars
Amount
(May)
Sales 16000
Cost of Goods Sold:
Opening inventory 500
Direct Material 0
Direct Labour 0
Variable Overhead 12000
Closing Inventory 1500
Contribution 2000
Fixed Selling and Administration Overheads 4000
Selling 0
Administration 0
Variable sales Commission 0
Profit -2000
Statement of Absorption Cost
All
Amounts in
GBP
Particulars
Amount
(April)
Sales 16000
Cost of Goods Sold
Opening Inventory 0
Direct Materials 0
Direct Labour 0
Variable Production Overhead 10000

Fixed Production overhead 15000
Closing Inventory 500
Gross Profit -9500
Fixed Selling and Administration Overhead 4000
Selling 0
Administration 0
Variable sales Commission 0
Profit -13500
Statement of Absorption Cost
All
Amounts in
GBP
Particulars
Amount
(May)
Sales 16000
Cost of Goods Sold
Opening Inventory 500
Direct Materials 0
Direct Labour 0
Variable Production Overhead 12000
Fixed Production overhead 15000
Closing Inventory 1500
Gross Profit -13000
Fixed Selling and Administration Overhead 4000
Selling 0
Administration 0
Variable sales Commission 0
Profit -17000
Statement of Reconciliation All
Amounts in

GBP
Particulars April May
Profits/(Loss) from Absorption Cost -13500 -17000
Less: Fixed overhead in closing inventory 0 0
Add: Fixed overhead in opening inventory 0 0
Fixed Production overhead 15000 15000
Profit as per Marginal Cost 1500 -2000
The marginal costing method shows a profit of £1500 for the month of April and Loss of £2000.
If Absorption costing method is being implemented then for the month of April the loss incurred
is £13500 and loss for the month of May is £17000.
Comparison between Marginal and Absorption costing Methods
Basis Marginal Costing Absorption Costing
Cost Inclusion Only variable costs of
production is included.
Variable overheads along with
Fixed production overhead are
included.
Profitability As low costs are included for
calculation the revenue per
unit is high.
As high costs are included for
the calculation which
gradually decreases the
revenue per unit.
Usability Only use for the purpose of
short-term decision making
and not used for financial
reporting.
Can be used for financial
reporting.
Adoption of method by the
Connect Catering Services
The company if adopted this
method will able to identify
the cost of addition of extra
units. It will help in the
company to choose how much
the company can use its
If this method is adopted by
the company it will shows the
per unit change in the
production. It will help the
company to maximize its sale
volumes and use of inventories

production lines. is optimizes.
2. a Cost Information
1. Identification of Costs
Fixed Costs
Manager's Salary £5000
Rent £5000
Insurance £500
Variable Costs
Direct Material costs per Pizza £3.50
Direct Labour costs per Pizza £1.50
Direct Overhead costs per Pizza £0.50
Advertising £1000
Utilities £500
2. Margin of safety at 3500 Pizzas
Break Even Point (units) = £5000+£5000+£500 / (3500*£3.50+3500*£1.50+3500*£0.50+
£1000+£500)/3500
= 1770.66 Units
Break Even Point (Price) = 1770.66 * £9.50
= £16821.27
Margin of Safety (Units) = 10000 units (Budgeted) – 1770.66 units
= 8229.34 units
Margin of Safety (Price) = £95000 - £16821.27
= £78178.73
3. Effect on BEP units and sales value, if increase in manager's salary to £6000.
Break Even Point (units) = £6000+£5000+£500 / (3500*£3.50+3500*£1.50+3500*£0.50+
£1000+£500)/3500
= 1939.29 Units
With the increase in manager's salary the BEP units value has increased to 168.63 units.
Sales Value
Break even Price = 1939.29*£9.50

= £18423.255
MS (units) = 10000 units (Budgeted) – 1939.29 units
= 8060.71 units
MS (price) = £95000 – £18423.255
= £76576.745
The Break even price increases by £1601.985.
At normal level the Break-even is at 1770.66 units at a price £16821.27. With an increase of
manager's salary to £1000 the Break-even has shifted to 1939.29 units and £18423.255.
2. b Break-even Graph
1. Total Cost
fixed Cost £15000
Variable Cost £60000
Total Cost £75000
2. Sales = 12000 units @ £10 per Pizza
Sales £120000
Variable Cost £60000
Contribution £60000
Fixed Cost £15000
Profit £45000
Profit per unit £3.75
MATERIAL VARIANCE
Budgeted Actual
Price 9.5 10
Quantity 10000 12000
Material Cost Variance -£25000
Material Price Variance -£6000

Material Usage Variance -19000 units
Here, the Chart is representing Break-even level at actual level of production for the year 2020.
The total cost of £75000 is calculated by adding total variable cost £60000 with total fixed cost
£15000. The Break-even point for the Connect Catering Services is found out to be at 3000 units
and at price £30000.
3. Planning tools for accounting
Budgetary Control
It is an accounting system used for management control. In this system of accounting
preparation of budget is done by forecasting resources and to resolve the issues related to income
and expenses during the period (Berry and et.al, 2019). For the purpose of preparing a budget
past records of the company is analysed. The actual output than compared to forecasted output to
track performance for the period.
Tools for the Budgetary Control
Incremental Budget
It is a traditional budgeting method. Organisations prepare a new budget by adding or
subtracting the marginal value to the previous budget. The Connect Catering Services can take
the current year's budget as a base for the preparation of the next year budget.
Advantages
0 10000 20000 30000 40000 50000 60000 70000 80000 90000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Sales Chart
Units
Price (£)
Units (th)
Total Fixed Cost
Break
Even
Point
Total Cost