Management Accounting: A Comprehensive Analysis for Galway Plc

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MANAGEMENT ACCOUNTING
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INTRODUCTION
Management accounting creates a weekly or monthly report for the internal persons of the
business organization in order to take short term or quick decisions related to business
organization. Management accounting is effectively helpful for the managers of the
business to take a day to day decisions that boost business activities. It generates reports
which include sales data, available cash, accounts payable and receivable, raw materials
and inventory details that are required for the managers to take quick short term decisions
with respect to business activity (Appelbaum et al., 2017). The management report
presents accurate data that helps business managers.
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LO1
MANAGEMENT ACCOUNTING
Management account refers to the provision of providing financial data and suggestions
according to it and uses the information in the decision-making and contributes to the
development of the business. Management accounting helps the manager to effectively
control business activity and increase the performance of the business (Bhunia et al.,
2017).
“One basic definition of the management accounting is the delivery of financial and non-
financial information that helps managers in decision-making”.
FINANCIAL ACCOUNTING
Financial accounting is the main accounting process and specialized accounting branch of
the business organization that records every single transaction of the business
organization and produce an annual financial report at the end of the financial year.
Financial accounting helps managers and external stakeholders to find out the financial
condition of the company (Haines, 2016).
MANAGEMENT ACCOUNTING SYSTEM
Management accounting is the profession in which an accountant involves in the
management decision-making by producing outline and performance systems of
management as well as provides expert and accurate financial suggestions and advice
related to management (Jermias et al., 2018). The various feature of management
accounting includes sales analysis, cost analysis, inventory analysis etc.
TYPES OF MANAGEMENT ACCOUNTING SYSTEM
Following are the various types of a management accounting system that can be helpful for
the managers of Galway Plc:
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Cost Accounting System
Cost accounting is the process of keep track of cost related activity, categorize them,
analyze, precise and allocated them with a systematic process after producing various
sequences of actions in order to control the price of the commodity. It is very helpful in
optimizing business activities and process emphasize on cost-efficient and capable.
Managers of the Galway Plc can get detailed information about cost-related through cost
accounting that required controlling current operations as well as the future plan of the
business organization (Bennett and James, 2017).
Inventory Management
Inventory management is a very effective tool in order to keep track of the flow of the
goods as well as the actual position of the stock level. Inventory management is the part of
supply chain management that includes managing not-capitalized assets, or stock or
inventory items. It is the process that tracks the flow of goods from the manufacturing
process to warehouses to point of sale (Chouhan et al., 2017).
Job Costing
Job costing is the process that involves all the costs and revenues that occurred for the
particular job role and allows uniform reporting of profitability by particular job work. For
example, Galway Plc manufactures a product that involves the cost of the raw material,
direct costs, indirect cost, labour cost etc. but in the end the cost accumulated by
manufacturing cost (Wildavsky, 2017).
Price Optimization
Price optimization is the process in which Galway Plc can use mathematical analysis in
order to identify how customers will respond to the various price of the products provided
through different channels. The price optimization is very effective in order to find out
suitable price strategy for the business organization (Wilkinson and Klaes, 2017).
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PRINCIPLES OF MAS
Following are the principles of MAS:
Influence
Communication provides an understanding that is required by the manager of Galway Plc
to take useful decisions with respect to business. Management accounting is the activity
that initiates and ends with conversations. Communication significantly improves decision-
making activity of the Galway Plc (Collis and Hussey, 2017).
Relevance
“Information should be relevant”. Management accounting assesses and finds the best
available resources for information that is appropriate to the business activity for which
critical decisions needs to be taken (Ray and Gramlich, 2015).
Value
Management accounting activity involves analyzing the information which is collected that
focuses on the evaluating opportunities, value generation path, costs, risks etc.
management accounting connects the strategies created by Galway Plc to the business
model of the business organization and provide a good understanding of the wider
macroeconomic environment (Wright et al., 2017).
Trust
Management accounting provides a trust factor in the decision-making activity of the
managers of Galway Plc. The short term critical decisions taken in order to increase
business performance also help in the long-term business plan (Wolf and Floyd, 2017).
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DIFFERENCE BETWEEN MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING
Following are the difference between management accounting and financial accounting:
Management Accounting Financial Accounting
Management accounting is job specific or
concerned about a particular project.
Management accounting does not have any
rules to follow for its accounting.
Management accounting is prepared for
internal stakeholders.
It is voluntary.
Management accounting includes monetary
and non-monetary information.
Financial accounting focuses on the whole
organization.
Financial accounts are prepared by
following accounting standards.
Financial accounts are prepared for internal
and external both stakeholders.
It is compulsory by the law.
Financial accounting only includes monetary
information only.
Advantages of Financial Reports:
 Financial reports provide a business financial condition.
 The financial report is very accurate as it follows the rules prescribed by accounting
officials.
 The financial report helps managers of the business organization to identify
financial improvement areas of the business.
 The financial report is very helpful in creating a budget for the business
organization.
The disadvantage of Financial Reports:
 It is hard to find errors in financial reports as it follows a dual entry system.
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 Financial report created annually hence a long time to wait to understand the
business financial condition.
TYPES OF REPORTS
Following are the management reports that generated through management accounting:
Figure: Types of Management accounting report
Source: Collis and Hussey, 2017
Job Costs Report
Job costs report presents the costs of a particular project in order to find out the progress
and profitability of the specific project. It also aid in controlling the price of the specific
projects (McNamara, 2016).
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Management
accounting
report
Job costs
report
Accounts
receivable
aging report
Budget report
Inventory and
manufacturing
report

Accounts Receivable Aging Report
Accounts receivable ageing report presents the information about the credit customers of
the Galway Plc and is a very effective tool in order to manage the cash flow of the business
organization.
Budget Report
Budget report generated through management accounting helps managers of the Galway
Plc to assess the performance of the particular project or department and control its
additional costs in order to maximize business profit (Kuhnen and Miu, 2017).
Inventory and Manufacturing Report
It is a very effective tool for the Galway Plc in order to manage the cost of inventory and
manufacturing. The management accounting took the cost of labour cost on hourly bases,
inventory waste, overhead costs etc. to control the costs occurred in inventory and
manufacturing process (Garvey et al., 2016).
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LO2
MARGINAL COSTING
It is the marginal costing method where the variable cost are being charged to fixed costs
and unit costs of the periods are written of in full in respect to the contribution (Ray and
Gramlich, 2015).
INCOME STATEMENT
May June
Particulars Amount (£)
Amount
(£)
sales revenue 15000 25000
Marginal cost of sales
material cost 4000 3040
Labor cost 2500 1900
Variable production overhead 1500 (8000) 1140 (6080)
7000 18920
Contribution
Fixed costs
Administration cost 2000 2000
Selling and distribution costs 4000 6000 4000 6000
Net Profit 1000 12920
It can be said that the net profit for the May month is 1000 euro while for June Month is
Euro 12920. The net profit increased due to the increase in the sales revenue.
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ABSORPTION COSTING
It is the costing method that indicates the expenses including all manufacturing cost for the
particular product. It also reflects that all cost have absorbed by the units produced (Collis
and Hussey, 2017).
INCOME STATEMENT
May
June
Particulars Amount (£) Amount (£)
Amount
(£)
Sales revenue 15000
25000
Marginal cost of sales
Material cost
4000 3040
Labor cost
2500 1900
Administration cost 2000 2000
Selling and distribution
costs 4000 12500 4000
10940
Gross Profit 2500
Variable production
overhead 1500
1140
Net Profit 1000
6000
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The net profit calculated from the marginal costing method is 1000 for May Month while is
it 6000 euro for June Month. The net profit increased due to the increase in the sales
revenue.
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