Management Accounting Analysis and Reporting for GKL Group Limited

This report provides a comprehensive analysis of management accounting practices, focusing on GKL Group Limited, a civil engineering firm. It explores the essential requirements of different management accounting systems, including price optimization, inventory management, and cost accountin...Read More

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1....................................................................................................................................1
PART (A)....................................................................................................................................1
Management accounting and essential requirement of different accounting method.................1
Different methods of management accounting reporting............................................................3
Benefits of management accounting systems and their application in organisational context...4
Management accounting system and reporting are integrated within the organisational process
.....................................................................................................................................................5
PART(B).....................................................................................................................................5
Calculate costs using appropriate techniques of
cost analysis to prepare an income statement using marginal and absorption costs..................5
ANNEX(A).................................................................................................................................6
ACTIVITY 2....................................................................................................................................9
PART (A)....................................................................................................................................9
Advantages and disadvantages of different planning tools of budgetary control.......................9
Different planning tools and their application for preparation of budgets................................11
PART(B)...................................................................................................................................12
Comparison of organisations to solve the financial problem with the use of management
accounting system.....................................................................................................................12
Management accounting in solving financial problems and ultimately lead to organizational
success.......................................................................................................................................13
An evaluation of how planning tools for accounting help to solve problems and support
industry with sustainable success..............................................................................................14
CONCLUSION..............................................................................................................................14
REFRENCES.................................................................................................................................15

INTRODUCTION
Management accounting is considered as a system of accounting that aids in to internal
management of the firms. It involves many types of information such as financial and non
financial. It examine the activities of business in summarised manner (Arroyo, 2012). Herein, it
is crucial to to understand that management accounting is not necessary part of the firms. It
based upon them they required it or not. For this report the chosen company is GKL group
limited which delivers civil engineering projects. Its headquarters is in Peterborough,
Cambridgeshire, UK. The purpose of this report is to describe the management accounting and
necessary requirements of various kinds of management accounting system as well as its
benefits. Different methods utilise for management accounting reporting. Preparation of income
statement by using marginal and absorption costing. Advantage and disadvantages of various
kinds of planning tools utilise for budgetary control. Comparison of how companies are adopting
management accounting system to responds to financial problems are also mentioned in this
report.
ACTIVITY 1
PART (A)
Management accounting and essential requirement of different accounting method
Management accounting system internal part of any organisation which can use to measure and
analysing to their process of the management. The system will provide accurate information on
time to facilitate efforts to control cost and measure productivity. With the help of the system
introducing of new product and identify all rival products after market analysis. It can consist of
different types of techniques and tools that will help to management in decision making process
and improve productivity. In the context of GKL group limited can apply these system in order
to manager all activities in effective manner and increase profitability.
Price optimization system – The particular system treated as a tool of management
accounting which can help to set price structure of their different products and services. It can
analysis the perception of customer regarding to their products and services (Baldvinsdottir,
Mitchel. and Nørreklit, 2013). After that set price which can suitable for customer and company.
It further, set prices of products to get beneficial level in an organisation. The GKL group limited
apply the system to set price of their flats as per market rate. This tool can analysis of price of
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various projects which can conduct by company in present as well as in future. After set prices
they can promote their buildings and attract to more clients.
Inventory Management system – The inventory management system combination of
software and hardware. With the help of this system track movement of goods at each level of
manufacturing. The system can an organisation to know how much quantity need to to raw
material in different process and how many time take to convert into finished goods (Bodie,
2013). It can reduce wastage and proper utilise of goods in production activities. In the context of
GKL group limit, is a constructing company so for different projects need to different types of
materials. These are tracking through inventory management system and time to time provide
detailed information regarding to transfer of goods from warehouse to manufacturing. They use
it in checking the availability of various type of raw material like steel, cement etc.
Cost accounting system – The cost accounting system is a way of predict the total cost
of different products and services to determine the productivity as well as profitability. The
particular accounting system mainly followed by those companies who can work in
manufacturing sector because their rang of work on broad level. There are cost accounting
system can be divided into two parts first one is job order costing system and second one is
process costing system. In the context of GKL group limited can use both system which has been
described below - Job order costing system – It is a kind of cost accounting system which can apply in
reference to different types of products and services. In this system use the job cost sheet,
labour and material to analysis of cash flow of products and services (Burritt,
Schaltegger and Zvezdov, 2014). If any customer give order that time use this system
because it can manage in effective manner and provide all appropriate information. The
GKL group limited applied job order costing system when get many orders from different
customer and helps to proper arrange in reference to earn profit or loss.
 Process costing system – This method assigns for the total cost from different units of
output. There are entering various cost regarding to different process after than calculate
sum of total cost of products and services. The system mainly used when work in process
and need to determine cost of further process. The GKL group limited can apply this
system due to predict total cost of their constructing projects at different stage.
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Different methods of management accounting reporting
Management accounting reporting is considered as a methods of reflecting the whole then
business activities to check profit. With the usage of these reports firms can examine the
efficacious level of its various activities. It do not matter that which types of business nature,
these reports perform same for all in order to accomplish objectives. There are different types of
reports which protects enterprise from rivals (Chenhall and Smith, 2015). Moreover, as per these
accounting reports companies makes essential decisions for further plans and policies. GKL
group limited which is an engineering firm prepare various management accounting reports that
are given below:
Budget reports:
These are considered as those reports that are utilised through department of management
in order to compare actual performance with the budgeted targets. Mainly, these reports are
crucial for internal administration of firm. Reports are formulated for specific duration which
may be monthly, quarterly or annually. GKL group limited manager utilise these reports to
compare the exact outcomes with budgeted one. Moreover, this aids them in examining what
types of projects are effective and profitable as well as which are not.
Performance Report:
These are the reports which are formulated to measure the performance of something. It
is very much essential for firm as this assists them to monitor that which activities are
facilitating desired outcomes and which are not. Moreover, project reports perform as per the
comparison of particular activity actual outcomes with standard one (Contrafatto and Burns,
2013). In this respects, this is crucial to ascertain performance measurement standards as due to
the lack of accurate standard level this can be hard to evaluate the performance. GKL group
limited prepare these reports to measure its performance as well as to develop future decisions
about several projects. Within respective firm, this particular report is essential due to its work
nature as well as provided services.
Cost managerial accounting reports:
These types of reports are generally affiliated to calculating the whole cost that incurs in
providing goods and services. It is an efficacious manner to examine the total cost which can be
considered as a base of comparing costs with sold amount. This facilitates a structure to develop
comprehensive investigation of gross cost which obtain and overall revenue gained through
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selling of whole units. Herein, in costs are higher than selling one then this would be the loss. If
cost is lesser than sold amount this would be considered as profitable for company. Thus, with
the assistance of it organisations can develop strategic decisions regarding which products or
services are required to be manufacture more in numbers and which one in less amount. Within
GKL group limited, its manager formulate these reports for computing the whole project costs
then examine about loss and profit.
Account receivable ageing report:
These are the reports that are useful in developing lists of that clients who has credit
transaction with organisation. Because of this report company can check how much transactions
are done in credit (Cullen and et. al., 2013). Moreover, this involves the date of proceedings, it
aids firm in listing that how many clients have to pay the amount and who has crossed the
payment date. GKL group limited finance department formulate these reports in order to view
the overall collection into marketplace so that it can develop futuristic plans and policies
consequently. Also, this decrease the stress of remembering credit transactions as they are
involved into enterprise construction projects where credit transactions are performed in large
numbers.
Benefits of management accounting systems and their application in organisational context
In management accounting system includes different types of system which can use by
GKL group to make effective their work. Through these system they can get many benefits there
are mentioned use of different types of system and their application in reference to GKL group
limited.
Price optimization system -
 The system can use by an organisation to set price structure for their products and
services to get success for long time. Here in, GKL group determine price of their
different projects which is related to construction. Price optimization system provide a range and thoughts of customer regarding to their
product according to that the company has been set price to attract more customer (Dosch
and Wilson, 2010).
Inventory management system -
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 Through the inventory management system can track goods and services at each level of
manufacturing process. The GKL group limited can apply the system and know position
of the goods every time and check availability. The system can provide advantage to reduce wastage and properly utilise of all resources
at each level of constructing.
Cost Accounting System
 In this system estimate cost of different projects after that control on different business
activities of GKL group limited.
 Through the system company can analysis of the profitability and compare performance
through actual earned income which is incurred cost.
Management accounting system and reporting are integrated within the organisational process
Management accounting system and reports are major part of organisational process
because it can provide help in decision making process. Each accounting system provide benefits
and required information which can help to smoothly run of organisational process and these
reports help to know position of the company (Ewert and Wagenhofer, 2012). It further connect
link between accounting system and reports with organisation process because they are help to
top management to estimate future situations and get success for long time. In reference to GKL
group limited can apply system and reports in their process because in constructing company
need to different types of information and analysis future income and expenses.
PART(B)
Calculate costs using appropriate techniques of
cost analysis to prepare an income statement using marginal and absorption costs
Cost analysis is considered as the procedures of modelling costs in order to support
strategic planning, decision taking as well as cost minimisation. There are various techniques
that are utilise to formulate income statement (Faÿ, Introna and Puyou, 2012). The some
techniques that are used by GKL group limited are mentioned below:
Marginal Costing:
This is considered as a types of cost techniques where marginal cost that are variable cost
is charged to cost units at the time fixed cost for the period of time is totally written off against
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the contribution. This help GKL group limited to ascertain optimal manufacturing quantity for
firm, in which this costs less amount to manufacture extra units for projects.
Absorption costing:
This kinds of cost techniques that are utilise for gathering the cost related with a
manufacturing methods as well as apportions them to single goods (Fourie and et. al., 2015).
With the help of this GKL group limited can compute whole profitability as well as net profit
individually into financial gain.
ANNEX(A)
Income statement by marginal costing method:
PARTICULARS AMOUNT
SALES 427500 427500
LESS VARIABLE COST
DIRECT LABOUR (15*5000) 75000
DIRECT MATERIAL (18*5000) 90000
VARIABLE PROD ( 9*5000) 45000
VARIABLE 10% OF SALES VALUE 42750 252750
LESS DIRECT LABOUR (15*500) 7500
DIRECT MATRIAL ( 18*500) 9000
VARIABLE PROD (9*500) 4500 -21000
CONTRIBUTION 195750 195750
LESS FIXED EXP (180000/4) -45000
PROFIT FOR THE YEAR 150750 150750
Income statement by absorption costing method(1st quarter)
PARTICULARS AMOUNT
SALES (4500*95) 427500 427500
COGS -231750
GROSS PROFIT AT NORMAL 195750
UNDER/OVR ABSORPTION 6800
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GROSS PROFIT AT ACTUAL 202550
-FIXED EXP -45000
NET PROFIT 157550
Working note:
1.
Total variable cost per unit 51.5
COGS
Production cost 257500
Less: closing stock -25750 231750
2.
Per quarter standard production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 68200
absorption 6800
Income statement by absorption costing method(2nd quarter)
SALES (3000*95) 285000
COGS -180250
GROSS PROFIT AT
NORMAL 104750
Under ABSORPTION -5476
GROSS PROFIT AT
ACTUAL 99274
-FIXED EXP -45000
NET PROFIT 54274
Working notes:
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1.
Total variable cost per unit 51.5
COGS
opening stock 25750
Production cost 303850
Less: closing stock -149350 180250
2.
Per quarter standard
production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 80476
absorption -5476
ANNEX (B)
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Interpretation:
On the basis of above revolved problems it have been identified that the two product
named as X and Y, whose rates of labour is £12. also, in this conventional absorption methods is
used so the total overheads into X is £72,000 as well as within y is £192,000. Furthermore, in
Activity based costing approach rates of machine hours for both products are different. As in X
products £24,000 and in y £16,000. also, overheads are also different. Y product consumer
higher expenses than X that are X( £ 82749) and Y(£181,255).
ACTIVITY 2
PART (A)
Advantages and disadvantages of different planning tools of budgetary control
Mainly budget is considered as a formal statement of estimated income and expenses
based upon futuristic objectives as well as plans. Moreover, this predicts the financial situations
and results of organisations (Gates, Nicolas and Walker, 2012). It is generally formulated
through GKL group limited in order to assign capital for various forms of procedures as well as
activities after analysing revenue, expense and last years profitability. Budgetary control is is
refers as a procedures for manager for setting performance and financial goals with budgets,
analyse actual results as well as set performance as per the needs. It is the process which is useful
to face and handle budget that is observed for practices and process. Moreover, it is performed
by monitoring the differences among desired and exact results for taking decision in order to
develop effective budget. In GKL group limited , it is utilise by manager for valuing variances in
budget as well as affiliated that variances with performance to develop efficacious strategies and
policies for minimising those variances.
GKL group limited which is a civil engineering firm have to maintain as well as control
budget figure and various procedures and activities to accomplish sustainability into growth and
also enhance net profit. Company has to build a effectual plan for controlling budget which are
needs to ensure that activities are done efficaciously (Harris and Durden, 2012). Thus, there are
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some significant planning tools that is used by GKL group limited for establishing budgetary
control are given below:
Forecasting planning tools:
This is the tools for planning which is applied through enterprise to build structure for
futuristic occurrent as well as events it is performed with the assistance of previous and current
trends adjustments (Hutaibat, 2012). For efficacious results of this particular tools, this is
essential to use effectual as well as relevant information by the firm's sources such as internal
and external. This tool is usages to by GKL group limited for accumulating futuristic trends that
can effects company in upcoming periods negatively. Advantages: It is the tools that aids GKL group limited to develop enterprise
performance to get effective results in future. The main aim of forecasting tool is to earn
more income as well as profitability through exceeding consumer satisfaction.
 Disadvantage: It is somehow not appropriate for the GKL group limited as this is not
possible to accurately forecast business future thus, formulating decisions in this context
may outcomes into financial ruination.
Contingency planning tools:
This is considered as a helpful tools in assigning as well as evaluating risky factors which
can impacts the activities, growth, performance and many more in future. GKL group limited
utilise this particular tools for evaluating and studying financial situations regarding total and net
profit performance as well as situations of several function of company. Moreover, respective
company has to examine those aspects and develop strategies in order to solve them effectually
and as soon as possible. Advantages: This is the appropriate tool which enables respective company in
developing plans such as operations regarding disaster relief to cope up from upcoming
occurrences.
 Disadvantage: This is mainly reactive in nature. Hence in order to handle a situations this
may obviate unexpected environmental aspects. Also, it is costly and time consuming.
Scenario planning tool:
This types of planning tools for budgetary control is helpful to approximate upcoming
situations of the enterprise which may impact objectives of organisations (JOSHI and et. al.,
2016). Thus, this is tough as well as complex to anticipate futuristic expenditure but this is
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essential for business growth also. Hence, through scenario tool GKL group limited can
formulate effectual strategies of the company for attaining their objectives. Advantages: It is the tool that aids in approximating the situations uncertainties which
may be happened thus, respective firm can develop plans as well as strategies for
minimising it.
 Disadvantage: Future approximation appear to be hard for acquiring relevant information
therefore, these types of estimation effects the procedures of decision making.
Different planning tools and their application for preparation of budgets
There are several planning tools for budgetary control that are very essential for relevant
budgets forecasting. Due to this whole required information for formulating the budget used
from the budgets planning tools (Lukka and Vinnari, 2014). Therefore, for multiple aspects of
GKL group limited, it applied different planning tools such as contingency tools, forecasting
tools and many more.
ANNEX(C)
Year X PV@ 12%
Dis Cash
Flow Y PV@ 12%
Dis Cash
Flow
0 -5000 -8000
1 2500 0.893 2232.143 1500 0.893 1339.286
2 1000 0.797 797.194 2000 0.797 1594.388
3 1000 0.712 711.780 2500 0.712 1779.451
4 500 0.636 317.759 1000 0.636 635.518
5 1500 0.567 851.140 1000 0.567 567.427
6 1000 0.507 506.631 2500 0.507 1266.578
Total 5416.647 7182.647
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PART(B)
Comparison of organisations to solve the financial problem with the use of management
accounting system
At present all company are facing the issues regarding funds that is considered as
financial problems (Mat, Smith and Djajadikerta, 2018). The GKL group limited firm are facing
some issues that affects their activities that are described below:
 Mismanagement of funds: In GKL group limited funds are not managed properly as its
manager so apply effective accounting principles. It is crucial for the company to hire
knowledgable staff so that overall accounting functions are done efficiently.
 Delay in payment by clients: several times consumers buy products and use services on
credit. It usually do not give payment on time that drive towards financial issues. This
affects the efficacious of GKL group limited operations. Thus, this is necessary fro its
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manager to modify their credit policy for recovering the outstanding amounts on
stipulated time.
GKL group limited O'Keefe construction limited
This firm is facing the financial issues such as
mismanagement of funds, delay in payment
and so on. Both the problems are impacting
enterprise performance.
This company is facing problems regarding
inventory that display ineffectual inventory
ratio turnover.
For maintaining the finance appropriately and
payment making on time, selected company
utilise cost accounting system in order to
record cost in effective manner. Moreover,
price optimal system is used to set the rates of
products so clients do not think to buy goods
on credit.
Also, they utilise financial governance tools as
it direct them to enforced all the principle in
proper manner so that effective accounts can
be formulated as well as mismanagement of
funds can be resolved through obeying suitable
principles.
For keeping the inventory and minimise
wastage in construction method, respective
organisation apply inventory management
system and develop a team fro stock
management in order to set benchmark fro
decreasing wastes. They used KPI to evaluate
whole team of inventory management so that
goals can be attained on time.
To establish appropriate system few approaches of management accounting are utilise by
company. These ensures that firm can accomplish its objectives as well as sustainable success.
Some are as follows:
 Key performance indicators: This is considered as a tool which is useful to examine
firm's financial performance. also, it assures regarding how well company is attaining
their objectives.
 Financial governance: This approaches involves accumulating, observing, handling the
financial data for resolving the problems related to funds. The main aim of it is to solve
issues of the monetary.
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Management accounting in solving financial problems and ultimately lead to organizational
success
Management accounting is considered as a tools that are helpful to examine whole
internal situation of the firm in a particular financial duration. This also aids in acquiring data
related to company's performance, reports of the inventory, analysis of stock and many more in
context of financial as well as non financial prospects (Miller and Power, 2013). Thus, by tracing
monetary and non monetary enterprise activities, GKL group limited management develop plans
in order to make futuristic investment. Moreover, respective firm are facing many problems such
as mismanagement of funds, late payment and many more. All these can be formed negative
impact on its profit. Hence, management accountant can develop its key performance indicators
which supports their sustainability as well as efficacious objectives. Also, assistance to get over
from its financial issues. GKL group limited can use price optimisation system as well as cost
accounting system for maintaining the overall records regarding costs etc. to resolve financial
problems.
An evaluation of how planning tools for accounting help to solve problems and support industry
with sustainable success
Management of GKL group limited are applying scenario, contingency as well as
forecasting planning tools. Whole those tools help them to face the financial problems such as
mismanagement of funds, delay in payment and many more by anticipating them beforehand
(Neubauer and et.al, 2012). Moreover, whole that aids its managers to be face futuristics
problems so that this can be resolve effectually. Planning tools direct management to make
efficacious actions at the periods of problematical situations in order to responds in successful
manner.
CONCLUSION
As per the above report it has been concluded that management accounting is an essential
components for maintaining the performance of any enterprises. This involves different forms of
management accounting system like price optimisation system, process accounting system and
many more are used by organisations to execute the activities of the enterprise in effective
manner. Moreover, few reports of management such as performance reports cost managerial
accounting reports and so on are prepared through managers of the company in order to maintain
14

records of firm. Contingency, scenario etc planning tools are utilise to develop efficacious
budgets. Manager applied many tools of accounting that assists in resolving monetary issues
which are beneficial to obtain revenue as well as performance.
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