Comprehensive Management Accounting Report for Hichrom Ltd: Strategies

This report examines management accounting practices within Hichrom Ltd., a company specializing in chromatography products. It covers various management accounting systems, including cost accounting, price optimization, inventory management, and job costing, and evaluates their benefits. The report details different reporting methods like account receivable aging reports and performance reports. It analyzes costing techniques such as marginal and absorption costing, and discusses budgetary control and planning tools. The final sections address how management accounting systems respond to financial problems, with the aim of guiding Hichrom Ltd. towards sustainable success. The report integrates these elements to provide a comprehensive overview of management accounting's role in business strategy and financial management.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and its types of management accounting systems........................1
P2: Different methods used for management accounting reporting............................................3
M1: Evaluate the benefits of management accounting system and its applications...................4
D1: Management accounting system and its reporting are integrated within organisational
process.........................................................................................................................................5
TASK 2............................................................................................................................................5
P3: Calculation of cost using an appropriate techniques............................................................5
D2: Data interpretation................................................................................................................8
TASK 3............................................................................................................................................8
P4: Budgetary control and advantages and disadvantages of planning tools used in budgetary
control ........................................................................................................................................8
M3: Uses and applications of planning tools for preparing and forecasting budgets ..............10
TASK 4..........................................................................................................................................10
P5: Responses of management accounting system to deal with financial problems................10
M4: Management accounting can lead organisation to sustainable success in responding to
financial problems.....................................................................................................................12
D3: Planning tools respond appropriately to resolve financial problems.................................12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting has evolved to assist the management in performing its
functions of providing accounting information to management and assisting in performing
management function like planning, organising, controlling and decision making. This is
principle used in preparing financial statements consists of profit & loss a/c, Balance sheet,
statement of owner's equity and funds flow statements etc. for identifying company's financial
position and evaluate it's assets, liabilities and owners equity at a given accounting period
(Ahmad and Mohamed Zabri, 2015.).
Hichrom Ltd. is a growing company which is world's leading in high and ultra high
performance chromatography columns and accessories manufacturing and distributing chain. In
this report organisation works on various management accounting systems, reporting methods
and evaluate their benefits on organisation performance. Management uses different costing
techniques for evaluating their financial statement. Hichrom Ltd. applies various planning tools
which are used for controlling budgets and helps in forecasting. Accounting manager adopt
various accounting systems to resolve company's financial issues so that manager can lead
Hichrom Ltd. to achieve success.
TASK 1
P1: Management accounting and its types of management accounting systems
Management accounting aggregation of two words 'management' and 'accounting' where
the term management means art of planning, organising, directing, controlling and decision
making and accounting refers to recording, classifying and summarizing of monetary
transactions. Therefore it is a systematic approach used as planning effectively, directing it's
operations and solving problems. Hichrom Ltd. products are used in forensics, frontiers of
science and medicines as analysis of new drugs content, pharmaceuticals batch testing and
identify contaminants in blood, water etc. Pharmaceuticals, food, plastic and oil industries and
agrochemical are the customers of Hichrom Ltd. Therefore it is important to prepare financial
statements in order to expand its business in global market. It can be complete by using various
management accounting systems in way to make effective plans and decision to achieve
company's goal (Budding, Grossi and Tagesson, 2014.).
Different management accounting systems are:
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Cost accounting systems: This is the accounting system used by company to estimate
the production cost for execution of different organisational activities like production and
distribution activities. Hichrom Ltd. is supplying to many countries through various distribution
network thus it important for management to optimum utilization of it's resources in manner to
reducing the chances of wastage. It can be possible through using cost accounting system which
set a cost guidelines for company after analysing future uncertainties and their effectiveness.
This system is analysis on the basis of actual, standard and normal costing. Actual costing is used
in determination of actual commodity cost based on product cost like actual material, labour and
variable overheads. Standard costing is based on pre-estimated materials, labour and
manufacturing overhead costs. Normal costing is derived on the basis of actual direct costs and
standard overhead rate (Cheng, 2012.).
Price optimisation systems: It is another effective accounting system that helps
management in makes best pricing policies for identifying the representation of targeted market
and knowing their willingness to pay for the services and product offered by Hichrom Ltd. This
will effect in maximizing the customer's faithfulness and satisfaction level of targeted market.
Therefore increase in prices of product and services offered may leads to maximize the chances
of shifting faithful customers toward competitors which is not good for Hichrom Ltd. This
system is used as a tool which helps in improvement or recommends change in price that benefits
company to achieve desired target.
Job costing systems: It refers to such accounting system where manufacturing cost is
assigning to single product or group of products which helps management in preparing an
impressive budget. Hichrom Ltd. manager considering all activities performed in producing
product and it's cost allocation basis which bring profits in coming future. Process coasting i.e.
identifying product at individual level of manufacturing, standard costing i.e. an estimated cost
compare with actual used in performing company's operation, contract costing are the various job
costing systems . Hichrom Ltd. is using contract costing system for tracking their resources used
in production and marketing processes (Cleary, 2015).
Inventory management system: This system company approaches in direct
management of inventory to maintain sufficient inventory level and meet customer's needs and
requirements. Hichrom Ltd. is using this framework to manage their inventory on daily basis by
tracking inventory level, creating material bills, production output and their sales. Company also
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adopt this system to fight against the situation of increases in product demand in future through
getting accessibility of material in store. Company uses this system as to avoid excessive
inventory impact on revenue loss. FIFO i.e. valuation of inventory on the basis of goods first
purchased are sold first, LIFO i.e. goods purchases last are sold first for inventory valuation and
average inventory management system are the examples of this system.
P2: Different methods used for management accounting reporting
Management accounting reporting displays a complete picture which helps in analysing
the performance of company. Hichrom Ltd. is an expanding manufacturing and distributing
company and it's management always tried and true to expand their business with the help of
maintaining accounting reports on regular basis i.e. daily, monthly, quarterly, yearly. Such
reports includes income statements, Balance sheet etc. Management accounting reporting is used
to maintain several different types of reports like performance reports, inventory and
manufacturing report, account receivable aging report, job cost reports etc. which gives useful
information and company create effective plans and policies on the basis of that information
(Derchi, Burkert and Oyon, 2013).
Different management accounting reporting are:
Account receivable aging reports: This report is important for any organisation that
offers credit to customers and maintain strong financial position of the company because it
provides a summary of credit balances in form as lists of non-paying customers invoices sorted
by customer name with details of all bills, invoice number or date. Hichrom Ltd. is maintaining
this aging report as a recovery tool that carries a detail information related to average collection
period and to determine invoices which are overdue for payments. If it's collection period is less
than standard that means they should decreases their sales practices so that they don't aspect any
future credit risk. This report is also used as a technique for estimating bad debts that are used to
revise the percentage for bad debts a/c. This aging report is also known as a agenda of accounts
receivable.
Performance report: This report consist of current performance of company within
various departments. Accounting managers of individual departments should maintain all records
related to their functioning in this report so that they achieve pre-decided objectives. In the same
way Hichrom Ltd. is also maintaining their organisational performance report in individual
levels. They are also assigning roles and responsibilities to each level managers so that
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company's overall performance maximizes and their performance also attract investors for
further investments. This report compares company's actual production with standard and takes
essential actions against adverse variations (Huber and Scheytt, 2013).
Inventory management reports: This report requires to maintain sufficient inventory
level with accurate valuation of inventory. EOQ (economic order quantity) and ABC analysis are
the examples of inventory management reporting. EOQ refers to the order quantity that reduces
the cost of ordering and holding and ABC analysis explained which inventory requires more
attention and which is not. Hichrom Ltd. is in manufacturing of UHPLC & HPLC columns and
accessories with less fault temperament and it finds inventory management reports very valuable
for inventory valuation.
Job cost reporting: This managerial accounting reports shows expenses for a particular
project related to present status of job which helps in evaluating job's profitability. It helps
management in analysing whether the invested amount spend on the product will be recovered
or not in coming future. When there are various jobs in department it is hard to manage so
creating job cost reports helps in identifying problems related to job cost. Hichrom Ltd. aim is
prepare this report for identifying the cost included in different job orders. This will create a
favourable impact on the company's profitability (Ji, 2017).
M1: Evaluate the benefits of management accounting system and its applications
Management accounting system Benefits
Cost accounting system  It helps to control costs incurred in
production.
 It is useful in describing profitable and
non profitable activities.
Price optimisation system  It helps to form such strategies that are
based on consumer's perception.
 Reduces the waste of resources
involved in inappropriate activities.
Inventory management system  Helps to keep a track record of
inventory in the warehouse.
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 Increase productivity, profitability and
efficiency of work.
Job costing system  Help to evaluate the performance of
each employee.
 Provide detailed report of each job and
separately divide profits of each job.
D1: Management accounting system and its reporting are integrated within organisational
process
Management accounting system and its reporting are used to plan, control and regulate
activities within Hichrom Ltd. Different type of management accounting reports are used to
evaluate performance of employees and to analyse each job according to the strategy. These are
helpful for the organisation to deal with risks and uncertainty in future. This system is currently
used by organisation control cost so that it can retain old new customers and target new
customers. It is also implemented to keep a record of inventory to increase productivity of
organisation (Leitner, 2013).
TASK 2
P3: Calculation of cost using an appropriate techniques
Cost - It refers to amount of money individual paid in order to achieve something. It can
be classified into monetary valuation of material, labour efforts, time consumed, risk incurred,
opportunities give up in production and distribution of stock or services. Management uses
costing methods in determination of cost of production, cost of goods sold and net operating
income with the helps two costing method.
Hichrom Ltd. is a manufacturer and distributor of chromatography accessories thus for
determining optimum profits company uses both marginal and absorption costing method for
evaluation of net profit. This helps management in decision making regarding minimization of
cost in order to achieve profits (M Ancini, Vaassen and D Ameri, 2013). Types of costs are
described below:
Marginal costing: It is a special technique of presenting cost information that may assist
in profit planning, cost control and managerial decision making. Due to involvement of costs like
material and labour with budgeted fixed cost it is also known as variable cost. This cost is arises
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to produce additional unit of output rather than budgeted output. Many companies adopting this
costing technique for increasing in net operating profit as compare to profit arises from
absorption costing method (Nicolaou, 2011).
Absorption costing: It is a method considering all types of costs like fixed and variable
cost that affects net profit. Direct cost like wages, raw material in process and overhead costs. In
this method net profitability of company is affected with change in fixed cost that means in fixed
cost increases profit decreases. That's why most companies doesn't preferred this method for
calculation of company's net income.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: This analysis represents Hichrom Ltd. Revenue in terms of
quantity produced and amount of sales which is required to cover it's total fixed and variable
costs. Company done this analysis on monthly or yearly basis so that they cover invested cost in
running business. BEP is a point where total cost is equal to total revenue i.e. no profit no loss
situation.
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A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of Safety: It is the difference between the integral value of an inventory and its
market price. It determines the gross output level that fall before a company reaches its break-
even point. Company has to buy product only when it's market price is less than combined value.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2: Various types of accounting techniques
There are various types of accounting techniques can be adopted by the managers of
Hichrom Ltd. In order to determine net profits of the organisation. These techniques are defined
below:
Standard costing: It is a method to compare standard data and actual data, to provide the
information to the managers about the variations in the data.
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Marginal costing: It is the additional cost of such units which are newly added to the
production. It involves direct material, direct labour, direct expenses and variable overheads.
Historical costing: It is the actual cost of the asset of good at the time of transaction. It
helps to differentiate the actual cost and the replacement cost.
D2: Data interpretation
As per the preceding computation, it has been cleared that marginal costing method will
be more profitable to Hichrom Ltd. in comparison of absorption costing method. It is because of
increment in earnings while using marginal costing method. While computing net profits for
Hichrom Ltd., the marginal costing method calculates £17500 as gain whereas absorption costing
method calculates £15675 as gain, and the difference of £9600 in gain occurs due to change in
variable cost. In Break even, the total number of units sold are 500 and break even sales is
20000. To earn minimum profit of £10000, Hichrom Ltd. have to sale 1333.33 units. Margin of
safety is 37.5 when 800 production units are sold.
TASK 3
P4: Budgetary control and advantages and disadvantages of planning tools used in budgetary
control
Budgetary control - It is the procedure to control costs which considers the formulation
of budgets. It helps to find out different budgeted figures for Hichrom Ltd. for the future period
and then compare forecasted figures with actual figures, and also helps to control over the
organisation. Budgetary control is also used to set goals for managers of Hichrom Ltd. that are
based on the budget, and also frame reward policy when goals are achieved. It is a preparation
method which is used by organisation to pre plan all expenses that are going to happen in future
to reduce waste of monetary factors in and outside of the organisation.
The process of budgetary control includes various steps like, preparation of organisation
charts, setting budget centre, prepare budget manual, form budget committee, set budget period
to achieve goals. It is used by Hichrom Ltd. to forecast future consequences that can probably
happen. There are various planning tools to use in budgetary control those are forecasting tools,
contingency tools and scenario tools. These are explained below:
Forecasting tools: It is used by Hichrom Ltd. to manage future of the business. It is the
tool that is helpful in making predictions of future condition of business, based on past and
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current data of organisation. It helps organisation to determine what resources might be
mandatory to meet the risk or uncertainty that can happen in future. It is also used to determine
customer demand in the future for its products (Nørreklit, 2014).
Advantages Disadvantages
 It provides valuable information for the
business that is helpful for managers in
decision making.
 The main source of data derives from
the experience of qualified managers
and employees.
 It is tot possible to forecast accurately
and no one can perfectly sure about the
future.
 Making a decision on the wrongly
forecasted report can harm the
company.
Contingency tool: It is a risk assessment tool, which is used to estimate the risk in
Hichrom Ltd. It is also used to make substitute plans like if plan 1 doesn't work then there would
be an another plan to replace, rather then wasting time on rectifying plan 1. It addresses all the
fault finding functions of the business, and helpful in generating ideas to minimize losses. These
tools can be implemented by the government or businesses. It is helpful for Hichrom Ltd. at the
time of crisis (Proctor, 2012).
Advantages Disadvantages
 It is helpful in the minimisation of
losses of production for Hichrom Ltd.
 An impressive contingency plan have
all the information of the responsibility
of each member of the organisation at
the time of crisis.
 When planning for risks already done
then company will be prepared for the
unexpected consequences.
 It is a time consuming process because
it involved the collection of various
information.
 It requires business to have enough
resources to backup, if business don't
have enough resources it can cause
difficulty.
Scenario tool: It is a method of predicting future values based on possible events. In
Hichrom Ltd. managers use these tools in decision making process to determine the best
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strategies to implement for the maximisation of profits. It is a very important tool used by the
mangers to help company make sure that it does not carry too much risk.
Advantages Disadvantages
 It is a tool of strategic decision making,
that creates a number of possible
uncertainty.
 It provides the information of external
environment to the managers to deal
with the problems.
 Cost involved in implementation of
such tools is very high, not easy to bear
by the organisation.
 Managers have to face many challenges
while integration of scenario tools.
M3 Uses and applications of planning tools for preparing and forecasting budgets
Planning tools used in budgetary control to estimate the future for Hichrom Ltd. to deal
with risks that can happen in future. Hichrom Ltd. is currently working as a manufacturer
company, thus for each manufacturer company it is important to pre plan the budgets for each
activity in business. The company is using various planning tools to make several plans for
business and to deal with each problem that have possibility to happen in future. These tools are
implemented by the management of Hichrom Ltd. for strategic decision making so that the
company can minimize the possibility of uncertainty in future.
TASK 4
P5: Responses of management accounting system to deal with financial problems
Financial problem is a situation where money related problems are faced by the
organisation. Hichrom Ltd. is facing many financial problems those problems are explained
below:
 Accounting issues: This is the main problem faced by Hichrom Ltd. because if there is
frequent changes in the accounting system then organisation has to face this problem. If
accounting system remain same for long period then there is less possibility of financial
or accounting issues. If the person who is handling the accounts is not properly trained
then management have to face these issues and have to deal with these problems.
 Too many overheads: Excessive overheads is taking company downwards. Hichrom
Ltd.'s managers have to form effective strategies to reduce overheads. Managers have to
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