Exploring Inventory and Cost Management Systems in Business Operations

In this comprehensive study of Management Accounting, students are tasked with exploring essential financial practices that underpin effective business operation. The focus is on understanding inventory management systems, various cost accounting methodologies including job costing, and mechanisms for price optimization. Additionally, the assignment covers important reports such as income statements, cash flow analyses, budget reports, and aging reports related to accounts receivable. Emphasis is placed on practical applications of these concepts through real-world scenarios and theoretical frameworks, ensuring students can integrate academic knowledge with business practices. Budgetary control tools like incremental cost approaches, zero-based budgeting, and activity-based costing will also be examined for their impact on organizational efficiency and financial accuracy.

UNIT 5
MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Report to General Manager regarding concept of management accounting and
requirements of their types to company......................................................................................1
P2 Report to General manager regarding explanation of methods of management accounting
reports..........................................................................................................................................4
TASK 2............................................................................................................................................7
P3 Difference between Marginal costing and Absorption costing and calculation of Income
statement through these methods:...............................................................................................7
TASK 3..........................................................................................................................................11
P4 Report to General manager regarding advantages and disadvantage of different types of
planning tools for budgetary control.........................................................................................11
P5 Adopting management accounting systems for responding financial troubles .................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16
.......................................................................................................................................................17

INTRODUCTION
Management accounting is the process of regulations of accounting data's, managers use
these financial informations to get support in decision-making. Management accounting provides
provisions for financial and non-financial transactions and helps manager in preparing
management report for higher authorities of a company (Ajibolade, Arowomole and Ojikutu,
2010). Through following the guidelines provided by Management Accounting, financial
managers able to create proficiency report to support board in implementing organisational
strategies.
Unicorn grocery is small business enterprise which operates through its retail stores. Its
business is in Manchester and they fall under food and vegetables industries. This assignment
involves various types of management accounting systems and methods. Advantages and
disadvantages of budgetary-control tools have been discussed in a report which is presented to
General Manager of Unicorn grocery. There are two different scenario's discussed in this
assignment. First scenario is based on a report to General manager for implementing accounting
techniques for business. Whereas, in second scenario, financial issues faced by Unicorn grocery
is explained and solution to solve this issues has been suggested through a report.
The main focus of this report is on application of management accounting techniques like
profit analysis, marginal and absorption costing.
TASK 1
P1 Report to General Manager regarding concept of management accounting and requirements
of their types to company
From: Management accounting officer
To: General manager of Unicorn Grocery
Sub: Management accounting system
This report is based on Management accounting concept and how accounting systems works is
revealed by the report. Various types of management accounting system discussed in reports
are; Inventory management system, Price optimisation, Job costing system and Cost accounting
system.
Management Accounting System:
Management accounting system is a specialisation which involves participation in
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management decision-making process, specification of planning and performance management
systems (Ali, 2010). This accounting systems provides expertise in financial reporting and
controlling to support management in formulation of strategies.
Below is the diagram for explaining different types of Management Accounting System:
 Inventory Management System: This system consists of raw materials, methodology
and finished goods, used by every company for production process. Inventory is
equivalent to a property, so any up-down in its value could directly impact the worth of
a company (Hodkinson and Robbins, 2013). Now-a-days, Inventory management
software's are used by maximum companies to track inventory levels, orders, sales and
deliveries of a product. Specially from manufacturing industries, the maximum positive
response has been recorded, as through this software, company creates work order, bill
of materials and production related documents.
Unicorn grocery could use this approach, to control its inventory and eliminate wastages of
resources. Company increase its worth through managing its inventory properly. It could also
help Unicorn in finding the factors which affects inventory values.
 Price Optimisation: These includes mathematical programs which calculates price at
different demand level. This system combines data with available informations related
to price, to suggest best optimum cost of the product to receive desirable profits. Most
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Inventory
management
system
Cost accounting
system
Job costing
system
Price
optimisation

small scale companies, face difficulties in optimising right price for vendor and
customers (Anandarajan, Anandarajan and Srinivasan, 2012.). Hence, this type of
management accounting system is worked as a solution for such an issue. It is complex
task to make proper balance between profit maximisation and product demand, because
if the price is increased than its demand would be directly effected. There, price
optimisation is the technique, which identifies a point where at certain demand level
company could earn maximum profits.
This method could help Unicorn Grocery, in identifying best optimal solution for selecting
best price at which company can make maximum profit without affecting its demand of the
product.
 Job Costing System: This method records manufacturing costs of particular job not the
process. A project manager could measure the cost of each job through this method. It
can also maintains relevant data related to business operations (Bebbington, Unerman
and O'Dwyer, 2014). This method is useful in construction industry, it allocates costs to
specific construction projects in a company.
Unicorn grocery could apply job costing for tracking various types of jobs like direct labour,
direct material and allocation of overhead costs among various indirect costs. It could measure
its activities through job profitability report, as it can measure overall profit and loss happen to
a business during a year.
 Cost Accounting System: This system also known as product cost system, it consists of
financial structure of calculating costs by every companies to estimate cost of their
goods, to support various tools like profitability analysis, calculation of inventories and
controlling access costs of the company (Goodale, 2011).
Unicorn grocery would get the benefit through this method in long run, as through this
system, it could make cost budget for coming years, to plan its activities accordingly. For
example, in given illustration, the budgeted cost of production overhead, administration and
selling cost were identified only through this approach.
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P2 Report to General manager regarding explanation of methods of management accounting
reports
From: Management accounting officer
To: General manager of Unicorn grocery
Sub: Management accounting report
In this report, various types of reporting methods of management accounting has been
discussed. This report would help Grocery unicorn in proper decision-making process through
knowing its application in Company's business.
Management Accounting Report
Accounting reports are important part of every business as it ensures a complete picture of
how company's business performance is moving (Botzem, 2012). A Management accounting
reports should produced periodically to get atomistic view of company's operations. There are
many different types of reports which is useful for protecting business against various financial
threats.
A management accounting reports helps business in identifying the performance of a
business. Management accounting reports are different from financial accounting, as it produces
reports for company's internal as well as external stakeholders (Godfrey, 2010). For Unicorn
grocery, management accounting reports plays in important role, for forecasting future, Make
or buy decisions, taking decisions on various financial issues and determining required rate of
return for a business.
Below is the diagram which will explain different types of methods used in Management
Accounting Reports:
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 Budget Report: Company use these methods to identify the performance of a firm.
A budget report of a period is an internal report used by the management, which
compares with the actual performance number obtained during the actual period
compared to the estimated, estimated estimates. In other words, a budget report is
designed to compare how close the budget performance was for actual performance
during the accounting period.
Since there are financial goals based on budget estimates and future estimates, they are often
wrong and can vary substantially from actual financial performance of the company. During an
accounting period, managers often compare the estimated budget numbers, which were ready
for the actual number drawn at the beginning of the period.
Budget report could be implemented by Unicorn grocery in determining the variation
between estimated and actual figures. More deviation signifies the company's inability to
manage its costs, where less discrepancy means that the company is effectively using its
resources without wasting its resources. For example, Unicorn grocery has a budgeted sales of
450 units but its actual sales are 600 units, so it could said that it is under budgeted.
 Accounts Receivable Aging Report: Accounts receivable aging is a periodic report
that receives a company's account at the time-limit, which is an invoice outstanding. It is
used as a gauge to determine the financial health of the company's customers. If the
receipt of the receipt of the account indicates that the acquisition of a company is being
collected more slowly than usual, it is a warning sign that the business may be slow or
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Methods of Management Accounting Report
Accounts receivable
Aging Report
Job costs Reports
Income statement
report
Cash flow report
Budget Report
Inventory reports

that the company is more in its sales practices for taking more risks.
Unicorn grocery could apply this approach in identifying balance amount requires for
Allowance for Doubtful Accounts. Company could made accounts receivable aging report
through sorting unpaid sales invoices on the basis of customers and date in ledger. Accounts
receivable aging is a report which is made periodically to categories company's receivables
account according to length of time mention in outstanding invoices.
 Job costs Reports: The job cost accounting process is the process of specifying the cost
for you or any particular work related to your business (Wehner, 2010). This term is
widely used in the construction industry and it is used to allocate the costs for individual
construction projects in the company.
A job can be defined that a special project for a customer, or a unit of manufactured product
or a batch of units of the same type that is prepared together. Job costing reports belong to
collection of the costs of materials, labour, and overhead for a particular job.
Unicorn grocery could implement this method to create a category of various activities on the
basis of funds utilisation. Job costing could be defined as production, selling and distribution
costs of Unicorn grocery.
 Inventory and manufacturing reports: This reports consists of sum of various
inventories at each of the three stages of productions like manufacturing, wholesaling
and retailing. This report also includes business sales which is the sum of sales at each
of the three stages of production (Hofstede, 2012). Inventory reports is mainly used by
supervisors to assist in inventory management, track movement of inventory inside
warehouse, and a list of different categories, such as items on hold, visibility.
These reports can also be used to classify a list based on cost. On the other hand,
manufacturing report analysis, how much production is made and how much is produced during
one year, both reports are related to each other.
Unicorn grocery could apply this reports, to determine available opportunities for
consolidation of activities. This report is helpful in providing cycle count of variance in
informations on the basis of daily, weekly and monthly. Stock Keeping Units (Part of Inventory
and manufacturing reports ) assess informations related to locations which is not in use by
company.
 Income statement report: These type of Management accounting system is used by
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financial officers to determine and measure the total profit earned by a company during
financial year, which is usually December end (Hopwood, Unerman and Fries, 2010). It
assist company in knowing its current performance by comparing it with previous years
income statements.
Unicorn grocery would apply this method to determine company's financial profit during
particular period. Company can know about its outstanding expenses, arrears, payments which
is due and advanced payment received from customers.
Conclusion
After analysing all report, it could be said that Unicorn grocery should analyse all the
features of different reports and adopt these different methods to present a useful report for
particular reasons and purposes. Like cash activities, cash flow reports are required, inventory
management tasks require inventory and manufacturing reporting methods. The cash flow
statement report is useful for analyzing the accuracy of a business, reports of income statement
support the business to determine how much of the earnings left with the company to reinvest in
business expansion activities and business maintenance. Budget reports are forecasted on the
basis of estimation. Unicorn requires these reports to allocate and distribute funds among
various functional departments.
TASK 2
P3 Difference between Marginal costing and Absorption costing and calculation of Income
statement through these methods:
Management accounting is focused on different areas, but the cost can be considered as
its most important part. If a company uses the appropriate approach of cost, then it could succeed
in getting improved results.
Marginal Costing: It concentrates on additional expenditure, which one company has to
make during an additional unit construction. The slim form of cost concentrates on
fundamentally variable costs, if unicorn grocery can reduce its variable expenses, then they can
reduce the price of those items which are being given in their stores (Horovitz and Webb, 2015).
It could be used by managers for taking important decisions. If the cost of a product is high, then
the marginal cost of that item can be increased or continued for its production, but if the
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commodity price is low then the company should stop selling that item in its shop. At the time of
final calculation, the fixed cost is considered only in this situation, i.e. in the final stage.
Absorption Costing: It is traditional method of calculating costs of a product. It is also
known as full costing method (Hoyle, Schaefer and Doupnik, 2015). The main advantage of
using this approach is that it shows the right advantage because it covers all the expenses
incurred by the company. Direct material, labour and upper, all are included in this approach, in
this method there is no fluctuation in fixed costs, its cost is definitely assigned to every unit, if its
manufacturing is not added to the final and total amount As it goes in its marginal cost.
To find absorption costing, fixed overhead per unit is calculated by dividing total fixed
overhead with number of units produced. After analysing cost per unit, all variable items are
calculated with total number of units sold.
Below is the difference between Marginal costs and Absorption costs:
Basis for comparison Marginal Costing Absorption Costing
Meaning It is an accounting system in
which variable overheads are
deducted per unit cost of one
product and fixed costs to get
total net income from the
business (Kieso, Weygandt
and Warfield, 2010).
This is a way to calculate the
cost of production with indirect
expenditure or overheads as
well as direct costs.
Cost Identification In this method, product cost
comes under variable cost,
fixed cost is considered as a
periodic cost.
Here fixed and variable both
costs considered as cost of the
product.
Costing & Inventory valuation Here only variable cost is
considered.
Here both variable and fixed
cost are considered.
Treatment of fixed overhead In this technique, fixed cost is
considered as period cost and
profitability of different
products is judged by
Here, fixed cost is charged
against cost of production.
Each product has to share fixed
cost through apportionment of
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profit/volume ratio. fixed overheads among
different departments.
Unit cost of production It is not affected by difference
in opening stock and closing
stock.
It is affected by unit cost of
production due to impact of
related fixed overheads over it.
Lucrativeness In marginal costing,
profitability is calculated
through cost-volume analysis.
In absorption costing, due to
deduction of fixed costs
profitability get affected.
High spot Contribution per unit is the
high spot of this techniques.
High spot of this techniques is
calculation of both gross profit
and net profit from the cost of
various department centres.
Categorization of Expenses Costs are classified into
variable and fixed in marginal
costing. To find contribution
and net profit separately.
In absorption costing, there's
different classification for
Production to find gross profit
and selling & administration
costs to find net profit.
Cost Collection Cost is collected by outlining
the total contribution of each
product.
Cost is collected through
customary way to show the
cost of data.
Below is the calculation of Income statement through Marginal costing and Absorption
costing techniques:
Net profit calculation on the basis of marginal costing
Per unit price(£) No. of units Amount(£) Amount(£)
Sales revenue 35 600 21000
Less: Marginal cost
Opening Inventory Nil
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