Comprehensive Management Accounting Report for KEF Limited Analysis

This report provides a comprehensive analysis of management accounting practices at KEF Limited. It begins with an introduction to management accounting and its role in organizational success, emphasizing the importance of financial statements and the responsibilities of accounting and finance managers. The report then delves into various management accounting systems, including cost accounting, price optimization, job costing, and inventory management systems, detailing their applications and benefits for KEF Limited. It further explores the significance of budget reports, accounts receivable reports, cost managerial accounting reports, and performance reports. The report also examines the integration between management accounting systems and reporting, using examples to illustrate their interconnectedness. Finally, it analyzes costing methods, specifically marginal and absorption costing, including detailed calculations of production costs, cost of sales, and budgeted profit and loss statements, providing a comparative analysis of the two methods and their impact on financial reporting.

Management
Accounting

Table of Content

INTRODUCTION
Management accounting plays a crucial role in the success and sustainability of
firms by facilitating them to make an effective and profitable strategies which depends
on financial statements which are prepared on annual basis. These final accounts
includes cash flow statement, balance sheet, income statement etc. The financial
manager is held responsible to prepare these accounts thus it can be clearly said that
the role of accounting manager is very much depends on the role of finance manager.
Management accounting includes both monetary as well as non-monetary transactions
which help in making decision at the time of requirement. KEF Limited which is engaged
in manufacturing sector is taken to conduct present study. The report mentions various
concepts such as management accounting and its systems, reporting systems, costing
methods including marginal and absorption, planning tools to control budget and use of
management accounting system in resolving financial difficulties of an organisation.
TASK 1
P1:
Management accounting is related with internal management of an organisation
which considers both monetary as well as non-monetary transactions for the purpose of
taking suitable policies and strategies in order bring out better outcome to company in
near future. It consists of different accounting systems which should be undertake by
KEF Ltd. Here are these systems along with their application and benefits:
Cost accounting system:
Cost accounting is inventing to monitor the costs occurred by the business. This
system is develop to know about all the revenues, costs, and profitability of the
organisation. By adopting this system KEF Ltd. can refining their raw data into usable
data which helps them in decision making, for ascertaining the cost of production, and
the probability of the business. In context of KEF Limited, the manager adopt this
system in their stores (Bennett and James, 2017). This system provide them important
information for financial reporting and decision making. It will help them to know about
their manufacturing cost and service cost and also they can keep their information in the
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accounting records. Moreover, after knowing all the cost and profitability, if they feel that
they should cut their cost from their products then they can do this easily.
Price optimization system
It is a system which helps the company to determine the prices of its goods by
identifying the real buying behaviour of customers while buying company's product.. In
this method a company's needs to set that price which is acceptable by the customers
as well as it will best meet the objectives of the company like maximizing the operating
profit. In the case of KEF Limited, this system tells the actual buying behaviour of
customers towards the pricing policy of company (Garrison and et. al., 2010). In order
to assume the revenue and margin outcome, KEF Limited have to know how prices
changes will effect the customers behaviour towards their products. If the customers is
not satisfied with the price changing policies then company should not change their
prices otherwise their sales start become downfall situation as well as their profitability
also.
Job costing system
This system facilitate in analysing cost incurred in production of specific activity.
This will direct the management of KEF Limited to allocate funds to each activity on the
basis of outcomes received from them in near future. In the KEF Limited , this system
will help their accountant manager use this system to prepare budget for each activity
so that proper allocation can be made and desired outcomes can be achieving within
limited time period.
Inventory management system:
It is reference to that system which tells a company should always keep sufficient
inventory so they do not face problem of insufficient inventory. This system is become
essential for various companies like retailers, wholesalers, and many others. In KEF
Limited, this system is used by them to evaluates the status of inventory availability so
that they can meet their customers needs on time which helps them to maintaining their
brand value and trust towards their company (Gibassier and Schaltegger, 2015). On the
other hand, the management should also concern about the extra inventory because it
prevents the company from loss of spoiling, expiring, theft of inventory. So they needs
to adopt this method in their company, it enable the goods and services flow faster
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which helps them to provide faster products and service to its customers and they able
to compete their competitors also.
P2:
Budget report
A budget report is making essential for every company to recognize the
difference between their esteemed cost and the actual cost during a period. In context
of KEF Limited y, it is mandatory for them to makes this report because it will help them
to know about their organisation condition. This report is used for determining the
expenditure level, cost level, and many others so they can take various decisions
according to that. By this report they can easily compare their estimated budgeted
projection with the actual report (Kokubu and Kitada, 2015). It will help them to know
that what is the reasons behind the differences are occurring in their report and what
they can do for finishing these differences. They can also control on their financial report
as it helps the business to identifies the cost, revenue, profit, loss and also helps in
reducing cost of operation and increase utilisation of resources.
Account receivable report
In this report a company can manage their unpaid invoices and credit memos of
their customers. This report helps the KEF Limited to identifies those customers whose
payments are still pending so they can make their recovery possible by making the
effective plan and strategies. In also assist KEF Limited to made changes in their credit
policies if they want to avoid the bad debtors. These bad debts also have great impact
on their market value and their profitability, so they needs to make those strategies from
they can recover their debt quickly.
Cost managerial accounting report
It is that report which consists all the costs related to the business activities. This
report provide all the details about the cost of each component in respect of production.
It helps the KEF Limited to maintain its balance between the selling price and the
outcome which they received after selling the product. It helps them to preventing the
extra cost from their production so they can invest the extra money to the another
productive activity for earning higher profits and improving their overall performance.
From this report managers can also easily estimate and reduce their extra cost because
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they have clear picture of their production cost report so they does not face difficulties to
find any kind of information (Lukka and Vinnari,2014).
Performance report
This report is created to measuring the performance of a company as well as of
each employee. Management of KEF Limited made this report for identifying their
current performance and to know about the issues and problems which they are facing
in the current situation. This report also help them to make those strategies which is
perfect for achieving their mission. These strategies helps them to take corrective
decision and helps them to solve their issues and problem which they are facing related
to their production so they can increase their profitability and improve their overall
performance (Mokhtar, Jusoh and Zulkifli, 2016).
Benefits of management accounting system
Management accounting system Benefits
Price optimisation system It makes easy for the managers to make a
suitable pricing policy that will easily
acceptable by its loyal customers.
Cost accounting system It assist in setting up margin on their
products and services by analysing overall
cost which are incurred in the activity starts
with production and end with delivery of
customers. targeted customers.
Inventory management system It assist in meeting needs and
requirements of customers on time by
keeping required stock in warehouses. It
helps company in attaining loyalty of
targeted customers.
Management accounting system and reporting integrated with each other
Both these concepts are very much integrated with each other as their common
objective is to achieve predetermined goals and objectives of an organisation within
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limited time period. It can be understood by given example. For example, inventory
management system enable manager to record availability of stock at present time with
company under inventory management report so that decision can be taken whether to
order further stock or not. Another example is that cost accounting system enable
manager to analyse total cost incurring in execution of business process which can be
possible only through budget report that is prepared on estimation basis.
TASK 2.
P3:
Cost: It refer to the money invested in process of completion of different
business practices with a hope of getting maximum amount in return. The manager first
analyses the cost of previous project and accordingly set budget in order to avoid
shortage of funds.
Following calculations of net profitability using both marginal and absorption
costing methods determined the differences in their profits or loss:
(i) Production cost per unit:
Particulars Amount (in £)
Direct Expenses:
Material 12
Labour 20
Other variable production overheads 8
Total fixed production overhead cost =
£120000 (120000/20000) = 6
Use standard volume of 20000 units to
absorb the fixed production overhead cost
Selling price per unit: £60
Absorption Costing = £46/unit
Thus production cost per unit is £ 46.
Particulars Amount (in £)
Direct Expenses:
Material 12
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Labour 20
Other variable production overheads 8
Marginal Costing = £40/unit
Thus production cost per unit is £ 40.
 Total production cost:
Absorption costing:
Particulars
Per
Unit
cost
(in
£ )
Total
amount(in £)
Direct Expenses:
Material 12 18000 x 12 216000
Labor. 20 18000 x 20 360000
Variable pro. overheads. 8 18000 x 8 144000
Fixed overheads. (FO) 6 18000 x 6 108000
Total production
cost 46 18000 x 46 828000
Thus aggregate amount of production cost is £ 828000.
Marginal costing:
Particulars Per
Unit
cost
(in £ )
Total
amount(in £)
Direct Expenses:
Material 12 18000 x 12 216000
Labor. 20 18000 x 20 360000
Variable pro. overheads. 8 18000 x 8 144000
Total production
cost
40 18000 x 40 720000
Thus aggregate amount of production cost is £ 720000.
(iii) Aggregate cost of sales in respect of June:
Absorption costing:
Particulars Amount (in
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£)
Aggregate production cost 828000
Opening stock 0
Closing stock -92000
Aggregate cost of sales for
month of June 736000
Marginal costing:
Particulars Amount (in
£)
Aggregate production cost 720000
Opening stock 0
Closing stock -80000
Aggregate cost of sales for
month of June
640000
(iv) Budgeted profit and loss statements.
Marginal costing method: It is the costing method which enable an organisation
to show more profitability in its financial statement that actual by including only variable
cost and ignore fixed cost. It is mostly adopted by small and medium sized organisation
in order to attract investors.
Absorption costing method: It is the method which facilitate an organisation to
show actual profitability or financial condition in annual reports by considering both
variable and fixed cost. It is mostly used by large organisation in order to retain its loyal
shareholders (Absorption costing, 2018).
Profit and loss account by absorption costing method for month of June:
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Profit and loss account using marginal costing method in respect of month of June:
Preparation of final account after June
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Absorption costing:
Marginal costing:
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TASK 3.
P4:
Budget
A budget is formal document in which include estimated expenses and income
for an upcoming period goals and objectives. Budget is just a written down business
future goals and plans in financial formate. It is a quantitative statement, prepared on
the basis of trends and past experience in the business.
Budgetary control :- It is an activity of finding actual results from budgeted
figures that is prepared for the future time period then comparing the actual
performance with budgeted figures and calculating variances, if any then take corrective
actions at a proper time. It also helps in day to day controlling (Nitzl, 2016).
Flexible budget :- It is also known as variable budget. It means how much
revenue or expenses will change if output changes. It means cost vary with activity or
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