Analysis of Management Accounting Systems and Reporting for KEF Ltd

This report examines management accounting (MA) principles and their application within KEF Ltd, a manufacturing company. It begins by defining MA and its importance in business decision-making, then explores various MA systems such as cost accounting, inventory management, and job costing. The report analyzes different types of MA reports, including budget, sales, performance, and inventory reports, along with the integration between MA systems and reporting. It then delves into MA techniques, comparing marginal and absorption costing to determine net income. The report includes calculations and interpretations to show the benefits of marginal costing. Finally, it discusses various budgetary tools such as cash budgets. The analysis provides insights into how KEF Ltd can leverage these tools for effective financial management and decision-making.

BUSINESS

INTRODUCTION
MA is a concept which assist organization in creating statement and various other papers
and documents assisting the managers of company in making effective decisions (Cooper,
Ezzamel and Qu, 2017). MA helps the business organization in making effective decision as this
will assist the business organization in recording and analysing of all the different types of data
and information. Ongoing study is grounded on the KEF Ltd which is a company in the
manufacturing industry and was founded in 1961 and deals in loudspeakers, iPod speakers,
headphones and many other related gadgets and equipment.
The present study will initiate with the discussion over the different system of accounting
for management and with it the different types of report for MA will be analysed. After this the
different types of techniques like absorption and marginal costing will be used to calculate the
cost and then prepare income statement. Further the various advantages and disadvantages of the
different types of tools for planning will be analysed. At the last the use of different system of
accounting for management will be used to analyse that how it assists in dealing with financial
problem.
LO 1
MA and requirement of different MA system
MA system
MA is referred to as concept which assist business organization in managing the decision
making for the business keeping all the financial information as a base and data being in use.
This is essential because of the fact that if the financial information will not be in good condition
then this will have a great impact over the working for the business. accounting for managers is
required by the business as this helps in rising working capacity of business. For using this
branch of accounting there are different types of system of MA system which KEF Ltd can use
in order to manage the accounting system.
Cost accounting system- the type of system wherein KEF ltd uses the systme of
accounting for cost in which the business allocates to all the business activities so that the cost
can be calculated in easier manner (Maas, Schaltegger and Crutzen, 2016). this sytem of cost
accounting is a framework through which the business organization estimates the cost of

producing the goods and services. This is essential that with every activity of production some or
the other cost is attached and it is essential for the company to appropriately measure it.
This is applied within the KEF ltd as the cost is very essential to be analysed and
calculated as this will only help in assessing the overall profit being earned by the business
during the normal course of business that is one financial year.
Soderstrom, Soderstrom and Stewart, (2017) states that the major benefit of using this
cost accounting system by KEF Ltd is that this assist the business in assessing the whole cost
incurred by the company and in against of that how much profit has been earned. Also, this
system assists the company in managing the overall accounts of the company and this will assist
the company in managing the activities which are not working in proper manner.
Inventory management system- this is an important type of MA system wherein the
company manages the whole process of inventory and manages the time when it comes in and
when it is finished and need to be reordered. This is very essential system as if the inventory will
not be available on time then this will affect the working of whole production process.
This system is applicable in KEF Ltd as here the company places the order for the
inventory and then they use that inventory for the production. For this the system used by KEF
Ltd is economic order quantity which is a model which assist the company in managing the
inflow and outflow of the inventory.
In the views of Qian, Hörisch and Schaltegger (2018) inventory management helps in
order the inventory automatically as the level of inventory reaches to the specified level. The
main benefit of this system is that this reduces the carrying cost as now the company has not to
store the raw material as they will come as and when there is requirement.
Job costing system- this is yet another necessary system under the MA system which is
helpful for the company. Under this system the process of accumulating the information relating
to different types of cost for the different types of job or activities under the whole production
process. This includes the cost levied on all the different jobs that is like material, labour,
overhead and other activities.
The major application of this system for KEF Ltd is that this assist the company in
differentiating the cost of each of the activities (Chiwamit, Modell and Scapens, 2017). This is
important because of the reason that this will help company in bifurcating the cost of each and
every activity on basis of the job being performed by them.

As per the opinion of Qian, Hörisch and Schaltegger, (2018) the major benefit of using
job costing system is that this will help the company in calculating the cost for each of the job
individually. Thus, the job which is not working in the intended manner can be improved and
which are going good can be maintained to be good.
MA reporting
The report is referred to as listing out of all the relevant information in the single report
so that that it can be analysed in the good and effective manner. Thus, the reporting is referred to
as collecting and recording of information which are similar and are included in the same place
so that it can be analysed in proper manner. These report assist the managers of company in
taking the decision in effective manner. The different types of reports which can be prepared by
the KEF Ltd are as below- Budget report- it is a type of reporting which is prepared by KEF Ltd in order to make
record all the estimated income and expenses and this will assist the business
organization in knowing every detail of the income and expenses of company. This assist
the business organization in estimating the income and expenses and how it will have
managed in the same manner as it is estimated in the budget report. Sales report- it is another type of reporting system which is being used and made by the
company for managing the work and income of the business. This report is essential
because of the fact that if sales will be more than the income for the company will be
high. Also, if the report will be made then the company will have proper knowledge that
at which time the how much sale happened. Performance report- it is another type of reporting system which is helpful for the
company in managing the performance of the employees working for the business
organization. This report is very essential for the company and its profitability as if the
performance of the business will not be good then the overall working efficiency of the
company will decrease. Thus, this report includes the recording of the performance of the
employees and how well they are working within the company. Inventory report- it is other important type of report which is very essential for the
company in managing the business of the company (Ameen, Ahmed and Abd Hafez,
2018). Under this report all the entry of the inventory or the stock is made so that the
proper inflow and outflow of the inventory can be recorded. This is necessary as this

report will help KEF Ltd in managing the fact that when the inventory came and at what
rate and how this will be managed and again at what level the inventory need to be
replaced.
Integration of MA system and MA reporting
Dearman, Lechner and Shanklin (2018) states that the MA system and the MA reporting
are integrated as on the basis of the MA system only the MA reports are prepared. This is
majorly pertaining to the fact that when the MA system calculates all the figures then only report
is being prepared on the basis of the calculation done under the MA system. In against of
Endrikat, Hartmann and Schreck (2017) argues that for instance the inventory management
system is being followed by the company then it means that here the inflow and outflow of the
inventory will be calculated and this then will be recorded in form of the report. Thus, both these
aspects are integrated to one another and if there is problem in the MA system then the MA
reporting will also be not made in proper manner. In respect of the chosen organization that is
KEF Ltd the company uses both the MA system and the MA reporting. This is essential because
of the reason that when both the system and reporting are used in together then KEF Ltd will be
able to manage the business in more effective manner. This is due to the fact that when the MA
system assist company in managing the business and reporting assist the company in recording
these transactions so that it can be use in the future as well.
LO 2
Calculation based on MA techniques
There are two different type of method which can be used to determine the net income of the
organization i.e. marginal costing and absorption costing.
Marginal costing is the costing tool in which the variable cost of the company is charged
from the different unit of the cost at the same time the fixed cost of the period is completing
written off against the contribution which is generally made in the organization. Marginal costing
in the organization used to help the company in determining the profitability at different level of
production and sales in the organization.
At the same time the absorption costing system in the organization used to calculate the
different cost associated with the manufacturing of the product to determine the income of the
company.

Absorption Costing Formula:
Direct Cost = Direct Material + Direct Labour.
Production Overhead Cost = Variable Manufacturing Overhead + Fixed Manufacturing
Overhead.
Income as per both the costing system is as follows:
Calculation (attached in appendix)
Interpretation: After going through the net Income derive from both the tool it has been
identified that using marginal costing will be the better option as compare to the absorption
costing system in the organization. As result shows that net income derive for first quarter with
the help of marginal costing is loss of 8750. At the same time absorption costing system also
show the loss of 7493 for the first quarter. At the same time net looking at the second quarter
income it has been identified that net loss in second quarter with the help of absorption cost is
loss of 6791 but marginal costing at the same time shows the profit of 5450. So from the above
data it is very much clear that using marginal costing will be one of the beneficial decision of the
organization in the long run. Main reason behind the same is not inclusion of fixed cost of the
company at the time of finding out the income of the company in the market.
In simple words the marginal costing system in the organization used to consider both
Fixed as well as variable cost at the time of driving an income at the same time Absorption
costing used to look at fixed and variable cost both together in the organization this eventually
used to bring difference in the outcome of the net profit.

LO 3

LO 3
Efferent kind of Budgetary Tool
Cash budget: this is a kind of planning tool in which estimation of the cash inflow and
cash outflow within the working of firm. This is a very good planning tool as this assist the firm
in planning all the variant income and expenses which the firm can incur while working within
the firm. This is a planning tool as this assist KEF Ltd in measuring the estimated income which
can be earned during a financial year and the estimated expenses which can be incurred during
the financial year. This is a planning tool as this cash budget will crucial support KEF Ltd in plan
all the activities of the business in such a manner that the income and expenses are incurred as
per the planned budget only.
Advantages
The major advantage of this cash budget is that this reduces overspending as this will
assist the firm in managing all the expenses which the firm can incur and this gives knowledge to
the firm that where they can limit the expense.
Another advantage is that this is very to make and understand and this requires no
additional cost to make the cash budget (Malina, M. A. ed., 2018).
Disadvantages
The major drawback of this planning tool is that there is chances of theft as the budget is
prepared in form of document and these document can be misplaced or even stolen by others.
Another drawback is that this budget is based on the estimation which can sometimes be
wrong. This is due to the fact that the future cannot be estimated and the future changes might
affect the cash budget.
Operating budget: Operating budget is the kind of budget which show variant kind of
expenses, cost and income on the relation of quarterly or the annual performance of the firm.
Operating budget generally crucial support the firm in understanding the position of the business
on the relation of the same variant planning is perform in organization. There are many variant
kind of advantage and disadvantages of operating budget (Maskell and et.al., 2016).
Advantages

Operating budget in cited firm provides the crucial support the firm in ascertaining the
current as well as future expenses which may occur, these crucial support firm in improving the
level of planning.
Operating budget in cited firm provides the crucial support the firm in building good sort
of financial reserve in cited firm. As operating budget crucial support firm in improving level of
investment and planning toward unforeseen circumstances.
organization
Disadvantages
Biggest disadvantage of operating budget is that it include the variety of the variant kind
of assumption which are made in cited firm in context of finding out the future expenses in cited
firm.
Another disadvantage in regards of operating budget is that it heavily depended upon the
past performance of an individual.
Fixed Budget: Fixed budget is the kind of the budget in cited firm who does not change
with the change in the volume in cited firm. Volume here can be sales or unit of produce item in
organization. Fixed budget crucial support the firm in getting the fixed standard on the relation of
the same variant plans are made in cited firm.
Advantage
Fixed budget in cited firm generally crucial support the firm in measuring budget of an
organization. As fixed budget in cited firm provides the crucial support the firm in allocating
variant amount toward variant overhead.
Fixed budget in organization, also crucial support the firm in measuring the performance,
as fix amount of budget is generally allocated all the month which ultimately crucial support the
firm in measuring the performance of one month with the another month (Messner, M., 2016).
Disadvantage
Biggest dis advantage of using Fixed budget in cited firm is that it reduce the amount of
flexibility in organization. This ultimately impact the efficiency of variant operation reason
behind the same is that no new resources can be allocated once budget has been made in cited
firm.

Fixed budget in cited firm reduce the amount of innovation as variant budget in cited
firm are generally based upon the previous performance of the firm. This get difficult for the
firm in bringing any sort of the changes once the budget is preparing.
Flexible Budget: Flexible budget is the kind of the budget which generally change with
the change in the volume of the production done in cited firm. This budget change continuously
as variable rate change instead of any one fixed total amount in cited firm.
Advantage
Flexible budget in cited firm provides the crucial support the firm in bringing and
managing variant changes very easily in cited firm. Reason behind the same is that organization
consider the changes throughout the operation and make changes in the budget.
Flexible budget also crucial supports the firm in getting ready with the idea of managing
seasonal expenses as well as it provides the crucial support the firm in adjusting all the seasonal
expenses as well in cited firm (Mills, D., 2018).
Dis advantage
Constructing a Flexible budget in cited firm is more complex function as compare to
making of any other kind of the budget in cited firm.
It gets difficult for the firm in measuring the performance as there is difference in budget
of two periods in total.
Variance Analysis
Variance analysis is the quantitative investigation of the difference between actual and planned
behavior. For example
Particular Budgeted Actual Variance
Labour 10000 9500 (500)
Sales 9000 10000 1000

LO4
Comparison between variant firm adopting management accounting system
There are many variant kind of measuring tool which are used by the organization to measure the
performance of the business in the long run. Some of the measuring tool are as follows:
Benchmarking Tool: It is the measuring tool in which the organization set up the
variant standard beforehand itself and on the relation of the same compare the same with the
actual performance of the firm to measure the direction in which the performance of the business
is going forward and on the relation of the same they find out the deviation and try to overcome
same deviation. The benchmarking tool assist the firm in comparing the financial problem with
that of the other competitors. Thus this will assist KEF Ltd in analysing how the competitor has
dealt with the problem and in the related manner KEF Ltd will also try to solve the problem.
KPI Tool: KPI tool is the kind of benchmarking tool in cited firm in which variant key
performance indicator, it generally means a key activity of the organization which need to be
consider by the organization and on the relation of the same variant activity of the organization is
planned (Otley, D., 2016). This is used by KEF Ltd for solving the financial problems as a
measuring tool which generally crucial supports KEF Lts in improving the level of focus of the
firm on to the key area of the firm and crucial support the firm in improving level of variant
activities efficiency.
Balance scorecard: Balanced Scorecard in cited firm provides the crucial support the
firm in communicating what are variant things which they are trying to accomplished. This is the
measuring tool in cited firm which align the variant day to day work that everyone is doing with
their strategy in cited firm. The tool of balanced scorecard assist KEF Ltd in prioritizing project,
product and service and then whichever is at priority is done first and this assist the firm in
managing the performance.
Financial Governance: Financial governance is a measuring tool which crucial support
the firm in finding out the way through which firm can collects, manages and monitor variant
kind of financial information. The tool of financial governance crucial support firm in dealing
with financial problem involves the analysis of the way firm can track the variety of variant
financial transaction and crucial support in managing performance and control variant sort of the
data in cited firm (Quattrone, P., 2016).