Management Accounting Report: LVS Small Plastic Parts Analysis

This report delves into the realm of management accounting, focusing on its significance in the business world and its practical applications within LVS Small Plastic Parts Ltd. It begins by defining management accounting and its role in aiding crucial business decisions. The report then explores various management accounting systems, including inventory management, cost accounting, price optimization, and job costing systems. Different methodologies like cost accounting reports, performance reports, budget reports, and inventory management reports are discussed. Furthermore, it provides an in-depth analysis of costing techniques, such as marginal costing and absorption costing, to prepare income statements. The report also covers material cost variances and the advantages and disadvantages of different planning tools. Overall, the report emphasizes how management accounting systems respond to financial problems, offering a comprehensive overview of the subject.

Management
Accounting

Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
P1. Management accounting systems.....................................................................................3
P2 Different methodologies used in management accounting reporting;...............................5
TASK 2......................................................................................................................................6
P3 Appropriate costing techniques to prepare income statement...........................................6
TASK 3....................................................................................................................................10
P4 Advantage and disadvantage of different types of planning tools..................................10
TASK 4....................................................................................................................................12
P5. Management accounting systems to respond to financial problems:.............................12
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................14

INTRODUCTION
In business world the concept of management accounting is defined as the systematic
approach that collect, analyse, report crucial business operations so that essential decision are
made by management in order to grow entire performance and profitability of business
(Abdelmoneim Mohamed and Jones, 2014). To better recognise the importance of
management accounting LVS Small Plastic Parts Ltd is selected which is a client company of
Aon Consulting. Company use to manufacture plastic product that are further used in
producing essential goods.
The reports cover importance of management accounting, different types of report and
system that are helpful in dealing with various financial problems. In this report several
costing techniques are used to calculate net profit for the year. In Addition, advantages and
disadvantages of planning tool and benefits of management accounting in dealing with
various financial problems are defined in detail.
TASK 1
P1. Management accounting systems.
Management accounting systems are the methods used to process, collect, gather,
analyse, report and evaluate meaningful business information in order to make effective
decisions regarding the use of the funds of any organization. Each kind of financial and non-
financial information is presented in a way that help managers to estimate budgets, plans
accordingly with the business objectives, and also permit them to be focused on the analysis
of business activities in order to fulfil those objectives. There are different kinds of effective
management accounting systems that support the decision making process and improve
overall the productivity of company and also provide essential guidelines so that entire
strategy can be helpful to attain the desired objective. Some of these in the context of LVS
Small Plastic Parts Ltd are discussed below:
Inventory management system: One of the most crucial system for manufacture
company as it help to maintain a valid record of inventory company holds during a specific
period. This system aids manager of company to forecast stock, materials tracking, automatic
reordering etc. It is recycled for defining goods accessible through whole supply series along
with business processes events (Bloomfield, 2015). In respective company manager use this
system to keep a valid record of entire inventory available during a period. This helps them to

produce goods accordingly and make order for raw material in case of shortage of good. This
system also benefits them supporting required inventory, real time movement and various
kinds of inventories essential in achievement of customer demands. Furthermore, this system
also assess the management to keep a close control on raw material so that they can be
effectively utilise to increase manufacturing. It also help to record the waste generated while
producing useful product and make startegies to control excess wastage.
Cost accounting system: In large or small companies it is essential to maintain an
authentic record of overall cost included in maintaining inventory, cost utilised in production
process etc. thus cost accounting system is very much essential. Approximation of definite
cost is very essential for any industry as it support to calculate overall profitability of
business. It includes events founded on accepting, recording, examining, grouping and
summarizing costs related with valuable goods and services. In LVS Small plastic Part Ltd
cost accounting system is useful to calculate the total; cost included in running different
production operation, cost incurred of workforce and other miscellaneous cost. This further
useful to calculate and measure the entire profitability of business and in case of any miss-
happening improvement are made to attain desired results.
Price Optimisation system: It is also consider an important system, used by
companies that help to analyse the perception of customer in respect to price of different
goods offered by company. With the support of price optimisation system manager are bale
to calculate the best possible price of their goods that will attract large number of customer
and support them, top maintain desired profit. In LVS Small plastic Part Ltd to increase the
sales figure manager first use this system to analyse the entire cost utilised on producing a
specific product so that they are able to fix the best price of product. Suitable price help
company to attract more number of customer which directly increase the profit of company
and make enough funds to reach the desired target (Bagautdinova, Kundakchyan and
Malakhov, 2013).
Job costing system: This system is used for accumulation of information related to
cost associated with particular job or service. In LVS Small Plastic Part Ltd this system is
beneficial to determine the expenses related with particular job involved in production
process and other department. Job costing system is set of resources used to measure, control,
and make decisions about the specific investment or amount of funds needed to accomplish a
specific activity which can be very more or less complex.

P2 Different methodologies used in management accounting reporting;
Cost accounting report: Companies are not able to maintain desired profit unless
and until they have an accurate record of total cost involved in entire financial and non-
financial operation. Cost accounting system is a method this related with gathering,
examining, grouping and posting important cost related traction into accounts so that compete
cost can be calculated. In LVS Small Plastic Part Ltd this report maintain a detail record of
total cost company use on producing plastic goods, cost related with depreciation, rent, wages
etc. so that actual earning can be calculated and future cost reduction decision are made.
Performance Report: It is very crucial to analyse and evaluate the performance of
different operation, business dealing and worker as it support to make possible changes in
order to increase entire performance of company in upcoming year. Performance report are
mainly maintained by every kind of organisation in order to fix few measurements which
further support to accomplish objectives and compare the victory of consequences in relation
to the capacities (Bargate, 2012). In respective firm this report is used to evaluate and
measure the total performance of every project and performance of employee. This supports
them to increase the efficiency and capability of company by making suitable changes for
better results. This technique helps in supervisory the price and handling the staff.
Budget Report: Budget are effective techniques that help companies to execute the
business operation in desired manner so that budgeted target are meet and profit margin are
attained. Manager use this report to make proper estimate of total expenses that are related
with different operations and total income that can be generated so that profitability can be
maintained. Basically manager of LVS Small Plastic Parts Ltd this report use to include every
variances and reasons of variances among budgeted outcomes and authentic results related
with different operation company during a year. This process benefits the association in
figuring out the mistakes in budget, balances in budget and adjusts the cost and adverse
alterations. It also supports the manager to make sure that each resource are utilise in definite
manner that gives favourable results.
Inventory Management Report: This report is very much crucial for company as it
aid to maintain the total inventory hold during a year. Inventory management report covers
essential detail of total raw material available in warehouses, goods in transit and finished
products ready for sales. Therefore, managers are required to maintain an authentic record of
goods as they are the main source of income for company. In this context of client company

manager are required to maintain a valid record of total raw material present in storehouse
that is ready to be use in producing valuable product, total goods that are already in transit
and actual manufacture goods which are ready for sales that use to generate income and
increase profit margin. Thus the actual greatest way to keep the stock aid to path the
accessibility of the goods, reduce the cost of storing goods and take advantage of the
profitability, mechanize the addition between the various departments and attain a high
cheerful customer base.
TASK 2
P3 Appropriate costing techniques to prepare income statement
Marginal Costing: This is consider being an effective and mostly used costing method
that is used to calculate the total cost included by company on producing an additional unit of
output. It mostly highlights on methodical sorting of expenditures into fixed and variable.
Once the total cost are classified than contribution per unit is used to be calculated by
allowing only variable manufacture expenses and the fixed cost are accused as period costs.
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000

Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Absorption Costing: This method is also known as historical costing methods that
use to include every type of expenses that are linked with producing a specific good of
company. So it uses to consider all fixed or variable cost (Demski, 2013). Most of the
company use to applies absorption costing techniques as it include each cost so net profit are
more accurate for a particular time.
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock

D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80

Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75

Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000
05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £
3.75 each 20 3.75 75. 49 3.4427 168.6923
05/23 Issued 10 units 10 3.4427 34.4270 39 3.4427 134.2653
05/27 Issued 25 units 25 3.4427 86.0675 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.2135 9 3.4427 30.9843
TASK 3
P4 Advantage and disadvantage of different types of planning tools
Budget: It is simply related with projection and is mainly prepared by companies to
predict overall performance in future. Manager of company makes several types of budgets in
order to critically assess the real performance of within a year. The use to look on the past
happening and make budgets for future and take valuable decision for present time so future
estimation is attained easily. In respective firm manager use to make effective budgets that
help in performing current business activities with more concentration and efficiency that
support to accomplish the desired goals. There are number of crucial budgets that are
prepared by LVS Small Plastic Part Ltd within a year that are defined below:
Cash Budget
Cash budget are mainly formed by manager of company to plan the future sourcing
and use of liquid monetary resources of the business. With the help of this budget they are
able to estimate the total requirement of cash in running different business operation and
predicted amount that is going to be earned by company during a particular time frame. As
name suggest it only includes cash related dealing of business organisation so that valuable
decision are made in respect to cash. In respective company cash budget is basically prepared

to classify and recover the weak areas of business due to which there is huge and negative
cash flow. In company cash budget is set department-wise and there are various advantages
and disadvantages that are defined below:
Advantage:
 It benefits company to track the movement of overall cash arrivals and discharges that
maintain effective cash management.
 It supports company as cash budget accumulates funds for upcoming possibility so
that operation can be managed and controlled well and it also helps to prevent any
lack of liquidity.
Disadvantage:
 This budget uses approaches that are many time manipulative and do not relates with
the cash transaction of company.
Operating Budget
These type of budgets are set by companies that are related with total income and
expenses related with operation during a specific year and if company are able to maintain
profitability then they may continue using this budget. Operation budgets covers
approximation of revenue and expenditures apprehensive with operating functions of with
company (Malinić and Todorović, 2012). This budgets are most useful for manufacture
company has the manager use this budget to calculate the total expenses incurred on
production activities and actual income received by company through these operation. Some
advantages and disadvantages are discussed below:
Advantage
 Managers in LVS Small Plastic Part Ltd use this budget to organise and control day to
day operations and measure total income.
 It also assists company in improving and weak area of operation so that it provides a
foundation for overcoming from such weakness.
Disadvantage
 This budget is set usually on everyday basis so it require specific team to look which
increase liability of company (McLaren, Appleyard and Mitchell, 2016).

Master Budget
It is most applicable and widely used budget by companies as it includes all other
budgets. A master budget is mainly used by respective firm for assessment of mutual and
entire performance by seeing all financial and accounting aspects of business. This budget is
use to take crucial decision related with manufacturing and other activities. Some advantages
and disadvantages are discussed below:
Advantage
 It is used to classify any possible monetary occasion that may make danger for
company in upcoming time.
 Master budget also aid respective company to make effective co-ordination among
various product sections so important decision are made.
Disadvantage
 Master budgets are depended on specific assumption that might not be accurate in
different situation of business.
TASK 4
P5. Management accounting systems to respond to financial problems:
Financial problems are faced by companies at different phases of entire business
activities so they are required to make proper planning in order to recuse the impact of these
problems. There are various financial problem that are faced by LVS Small Plastic Part Ltd
are related with Lack of liquid funds and special order. Thus it reduces the overall
performance and profitability of company.
In order to determine and overcome these problem different management accounting
tool are used by company that are discussed below:
Benchmarking: In respective company this tool is used to measure and compare the
performance with other companies dealing within same industry or companies that are
operating in different operations. With the help of this tool manager are able to determine the
problem of Special order.
Key financial indicators: This is related with positive measures that assist firm to
assign financial areas and resolve financial problems. It is related with analyse and evaluating