Management Accounting Report: ABE - Financial System & Planning

This report provides a comprehensive analysis of management accounting principles, focusing on Associated British Engineering (ABE), a UK-based company. It explores various management accounting systems, including cost accounting, inventory management, and job costing, detailing their application and benefits for ABE. The report examines different types of management accounting reports, such as budget reports, performance reports, and cost management reports, highlighting their significance in financial analysis and decision-making. Furthermore, it evaluates the integration of systems and reporting within ABE, emphasizing the benefits of management accounting systems, such as price optimization, inventory management, and cost control. The report also delves into planning tools used for budgetary control, comparing how organizations use management accounting to address financial problems. It includes an income statement prepared using marginal and absorption costing, demonstrating the practical application of these techniques. Overall, the report provides a detailed overview of management accounting practices and their impact on business performance, using ABE as a case study.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
ACTIVITY 1....................................................................................................................................3
P1 Management Accounting Systems....................................................................................3
P2. Management Accounting reports.....................................................................................5
M1. Benefits of management accounting system...................................................................6
D1. Evaluation of manner of integration of systems and reporting within process of business
entity.......................................................................................................................................7
P3. Costs using appropriate techniques of cost analysis to prepare an income statement using
marginal and absorption costs................................................................................................8
M2. Correctly use of techniques of management accounting and generate financial reporting
documents.............................................................................................................................11
D2. Interpret Financial reports prepared and data for a range of business activities...........12
ACTIVITY 2..................................................................................................................................12
P4. Explanation of different planning tool used for budgetary control................................12
M3. Analysis of uses of different planning tools.................................................................16
P5. Comparison of manner by which organisations are using management accounting systems
to respond financial problems..............................................................................................16
M4. Analysis of the way in which management accounting lead to respond financial problems
..............................................................................................................................................18
D3. Use of planning tools to respond financial problems....................................................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
Management Accounting is defined as the process of preparing management reports and
accounts which help to collect the relevant information for managers to take any of the business
decision.. It is necessary because it helps to guide each and every employee's for analysing fiscal
data through which goals and objectives can be fulfilled easily. The motive behind any of the
organisation to follow the process of management accounting is simple as it helps to adopt the
changes in most suitable manner. This respective file is based on Associated British Engineering.
It is one of the UK based company which is even listed in London Stock Exchange. The
company manufacture those product which are related with spare parts of diesel engines,
generator sets and many more. Various areas will be covered in this file which will be related
with understanding of management accounting. Different techniques and planning tools will be
included which is related with management accounting. Roles of management is important in
any of the organisation and even in this report financial issues will be solved which come across
the business associations.
ACTIVITY 1
P1 Management Accounting Systems
It is defined as the process of accounting that help to collect the relevant information
which directly helps to deliver better and effective results while taking any of the decision by
management of the company. In any of the business organisation, management system will try
their best to select accounting system which can help to maintain all of the financial transaction
through which daily basis management activities can be managed easily in effective manner. The
best part of management accounting is that it includes both financial and non financial elements
through which decision making process become easy. In context of Associated British
Engineering, they are one of the organisation who have adopted the management accounting
system through which they can improve their performance (Parker, 2012). Management is the
one who have the responsibility to manage and monitor the compliances which have been
applied on the organisation. There are some of the accounting system such as such as job
costing, cost accounting, inventory management and many more which has the direct impact on
the execution of an organisation. Detail information about several accounting system has been
explained below:is mentioned below by considering different accounting system.

Cost Accounting System: It is defined as the accounting system whose major focus is on
analysing the overall cost and expenses of a company. Under this accounting system, manager
have the responsibility that how they control the cost which occurs on daily basis in the
company. In context of Associated British Engineering, it is beneficial for them because they can
easily assess the cost of manufacturing any of the product. Whenever organisation want to
launch any of the new product within the market they are required to take the help of cost
accounting system as it helps evaluate the cost of a product. Even it helps to calculate the profit
margin for the organisation (Fullerton, Kennedy and Widener, 2014). Associated British
Engineering also takes the help of cost accounting to prepare their annual reports which is
required in each and every company for the purpose to find that what is the current position of
company and how well it is performing the market. If in any of the case, the overall cost
increases then it can be easily identified with the help of cost accounting.
Inventory Management System: It is defined as the accounting system which helps to
calculate the opening and closing of stock in an organisation. If company wants to manage its
stock level for proper supply they will need the help of Inventory management system. While
talking about Associated British Engineering, they takes the help of inventory management
system to manage their stock. This management system helps them to calculate accurate number
of stock require for certain time period through which unnecessary cost doesn't occur in
managing the stock in warehouse. Some of the methods of managing the inventory management
system are listed below:
Last in First out: It is the process of managing the stock where latest purchase of
inventory are used and sold in beginning. At present, LIFO method is being applied in most of
the organisation.
First in First out: This method of managing the stock is applied where first bough stock
are being sold in the beginning.
Average Cost Method: In this management style, average cost of an available stock is
calculated and after that stock is being distributed (Soin and Collier, 2013).
Job-costing systems: This form of accounting system is applicable to those organisation
where multiple number of different products are available. Here, cost is classified on the basis of
jobs and batches. Analysing can be easily done for improving the weaker areas in future. In
context of Associated British Engineering, variety of product are available due to which it never

becomes easy for any of the organisation to manage the product and for that job costing is the
better option which is available with the company. There are some of the methods under job
costing that can be used by the company and they are explained below:
Batch Costing: This is the method of costing where batches are required to be divided by
manager so that accurate cost of an single unit can be easily calculated. Small and larger units
which have similar form of unit can be easily found in this batch costing.
Process Costing: Here, overall cost of an process is required to be process and in this
method cost is calculated on the basis of process rather then taking the help of batch.
Price-optimisation System: It is defined as the decision making process which is used
by different organisation to find that how well customers are reacting to various prices of the
product and services which they provide. It is helpful in finding the best price where organisation
has the maximum opportunity to earn profit. (Contrafatto and Burns, 2013).
P2. Management Accounting reports
Preparing a management accounting reports is essential for every business as it gives an
idea about their performance. These reports are designed for comparing the actual performance
of the organisation to the standard that has been targeted. These reports are being prepared on a
continuous basis through out the accounting and bookkeeping period as per the needs and
requirement of the organisations. There are various types of accounting reports which the
company like Associated British engineering needs to prepare :
Budget reports : These are the reports which serves as a blueprint to the organisation for
their objectives. It is the report which is prepared on the basis of past experience and is used to
measure the performance of the organisation. It would help the business of Associated British
engineering in comparing their performance and controlling the expenses that incurs during a
financial year. These reports will also help the business in determining their future financial
status and conditions and will also predict the expenses that are going to be incurred in near
future (Taipaleenmäki and Ikäheimo, 2013)..
Performance reports : These reports have been designed to measure the performance of
something. It is done for evaluating, analysing and identifying the performance of the
organisation and its employee. This will help in establishing significant standards and target for
the organisation . This would help Associated British engineering in measuring the performance
in the organisation and would compare it to the targeted standard. In addition, it will also allow

the organisation to formulate strategies which can maintain the effectiveness and efficiency of
employees etc.
Inventory reports: These form of report is prepared to identify the amount of stock
available with organisation. Tracking of real time inventory movement is hard task for large
corporates .This would also support the business of Associated British engineering in evaluating
the amount of stock the company holds and are scarce to them so that they can utilize the
inventory in an appropriate manner to achieve the objectives of the company (Chenhall and
Moers, 2015).
It will also allows them to analyse the cost and prices for maintaining the level of inventory
within the firm and would also support them in tracking the in flow and out flow of inventories.
Cost managerial accounting reports: This report is prepared to know the expense that
have incurred due to the activities of manufacturing. This would provide them with the
information that how much amount has been invested in carrying out the business activities.
Associated British engineering will use this report for analysing the activities that are profitable
for the company and would also focus on controlling the cost that unnecessarily affect the
working of the organisation so that the goal of the firm can be achieved within a given span of
time.
Account receivable reports : These reports are the critical tool for managing the
business. It includes the awaited payment that is due from the customers and the period of time
the amount has been obscure. This reports gives an information to the organisation about all the
customers whose amounts are due. It would help the business Associated British engineering by
assisting them to know whether the finance department of the organisation is collecting
receivables slowly, their policies and short term objective that the company seeks to achieve.
This report will provide the company with the detail of customers number, address , due dates,
amount etc.
M1. Benefits of management accounting system
It is said that when any of the organisation takes the help of management accounting
system then they can easily take the competitive advantage in the market as every actions are
being taken as per the process of planning. Associated British Engineering is also benefited
because of management accounting system as they are able to take best possible decision for
organisation. Some of its benefit are listed below:

Price Optimisation System  It is the system which is helpful for organisation in
selecting the suitable price for the purpose of
increasing overall profit margin of the company.
 Even it is helpful in collecting the data that what are
the expectation of customer from the organisation.
Inventory Management System  This can easily reduce the problem of maintain the
stock within the premisses of organisation.
 This management system can be beneficial as it saves
time time, money and even energy of the organisation.
Cost Accounting System  It is helpful in ending the unnecessary cost of an
organisation (Cadez and Guilding, 2012).
 It can easily help to find the changes in trend of the
cost within the organisation.
Job Costing System  Estimation cost can be easily found with the help of
calculating past results obtained through job costing.
 Here, employee's do have the option get different
rewards as per the work done by them.
D1. Evaluation of manner of integration of systems and reporting within process of business
entity
There are number of accounting system is available in management accounting for ex:
inventory management, cost accounting and many more. This all are interconnected with the
preparation of accounting reports which can be beneficial in taking any of the business decision.
It is helpful in solving any of the complex situation with the help of prepared reports. Even
Associated British Engineering have handed the responsibility to its financial department whose
major work is focus that how they can reduce the overall cost of an product in best possible
manner.

P3. Costs using appropriate techniques of cost analysis to prepare an income statement using
marginal and absorption costs
The cost refers to that amount which has to be paid in order to get something. In a
company, cost can be described the amount which they expand on produce of various goods and
services. There are various type of cost which are described below:-
Marginal costing method: It is the process or method which is being used the
organisation to prepare different statement of organisation such as profit and loss statements,
income statement etc. Here, major role is being played by the accountant of the company who
have the responsibility to classify the expense on the basis of fixed and variable cost. It is said
that accountants have to not consider the fixed cost as it is assumed that fixed cost do remain
same for certain period of time (Herbert and Seal, 2012). While talking about variable cost, price
do change as per the changes seen in additional amount of input unit. It do have the direct impact
on net profit of an organisation.
Absorption costing method: It is the method of accounting which is more suitable for
those organisation which performs business activities at a greater platform. Here, fixed cost is
always shown within production cost (Absorption costing, 2018).
ANNEX (A)
Income statement by marginal costing method:
Particulars Quarter 1
Product A
Product
B
Sales 2566500 1440000
less: unit variable costs
Direct materials 935250 320000
Direct labour 391500 480000
Prime cost 1239750 640000
less: Variable production overheads 108750 80000
Contribution 1131000 560000
less: Fixed costs 410000 410000
Total profit/loss 721000 150000

Particulars Quarter 2
Product A Product B
Sales 1003000 1719000
less: unit variable costs
Direct materials 365500 382000
Direct labour 153000 573000
Prime cost 484500 764000
less: Variable production overheads 42500 95500
Contribution 442000 668500
less: Fixed costs 482000 482000
Total profit/loss -40000 186500
Working note:
1.
Total variable cost per unit 51.5
COGS
Production cost 257500
Less: closing stock -25750 231750
2.
Per quarter standard production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 68200
absorption 6800
Income statement by absorption costing method
Particulars Quarter 1

Product A Product B
Sales 2566500 1440000
less: Cost of sales
Opening inventory - -
Direct materials 935250 320000
Direct labour 391500 480000
Variable overheads 108750 80000
Fixed costs 410000 410000
less: Closing inventory -650 1844850 -4000 1286000
Gross profit/loss 721650 154000
Particulars Quarter 2
Product A Product B
Sales 1003000 1719000
less: Cost of sales
Opening inventory 650 4000
Direct materials 365500 382000
Direct labour 153000 573000
Variable overheads 42500 95500
Fixed costs 482000 482000
less: Closing inventory -3500 1040150 -2900 1533600
Gross profit/loss -37150 185400
Working notes:
1.
Total variable cost per unit 51.5
COGS
opening stock 25750
Production cost 303850
Less: closing stock -149350 180250

2.
Per quarter standard production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 80476
absorption -5476
ANNEX (B)
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72

Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
M2. Correctly use of techniques of management accounting and generate financial reporting
documents
It is necessary for any of the organisation to adopt the correct technique of costing to
calculate the profit for the organisation from the prepared financial statements (Morales and
Lambert, 2013). In this particular file, Associated British engineering takes the help of
absorption costing, marginal costing and even some of the other method of costing and that is
helpful in calculating the appropriate amount of profit and even that can be compared with the
prepared budget. Marginal costing and absorption costing are the two different method of
calculating the net profit and gross profit. Marginal costing consider variable and fixed
overheads and in comparison absorption costing direct focus on the point that what can be selling
price of any of the product.
D2. Interpret Financial reports prepared and data for a range of business activities
After the preparation of financial statement it can be seen that results which has been
obtained are different form each other as both of them have unique way of doing the calculation.
The results which were found in marginal costing is that the net income is 721000 and 150000 in
A and B while talking about Q2 it has been seen that answer is in negative for product A i.e.,