Management Accounting Report: Techniques, Costing and Reporting

This report, prepared for 4Com PLC, delves into the core principles of management accounting, emphasizing its crucial role in business prosperity and sustainability. It outlines the responsibilities of a finance manager and the tools employed by management accountants to enhance operational effectiveness. The report explores various management accounting tools, including inventory management, cost accounting, pricing optimization, job costing, and batch costing systems, to determine the most cost-efficient methods. It examines the importance of management accounting reporting, methods used, and the impact of internal and external factors on decision-making. The report then focuses on different costing techniques, such as absorption costing and marginal costing, highlighting their differences and applications. Furthermore, it analyzes planning tools used for budgetary control, discussing their merits and demerits, and explores how management accounting systems can address financial challenges. The report aims to provide a comprehensive overview of management accounting practices to improve 4Com's financial performance and sustainability.

MANAGEMENT
ACCOUNTING

Table of Contents
To: Management account officer.....................................................................................................1
From: General Manager...................................................................................................................1
Subject: GM covering management accounting and management accounting system together
with different costing techniques and reporting to enable the organization to implement them.....1
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
P1: Management accounting and its essential requirement:...................................................1
P2. Methods used for management accounting reporting:.....................................................3
P3: Computation of net income by using various costing techniques:...................................4
P4: Merits and demerits of planning tools used for budgetary control process:....................7
P5. How management accounting systems to respond financial problems:.........................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

To: Management account officer
From: General Manager
Subject: GM covering management accounting and management accounting system together
with different costing techniques and reporting to enable the organization to implement
them.
INTRODUCTION
Management accounting is the foremost method which is used in the firm to make business
prosperous and sustainable. A finance manager is held to be the responsible for handling various
firms activities and finance in an effective manner. The management accountants are the
professionally qualified candidates who use such tools within the firm in order to make their
business operations effective (Kotas, 2014). Under this report, various management accounting
tools are going to use in order to ascertain the tool which would be most efficient in terms of cost
that would lead to make business operations effective. 4Com adopts various tools to manage and
maintain their operations. Accountants also determines which method can sustain the
profitability in a great manner. This project also elaborates about how firm will use budgetary
process in order to control their cash flows and other operating expenses for managing their
financial statements. Various tools for budgetary, advantages and disadvantages are used under
this.
TASK
P1: Management accounting and its essential requirement:
MA reporting is the combination of financial and non-financial information which can be
used in order to demonstrates useful information for top management. This is accountable for
making an effective decisions for the betterment of a firm (Morales and Lambert, 2013).
Management accounting reporting plays a most important role for delivering essential
information to the management of the firm. This is wider than the financial accounting as this
covers overall management related information in its report. There is no such outline given by
any of the regulatory body within which MA reports can be made. Management accountants
while preparing the reports,must consider various stakeholders interest that could be used in
order to make their business operations defectiveness. With the help of this report, company can
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improves the effectiveness which is useful in order to get the sustainability. The main objective
of forming this report is to use firm's limited resources in a most efficient manner. It is most
effective tool that can be used in order to identify total cost incurred by the firm in manufacturing
goods and services. MA is the main components of planning process which renders the correct
way for manufacturing products or services. Although, management of the 4com plc always tries
to have more profits from its limited resources by applying adequate techniques. Although, firm
needs to incur major amount of money in order to attain their targets which is consistently
regulated and managed by accountants by ways various techniques. These techniques are used in
order to control costs and eliminates wastage of costs at the time of production process (Dillard
and Roslender, 2011). There is a duty of the accounting officer to adopt an accurate measures
firms financial related transactions. 4Com plc needs to make their their business operations so
effective and efficient. 4Com plc is small firm that are connected with the production of
electronic products in order to frame a perfect system to records their daily transactions few
accounting system that could by 4Com plc are as follows:
Inventory management system: This is required to make automatically manages
inventory system which is used in order to control, locate and manage objects and material. The
key objectives of such accounting system is to find out stock levels, order summary, sales report
and delivery timing. This is basically connected to those firm which deals in large scale
production of units, 4com is one of them.
Cost accounting system: This is mostly the system which is used by the firm in order to
gather, record, analyse and assess various method that are related to cost efficiency and
performance capabilities (Ahadiat, 2013). In order to assess the cost of a product, 4Com needs to
make their normal, standard and actual costing.
Pricing optimization system: This is the most important tools that can be used in order
to fix the price of the product. The company needs to fix their product prices in such a manner so
that the company could get most effective strategies in terms of price. Management accountants
will fix the price the so that company could get the optimum revenues by attracting most of the
customer.
Job costing system: This is the process under which cost of the lot is determined. This is
concerned to process via which determination of costs of a lot are identified. This job costing
system is totally used by the firm where the goods are made are totally different from each other.
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Batch costing system: This is almost same to the job costing system. Under which a lot
size cost is consider. This is the most simplest way to determine a product with its number. Entire
product related information like- manufacturing date, time and year is identified.
P2. Methods used for management accounting reporting:
For any firm, this is most important to have a adequate accounting system that could help
the firm to records its financial transactions. This would be more beneficial for future decision
making by taking the information from an available record entries. MA is an important part for
nay business firm which integrates entire departments run for the common motive. These are
mostly concerned with the internal and external environment which affects the firm of a firm.
This relates with internal and external environmental which affects the operations of a firm. This
relates with information that are based on the cultural issues and various other social factors. In
short, data which is connected to 4Com plc and can effects the accounting decision making are
recording into MA.
Reporting: This reflects those statement and records that frames by the accounts
department by taking assist of events, situation and other investment activities that are essential
for the development of 4com plc. In the other words, this also been cited that the information
rendering process to the management is called the reporting (Baldvinsdottir, Mitchell and
Nørreklit, 2010). Reporting can also assist other departmental managers for formulating a sound
financial reports by way of current and previous year data. This is all done for get an idea for the
future investment which is framed by the stakeholders. This also assist the management to frame
a perfect plan that could assist the firm to attain its pre-set targets.
Reporting assist the firm to render precious information to other stages of firm's level.
Whether they are lagging behind with an essential resources and help the manner of attaining
their objectives. There are various resources and assist the manner of attaining their objectives.
There are various statements that are helpful for the manager for assessing firm's positions.
Firm's effectiveness can be identify by rendering valuable information to other steps of firm
levels. Whether they are lacking behind with essential resources and assist in a manner of
attaining their objectives.
Job cost reporting: This is connected to those costs that are incurred by 4com plc in
manufacturing of goods in an financial year. These are most probably connected with an
hypothesis if revenue production during the year. On the other way, each job activities are
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covered about the amount of the profits are assessed by this reporting system. This would also
evaluate those region that earns optimum profits with the minimal efforts.
Operational budget report: This is the report which is used by the firm in order ot
produce information in terms of expenses that are covered by 4Com plc at the time of
manufacturing process. This is known as one of the most crucial reporting system reporting
system that assist the managers to complete details of actual cost which is incurred to the firm.
This covers various sub parts like- sales budget, variable budgets and much more. This could be
made at the month end, quarterly, half yearly and annually.
Inventory management report: This is basically concentrates on the stock of the firm as
it will help out the firm to manage and control it in a most effective manner. Whole these
physical stock are used by 4Com as managerial reporting to assess different level of availability
of the inventory. This covers different stages that are needed to be considers by the managers for
securing and records of inventory details in the account books (Callahan, Stetz and Brooks,
2011). However, ABC costing method, EOQ and so on are the method which can be used in
order to make their business in order to assess the outcome.
Performance report: Finance department is the main department under which various
tools are used in order to assess their business performance. As this can be assessed by taking
firm's current and previous year data. Different information are needed by the employees, team,
firms and other outside competitors in order to analyse the report.
Account Receivables report: Under this report, all the transactions related to the debtors
are recorded. The firm can implement either of them to manager and handle their firm
operations.
P3: Computation of net income by using various costing techniques:
Costing: This is known as the tools of accounting that could assist to render information about
manufacturing and recording of entire most important component which are incurred to achieve
objectives. This is connected with the cost that are incurred on so many activities or a units of
work. In easier terms, cost is the component which connected with the manufacturing of a
product and services of 4Com plc. This covers different costs like- variable costs, fixed costs and
semi variable costs. This is essential that company needs to assess the price of the product
(DRURY, 2013).
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Absorption costing: This is the costing method which is used by the firm in order to assess the
profits of the firm. Under this costing method, company uses all the cost which are related to
manufacturing of the product whether these are of fixed nature or variable cost. These are the
costs that are absorbed within the unit manufactured. Those cost finished units in stock which
would covers of direct material, labour and accumulation of variable and fixed costs.
Marginal costing: This is connected with the cost that are covered by the firm in order to
manufacture extra units within the same resources. Under this process, this mostly change with
the total number of manufacturing done by the 4Com plc during the year (Quinn, 2014). This is
also known as the prime cost but this does not consider the fixed costs. This is known as the
techniques that is implemented to grow relationship among profits and volume. As per the
marginal costing, contribution is to be considered while manufacturing a product.
Differences between Absorption costing and marginal costing:
Absorption costing
Under this method, appointment of total cost to
the cost area in regards to predicts the cost of
production.
In this, fixed and variable, which are related to
the manufacturing of product, are considered.
Entire expenses like- manufacturing, selling
and distribution are adopted under this costing
method.
With the use of fixed costs profits of the firm
get affected.
The outcome are analysed by implementing
Net profits per units.
Marginal costing
This is presumed to be the decision making
tools that are connected to the cost incurred by
the firm on the manufacturing of the product.
Under this costing method, only variable
costing are considered like product costs while
FC is considered as the period costs.
Fixed and variable costs are considered while
calculating the net profits as per the marginal
costing.
As per the marginal costing method, profits
volume ratio are used in order to affects the
profitability of the firm.
Contribution per unit is determined under this
costing method from income statement.
Income statements through marginal costing
Particulars Amount
Sales 35*500 17500
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Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
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Income statements through Absorption costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
As per the above calculation, firms are using both the costing method which has been
assessed by the company. As per the marginal costing method, the net profits is calculated by the
firm is 7500 while on the other hand, as per the absorption costing method, company earns 7800
which is more than the profits earn by using marginal costing.
P4: Merits and demerits of planning tools used for budgetary control process:
Budget: Budget means the estimation of revenue and expenditure of particular time
period. The main objective behind the preparation of the budget is to decide the estimate future
cost which is going to be invested by the company.
Budgetary control: It is the system which uses the budgets as estimations and taking
help for the planning and controlling all those aspects which are included in the budget and
related to the production and selling of the products and services.
Process of budgetary control:
Estimation of budget for future: For the purpose of making budgets it is required that
company needs to make the plans of its business activities by using appropriate methods of
making financial plans (Herzig and et. al., 2012).
Actual cost should be taken into consideration: In another phase, the actual cost
should be taken into the consideration which was invested by the company into production of
products. It helps in determining the actual performance of the company with the comparison
with budgeted figures.
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Examination of actual and standard values: For the purpose of assessing the actual
value of the company, it is required that to compare the actual results with the budgeted results
(Kotas, 2014). It helps in to knowing about the fact that where there is deficiency in the
companies activities.
Corrective phase: It is the phase where the company is needs to correct the mistakes which
comes to know under the comparison of the budgeted with the actual results.
Operating Budgets: It is the budget related to the expenses incurred by the company
during the production of the products and services. The main purpose of the budget is to
determine the total costs and the expenses incur by the company on producing the one unit of the
product. It is prepared by taking the information from all the departments like sales,
manufacturing, production etc.
Advantages:
 it helps the company to analyse the costs on regular basis.
 One of the major benefit of preparing this budget is that to determine the the total cost
required for the purpose of the future growths and sustainability.
Disadvantages:
 If the information provided by the budget is limited then it is difficult to analyse the
costs.
 It is very time consuming process to make the conclusions from the budget.
Static budget: It is mainly prepared for the purpose of the opening budgeted session and
exist only for the planned level of task. Static budget is providing the estimated predicted data
used at one level of activities. It is mainly used for the planning process only.
Advantages:
 It is prepared on certain terms and conditions and the all the information carried into is
based ion assumptions that cannot be changed (Caglio and Ditillo, 2012).
Disadvantages
 It has very limited scope and it is considered as the ineffective tool for the purpose of
controlling the costs.
Cash flow budget: It is used to know about the total cash inflow and outflow during the
year. It includes the various activities which are responsible for the purpose of generating cash
such as investing, financing, operating.
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Advantages
 By using this budget we get to know about the total cash inflow and outflows during the
year.
 This budgets also helps the firm to assess their financial resources and able to distribute
in a better manner (Nixon and Burns, 2012).
 This also helps to forecast the overall firm's cash receipts and its cash related
disbursement for the entire budget period.
 With the help of this budget, company's managers will get to know about the finance
related requirements of the firm.
Disadvantages
 It ignores the cash flow after the completion of the payback period.
 It is not considered for the purpose of measuring profitability.
 Forming of cash budget is very time consuming activity.
 Cash budget may makes distortion.
Sales budget: Sales budget estimates the units of sales and the earnings from sales in the
particular year. It is very important to make budget by any business without making budget it is
not possible for the company to track the process or improve the mistakes. The first budget
prepared in the company is the sales budget. It is also called the master budget because the
business totally depends upon the sales and the profit (Renz, 2016).
Advantages:
 This is the budget which is made by the firm of entire sales prediction made for the
particular period.
 With the help of this budget, company forecasts the sales and then make the policy
according to it.
 It help in formulation of sales programming so as to attain the projected sales targets of
the firm.
 It is considered as useful in keeping all expenditure under control so that organisational
objectives can be achieved.
 The another importance of sales budgets is to reveal those areas and products in which
the company needs to make proper position.
Disadvantages
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 The major disadvantages of sales budget is that there is always be the chance of wrong
prediction of future sales profits.
 Negative effects: The effects of bad sale forecasting that can be more dangerous for the
firm as this not make accurate future prediction for the firm (Burritt, Schaltegger and
Zvezdov, 2011).
 Company needs to make their business operations effective in order to make their
business operations so effective. This will not make their business operation effective.
 Sales forecasting takes time to frame the business policies. While, accurate planning
helps the firm in making planning.
 If the forecasting of the sales becomes wrong then in that case, company will use their
business strategies entirely wrong.
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