Management Accounting Report: Cost Analysis, Planning, and Budgeting

This report provides a comprehensive analysis of management accounting principles, focusing on the case of Nero Ltd. It begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its importance in organizational decision-making. The report explores various types of management accounting systems, including cost accounting, inventory management, job costing, and pricing optimization systems, detailing their advantages and disadvantages. It then delves into different methods used for management accounting reporting, such as budget reports, performance reports, and job cost reports, evaluating their benefits and drawbacks. The report further examines cost analysis techniques, including direct, indirect, fixed, and variable costs, and the application of marginal and absorption costing. Finally, it discusses the advantages and disadvantages of various planning techniques used for budgetary control, and compares different approaches to adapting management accounting systems to organizational needs. The report concludes with a summary of key findings and recommendations for effective management accounting practices.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1 ................................................................................................................................................1
P 1 Understanding of Management accounting and different types of accounting system ........1
P 2 Different methods utilized for management accounting reporting........................................4
LO 2 ................................................................................................................................................6
P 3 Calculate costs utilizing appropriate techniques of cost analysis to make income statement
......................................................................................................................................................6
LO 3 ................................................................................................................................................7
P 4 Advantages and disadvantages of various kinds of planning techniques utilize for
budgetary control.........................................................................................................................7
LO 4 ..............................................................................................................................................10
P 5 Compare ways in terms of adapting management accounting systems...............................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting includes creating and giving financial and statistical data to
business managers timely, so that they can create daily and short term decisions of managers. It
is also called as managerial or cost accounting which is different from financial accounting
(Merchant and White, 2017). Study is based on the Nero Ltd. Report will explain management
accounting and give important requirements of various kinds of management accounting system.
It will state different methods utilized for management accounting reporting. It will calculate
costs like marginal and absorption costs utilizing appropriate techniques of cost analysis to create
income statement of firm. Furthermore, assignment will explain the advantages and
disadvantages of different kinds of planning tools utilized for budgetary control.
LO 1
P 1 Understanding of Management accounting and different types of accounting system
Management accounting can be referred as the process to prepare the management report
and accounting report in order to provide the accurate and correct financial information to the
company so that they can operate all its day to day operations in the company (Meaning and
Definition of Management Accounting. 2019).
This management accounting system defined as the systematic procedure of recoding,
analysing, evaluating the cost of an entity in the organization in the direction to prepare the
correct internal financial report and statical information which is being required by the managers
of the company to manage all its day to day functions in order to achieve their desired goals of
company (Weetman, 2019). This management accounting is being used only for the internal
team members of the that helps to formation of the different plans, policies and strategies and
control those plans and policies.
Basic difference between the management accounting and financial accounting is that
management accounting helps the managers of the company by providing the cost and finance
related information which is needed to assist the operations and taking decision for the
organization, whereas financial accounting helps the external parties and member of the
organization like all the stakeholders by preparing the financial report and provide them to take
corrective decision.
Importance of management accounting in organization
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 This management accounting help the NERO company to take its effective decision as it
provide the effective and accurate financial data to the managers.
 This also play important role to create planing for the different operations in Nero
company as it gives the regular financial report to managers.
Principles of management accounting
Designing and compiling – One of the principle is to design the report by compiling all
the information, records, statements and statics, of past, present and future data (Lewis and Perez
Maldonado, 2019).
Control at source accounting – Required sources of the company is also controlled by
the accounting. As this give the qualitative and quantitative data of resource its utilization,
maintenance then have control over these resources.
Roles of management accounting
 Management accounting play the role to planing all the strategies of the organization by
providing detailed financial reports.
 Also play the role as controller, decision-making, by give the accurate and effective data
on the basis of the past and present performance of the company.
Different types of management accounting system
Cost accounting system – This accounting system refers as to recording, evaluating,
analysing and classifying the cost, in order to anticipate the cost of their products and services
(Sedevich-Fons, 2019). Purpose of this system is to identify the profitability, inventory valuation
and cost reduction.
Advantages Disadvantages
 It can be followed, tinkered with and
applied as per modification wants of
the Nero Ltd.
 This kind of accounting system can be
ideas of as sort of three-dimensional
problems such as accounts, calculations
and reports that can be handled and
viewed from various angles.
 This method does remove uncertainty
and misappropriation of accounting
guidelines of cost accounting.
 Workers have to receive additional
training and must sufficiently cooperate
with information input (Schaltegger
and Burritt, 2017).
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Inventory-management system – This accounting system is being used to determine the
value of the non assets which is stock or inventory. This is the process to keep maintain the stock
and inventory in the organization for the smooth functioning.
Advantages Disadvantages
 This kind of method involve ensuring
that business does not spend money on
unrequested products orders and
adopting which products are selling and
which are not.
 It requires constant attention as
products, continuously needs to be
updated, restocked and reordered.
Job costing system - It is such system in which costs of each product is assigned and
allocated individually. Job costing system acts as a supervising technique that assists the
managers in keeping the track of company’s expenses.
Advantages Disadvantages
 The costs can be described at any stage
of achieving of job in the Nero Ltd.
 Workers are not needed to track all
material and labour utilized during the
job.
Pricing optimizing system – This accounting system help the company to identify the
retail value of their products and services. This is being used to determine the balance between
cost of their products or services and profit. The manager of business organization evaluate and
analyze different possible prices of the goods which consumer is happy to pay.
Advantages Disadvantages
 It is the concept where Nero Ltd.
Arrive at modes by that they can
acquire within defined profitability
level after knowing sensitive their
existence consumers ( Cooper, Ezzamel
and Qu, 2017).
 It prevents poor people from getting the
things they need. Prices importantly
ration goods on the basis of capabilities
to pay.
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P 2 Different methods utilized for management accounting reporting
The managerial reports are created through managers of firm in relation to produce
reports that give access to internal interested users of the firm. The good decision-making in
business is executed through the aid of these reports. These reports are directed on intrinsic
information that is received through auditors by financial accounting (Marina and et.al., 2016). It
is an important report because it aids in creating and planning of the different decisions of firm.
Also, management accounting reports are useful in assessing performance of staff that is worked
in firm. In, managerial accounting report is given as it aids to give the information of internal
sources of the firm.
There are different accounting management reports which are created by the Nero Ltd.
Such as:
Budget Report: This report is very essential because it aids to company in evaluating budget and
performance which is made by different department of firm to attempt operational activities of
business in effective manner. The function of Nero Ltd are measured expenditure of each and
every department. This kind of report give access to firm such as Nero Ltd. in comparing the
actual performance of firm with formed performance in the budget report (Chenhall and Moers,
2015). Also, the firm take corrective measures to destroy the abnormal observed after comparing
original with formed. Nero Ltd. is also capable to handle their expenditure and income with the
help of budget report. Another good element of this report is to examine inside interested users
of selected firm like workers, managers etc. in terms of cash inflow and cash outflow. This kind
report has number of benefits and drawbacks which impact on financial performance of the firm.
Advantage Disadvantage
 This kind of report allows to managers
of Nero Ltd. to assess performance of
each every department like promotion,
sales, marketing etc. Thus, it is an
important tool.
 Also, it gives access in determination of
financial risk for the firm Nero Ltd.
Through creating of budget reports.
 It can be time-consuming to make
budget specially in poorly-organized
environment.
 It is difficult to managers of every
department of firm, if budget report is
not properly made.
4

Performance Reports: This kind of report is made for reviewing and examining performance of
business as well as its employees. The members of employees execute judgements in according
to appraisals orienting with their performance. This kind of report is normally made under small
and medium-sized firm like Nero Ltd. that have employed number of employees (Myint, 2019).
This report helps the firm in performing correct judgement and also bettering measures taken
through managers to destroy planned and original performance of employees working in the
firm. This kind report has number of benefits and drawbacks which impact on financial
performance of the firm.
Advantage: Disadvantage:
 The Nero Ltd. getting help in executing
comparison of workers current
performance with planned once capable
to classify workers according to their
capacities (Marina and et.al., 2016).
 This kind of report of Nero Ltd. is
useful in conducting training and
requirement of abilities between
workers to perform their activity in
effective manner.
 If the manager of each department is
not prepared the performance report
effectively, so that this can impact
negatively on employees experience as
well as position of firm.
 Creating performance reports Is very
time-consuming and can be
overwhelming to administrators with
many workers.
Job Cost Report: This report give side-by-side view of the total cost increased in individual
project opposed to expected revenue returned by that task. Job cost report aids managers measure
profits of particular kinds of jobs and modify their operations through directing on the job which
are typically the most profitable overall (Maas, Schaltegger and Crutzen, 2016). This kind report
has number of benefits and drawbacks which impact on financial performance of the firm.
Advantage: Disadvantage:
 Manager can forecast the job cost
which is dependent upon the previous
records in this report.
 Job costing report can aid determine
 This kind of report requires high deal of
employee work in recording of dealing
related to it.
 There are also possibility of mistakes in
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problems during job and after
completing it. Problems such as
mistake in equipment count required to
end certain evaluation (Boiral, 2016).
job costing report.
LO 2
P 3 Calculate costs utilizing appropriate techniques of cost analysis to make income statement
Cost: The cost is monetary term that firm spends to produce something. The term cost refer the
amount of money which is spent through firm in manufacturing of products and services. There
are various kinds of costs which are applied in the accounting system. These are mainly
categorized indirect cost, direct cost, fixed cost and variable cost.
 Indirect Cost: These costs are not directly responsible to cost object. These are
expenditures unrelated to manufacture products and services. It can not be easily derived
to product division, action or project (Maas, Schaltegger and Crutzen, 2016).
 Direct Cost: These costs are related to manufacture product and services. Direct costs
involves materials, labour expenditure or distribution cost linked with manufacturing of
goods.
 Fixed Cost: These costs do not change with volume of output. The company finds them
irrespective of level of production. This involves payment of rent, taxes, loan interest and
so on.
 Variable Cost: These costs are changed according to volume of output. It involves
expenditure of purchase of raw material and payment of wages (Ray and Gramlich,
2015).
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Marginal Costing and Adsorption Costing:
This implements only those costs to stock which were incurred when each individual unit
was produced while adsorption costing implements all manufacture costs to all units produced.
Overhead costs are charged to expense in the period under marginal costing while they are
implemented to goods under the absorption costing technique (Jacobs, 2018). Profits are higher
under marginal costing while profits will appear to be lower under absorption costing.
Absorption costing
Cal of full
prodn cost
per unit
Particulars P.u Quart 1 P.u Quart 2
variable
costs 0.667 52000 0.78 52000
Fixed o/h
cost
0.20512820
51 12000
0.24242424
24 12000
Full
production
cost
0.87212820
51
1.02242424
24
stock value
7

and prodn
production 68023.8
78000*0.87
21 67478.4
66000*1.02
24
cl. stk. 10465.2
12000*0.87
21 4089.6
4000*1.022
4
op stk 10465.2
12000*0.87
21
under/over
absorpn
Budgeted
fixed prodn
o/h 12000 12000
Actual fixed
prodn o/h
0.205*7800
0 15990
0.2424*660
00 15998.4
under/ over
aborbed
over
absorbed 3990
over
absorbed 3998.4
Income statement
Particulars Q1 Q2
Sales 80000 80000
less: cost of
sals
initial stock 0 10465.21
prodn 68023.8 67478.4
closing 10465.2 4089.6
Gross
Profits 1511 18897.81
stock and
over
absorbed 3990 3998.4
5501 22896.21
fixed S&d
Costs 5200 5200
Net profits 301 17696.21
Marginal costing
Selling price
1.21212121
21 80000
1.08108108
11 80000
prodn
variable o/h
0.66666666
67 52000
0.78787878
79 52000
Selling price 1.2121 1.08108
variable -0.6667 -0.7878
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costs
contr. p.u. 1.8788 1.86888
Income statement
Particulars Q1 Q2
Selling price 1.2121 79998.6 1.081 79994
less: cost of
sales
op stk 0 8004
cost of
prodn 52026 51994.8
less: cl stk 8004 44022 3151.2 48843.6
contributio
n 35976.6 31150.4
Less: fixed
prodn o/h
cost 16000 16000
Less: S&D
o/h 5200 5200
Net profits 14776.6 9950.4
Interpretation
The above methods show that there is a major difference when using marginal costing
and absorption costing approaches. From the above it can be reconciled that net profits as per
marginal costing is 14776.6 for 1st quarter and 9950 for 2nd quarter where using absorption
costing net profits is 301 for quarter 1 and 17696.21 for quarter 2. the difference is because
absorption costing gives more accurate results where marginal costing costing do not cover all
costs of production. In marginal costing fixed overhead are not added to production whereas
fixed production overheads are added for coming at the actual production cost of company.
LO 3
P 4 Advantages and disadvantages of various kinds of planning techniques utilize for budgetary
control
Budgetary control is the procedure to set financial and performance objectives with
budgets as opposed original outcome and adjust performance as it is required by the managers of
Nero Ltd. Budgetary control aid the selected small manufacturing firm to create budget of the
firm for the future and then this budget is being opposed with recent and actual performance of
firm in term of finding out the difference and variance if any execution of the Nero Ltd. These
differences aid the direction of selected manufacturing organization to discover the variance, so
that administration can take corrective activities at the correct time by which company do not
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have to suffer from any kind of large loss (Arias and et.al., 2016). This budgetary control is
being done for the various goals that are as follows:
 This budgetary control system aids to keep the coordination among the different division
of the Nero Ltd.
 Also, this aids to determine plans and approaches as according to the fix goal of the Nero
Ltd.
 On of the leading goal is to constant differences of actual outcome and execution of the
Nero Ltd. As with the formed upcoming budget in relation to take the correct actions on
accurate time (Myint, 2019).
 This budgetary-control assists to describe the goals of the Nero Ltd.
This budgetary control system include various techniques to figure out the differences in
the Nero Ltd. Management of selected small business implement the different techniques in their
organization to create the approach accordance of fill differences and can develop their financial
position in the industry. These techniques are:
Operating Budget: This kind of budget aids to present the revenue and related expenditure of
project of the Nero Ltd. for the upcoming year. This is normally for the next year and is being
displayed in current year statements. This operating cost is being started with the revenue and
then further involved other related expenditures. It will involve various expenditure of Nero Ltd.
such as variable cost which can vary according to sales of the products, cost of raw material,
production and so on (Chenhall and Moers, 2015). This can help to selected medium business to
figure out their all the operating cost, that is being further involved in final budget of the firm to
discover loss or profits. This kind of technique have many of pros and cons such as:
Advantages Disadvantages
 This kind of budget tool aid the Nero
Ltd. to allocation of the money in the
short period for future utilization.
 Also, this can create budget flexible
and give more financial freedom to
invest in future sources.
 It becomes difficult to calculate
operational budget through
modification projection cost every time.
 As the financial information is
modified every time month to month,
then cost of projection also can be
modified, this requires to modify the
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