Management Accounting Principles: Financial Statement Analysis Report

This report, titled "Unit 5 Management Accounting - Management Accounting Principles," provides a comprehensive overview of management accounting concepts. It begins with an introduction to management accounting and its role in decision-making, followed by a detailed calculation for preparing financial statements, including an income statement under variable costing. The report includes the calculation of closing stock and discusses the principles of management accounting, emphasizing influence, relevance, value, and credibility. It explores the roles of management accounting (MA) and management accounting systems (MAS), detailing various MA reports such as performance, account receivable aging, and inventory reports. The report explains the method used for preparing the income statement under marginal or variable costing and illustrates the integration of MA systems with organizational departments. It concludes by summarizing the benefits of MAS and providing references to relevant literature. The assignment covers key topics like cost accounting, inventory management, and price optimization within the context of financial analysis and reporting.

TITLE
UNIT 5 MANAGEMENT ACCOUNTING - MANAGEMENT ACCOUNTING
PRINCIPLES- A1

Table of content
 Introduction
 Calculation for preparing financial statement (Part A)
 Income statement under variable costing
 Calculation of closing stock
 Principles of management accounting:
(Part B)
 Role of MA and MAS.
 MA reports
 Method used for preparation of income statement
 Integration of MA with organization.
 Role of MAS
 Conclusion
 References

INTRODUCTION
Management accounting (MA) is a form of accounting that is aligned
with procedure of colleting all the information which can be used for
decision making. After collection of data, this is used for preparation of
internal reports and these are presented to management department of
companies so that they can take viable judgements..

Calculation for preparing financial
statement (Part A)
Overview of financial data:
Activities AMOUNT
Produced and sold units 10000 Units
Selling Price per Unit £25
Direct Material £50,000
Direct Labor £30,000
Variable Manufacturing Overhead £20,000
Fixed Manufacturing Overhead £40,000
Variable Selling Overhead £30,000
Fixed Selling and Administrative
Overhead
£30,000

Income statement under variable costing
Particulars Amount (in £)
Sales 250000
Less: Marginal cost of sales
Direct material 50000
Direct labor 30000
Closing stock -
Marginal production cost of sales 80000
Variable manufacturing cost 20000
Variable selling cost 30000
Contribution 120000
Less: Fixed cost
Fixed manufacturing cost 40000
Fixed selling and administration cost 30000
Net profit 50000

Calculation of closing stock and cost per
unit
Marginal costing method
Direct material 50000
Direct labor 30000
Variable manufacturing cost 20000
Total 100000
Units 10000
Cost per unit (100000/10000) 10
Closing stock Nil
Value of closing stock Nil

Principles of management accounting:
(Part B)
There are different kinds of principles of MA but mainly there are four
principles which are as follows:
 Influence
 Relevance
 Value
 Credibility

Role of MA and MAS.
The MA is useful for companies in order to provide needed information
which can be used as a basis for better decision making. There are a range of
accounting systems and some of them are described below in such manner:
 Cost accounting system
 Inventory management System
 Price optimization system
 Job costing system

MA reports
MA reports: These reports cover detailed information about each aspect
of company whether it deals in financial or non-financial transactions.
Some types of reports are mentioned in such manner:
 Performance report
 Account receivable ageing report
 Inventory report

Method used for preparation of income
statement
The above prepared income statement has been prepared under
marginal or variable costing that is explained below:
 Marginal costing- It is form of costing method that recognize all
types of cost in a classified way. For instance, this method considers
fixed cost as period cost and variable cost as production cost.

Marginal costing

Integration of MA with organization.
Various types of systems of MA, are integrated to process of business
entities. For instance, in Fifth column company, cost accounting system
is linked to finance department that contributes for making accurate
budgets for next year. As well as price optimization system is
connected to sales department that helps in boosting overall sales. This
indicates that each accounting system has link with department of
above company.

Role of MAS
Benefit to organization:
 Cost accounting system
 Stock management system
 Price optimization system
 Job costing system

CONCLUSION
It can be inferred on behalf of the above PPT that MA is a beneficial
accounting method which results in better inner aspects control. This
involves a number of accounting methods that can lead to addressing
financial problems in various ways. In addition to that, MA reports are
also valuable to executives for improved decision taking.

REFERENCES
Cescon, F., Costantini, A. and Grassetti, L., 2019. Strategic choices and
strategic management accounting in large manufacturing firms. Journal of
Management and Governance, 23(3), pp.605-636.
Alsharari, N.M., 2019. Management accounting and organizational change:
alternative perspectives. International Journal of Organizational Analysis.
Nigrini, M.J., 2020. Forensic analytics: methods and techniques for forensic
accounting investigations. John Wiley & Sons.
Alsharari, N.M. and Al-Shboul, M., 2019. Evaluating qualitative research in
management accounting using the criteria of “convincingness”. Pacific
Accounting Review.