Management Accounting Report: AB Dynamics, UK Business

This report provides a comprehensive overview of management accounting principles, focusing on their application within the context of AB Dynamics, a medium-sized automotive company in the UK. The report begins by establishing the significance of management accounting systems, emphasizing their role in short-term decision-making, identifying deviations, and ensuring long-term business sustainability. It then explores various types of management accounting systems, including traditional and lean accounting, highlighting their advantages and relevance to AB Dynamics. The report further delves into different methods of management accounting reporting, such as budget reports, job cost reports, and inventory reports, and their utility in effective project management. Additionally, the report illustrates the process of calculating costs for preparing an income statement, distinguishing between fixed, variable, direct, and indirect costs, and discussing marginal and absorption costing. The report aims to provide insights into how management accounting can be effectively used to address financial problems and support strategic planning within a manufacturing business like AB Dynamics.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
P1 Management accounting and requirement of various types of management accounting
system..........................................................................................................................................1
P2 Various methods for management accounting reporting.......................................................3
P3 Calculation of cost for preparing a income statement for a company...................................4
PART B............................................................................................................................................7
P4 Advantages and disadvantages of different types of planning tool.......................................7
P5 Use of management accounting is responding to financial problems....................................9
CONCLSUION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management is important for every business as it enable an organisation to manage their
working. In such relation planning, organising, controlling and directing are the major things
which are includes in management. As another necessary aspects for a business is management
accounting. Management accounting is a helpful decision taking tool under which reports get
framed on the basis of short term. As such reports get formulate on weekly, monthly or quarterly
basis. Managers play an effective role for presenting such statement in front of senior
management at the time for removing deviations from business (Zimmerman and Yahya-Zadeh,
2011). This assignment is based on management accounting for a medium sized enterprise AB
dynamics in UK. Their business establishment is from South West England with a revenue band
from £6M to £10M. This report will focus on the importance of management accounting system
for a business. There are various types of accounting system can be used by a company in
making their work and operations effective. As this process is helpful for removing deviations
from business and take adequate decision for short term purpose and provide strength long term
existence. Hence, whole focus on based on usefulness of management accounting system.
PART A
P1 Management accounting and requirement of various types of management accounting system
A managed organisation is one in which all necessary activities and operations get done
on time. As this is helpful for a company in attain their targets on time in adequate time period
(Ward, 2012). Along with this, by timely inspecting the statements of a company, authority and
governance can frame adequate strategies which enable them in operating work effectively and
efficiently. Management accounting is a process which used by many small and medium sized
organisation in identify the deviations and differences which are taking place on regular basis.
Unlike financial accounting system in which reports get framed by analysing the whole year
operations. Management accounting provides a opportunity under which statement are based on
short term period.
A major advantage of using this approach is gaining strength in a business by resolved all
issues and conflicts of short period. Decisions taken on frequent basis by not considering the
whole year facts. Many small problems which arise long term issues get resolved by using
management accounting concept. Development and growth with high profitability is an
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necessary objective and target for every firm. They require to sustain at market for long period of
time. Hence, in such relation they require to implement managerial accounting concept in an
entity (Parker, 2012). AB dynamics is a manufacturing automotive company whom lead to
inspect their books on regular basis for taking a beneficial decision which support in long term.
By preferring this concept by managers or leaders of a company, appropriate decision can be
carried down which provide strength to a business. As this also aid in rapid increment in sales
and delivering more quality products as well as services to final users. Conflicts between each
other also get minimise through this terminology.
Various type of management accounting system are identified in financial terms as they
are required to maximise the growth and removing deviations and wastage from business.
Management accounting is completely concerned with cost accounting because it takes some
essence of it. In short term period, cost is an essential thing for making a product effective.
Hence, managers have to show their concern towards this. AB dynamics have to apply this
accounting procedure in their business for making their productivity better and delivering of
quality cars to final users become adequate with high service facility. Following are the several
management accounting forms which are required in short medium sized business: Traditional accounting: Accrual base accounting is termed as traditional accounting in
which all the expenses which paid by a company rather on such which not paid by them.
As this is helpful in tracking the cost of products or goods which manufacture by a
company by adopting two techniques: job order costing and process costing (Granlund,
2011). Job order costing is for the large projects in which whole cost can be traced easily.
In process costing, tracking of price is high due to manufacturing taking place on
continuous basis. Lean accounting: According to this sort of management accounting, a major focus is
based on reducing the wastage which occur at the time of production. Products get
deliver to users on adequate cost which will used at the time of production.
 Transfer pricing: Values get added in good according to departments. As by this every
division add some value in products which leads to increase price of offered good.
AB dynamics can use either of the concept of management accounting system through which
they can minimise the wastage of resources and offer products at such prices which are adequate
in nature. Hence, lean accounting is best option which have to use by managers of AB dynamics
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for reducing the wastage of their resources and deliver quality cars to all customers of a company
(Otley and Emmanuel, 2013).
P2 Various methods for management accounting reporting
Every division require appropriate management through which they are going to deal
with various problems which arise in an entity. For such relation, managers and leaders play an
effective role through which they are going to deal with them. As a results, deviations get resolve
and a firm could become able to sustain at market for long term. Accountant and manager of
accounts have to investigate their books of account on short term basis for taking a crucial
decision which is beneficial in long term existence. By inspecting such financial statement, a
clear picture of whole operations whether in short term or in long term described properly.
Every firm set several number of targets as well as objectives before executing every task
(Fullerton, Kennedy and Widener, 2013). Hence, for their attainment, it is must to analyse their
reports in taking any beneficial decision. Managerial accounting is based on short term analysis
of business through which deviations get resolved and arise problems get removed from
business.
It is a duty of manager to take care of accounts on daily basis which aid them in improve
business properly. Feasibility of project is in the hands of managers are they are in direct day to
day relation with business and operations. Hence, managerial accounting provide a facility
through which health of a business can maintain (What are the Different Types of Management
Accounting Systems?, 2017). AB dynamics is dealing in a automotive sector and their managers
have to actively participate in inspecting the financial statement of a company so that they can
maintain their company fit and adequate for long term purpose. For a perfect picture of all
operations of a business, managers and leaders have to identify the problems which are
associated with project by measuring them regularly. As this is helpful for them in making their
operations effective. There are various type of management accounting reporting are used by a
AB dynamics through which they can make project feasible and sustainability rises for long term
(Fullerton, Kennedy and Widener, 2014). Budget report: Budget is an essential part of any project before its execution. As this
provide a estimate under which all investment and expenses for a task can be done.
According to managerial accounting, perfect budget get framed and necessary changes
can made in any project which further want to implement by a company. Effective budget
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is one in which all expenses and investment lead take place. AB dynamics have to
prepare their budget and modified it according to requirement of time. As this support in
making project more feasible and effective and target achievement become easy. Job cost report: Considered as one of a major report which enable in taking decision for
such specified project which are highly beneficial for a company. As this provide support
in invest in such project rather than focus on such which are less profit earning capacity.
Along with this, another major advantage of this method is providing a side by side
reflection of a task (Qian, Burritt and Monroe, 2011). Minimisation of wastage is major
things which get performed under this and cost escalation is important term. Account receivable aging report: This is completely related with the inflow or receivable
of a company. As this is helpful for making such policies which are beneficial for the
company in relation to their receivables. By considering this account receivable aging
report, managers become able to take decision for such debtors who are less responsible
in paying their debts.
 Inventory and manufacturing report: This concept is appropriate for the AB dynamics, as
they are already dealing in cars and other items. Management have to maintain
appropriate report for all of their inventory so that they can take adequate decisions fore
that.
P3 Calculation of cost for preparing a income statement for a company
Cost analysis is as essential factor for a business through which company can set a
perfect price of product and minimise the wastage as well. It is a duty of manager to take care
about all aspects through income statement so that they can take adequate decision for further
development (Christ and Burritt, 2013). Operation department is the one who used to operate and
manufacture all the products and goods of a company. Hence, utilisation of resources is must for
reducing the cost of product and services of a company.
Production cost made a vast impact on business operations and its cost also. Thus,
management have to use managerial accounting in an adequate manner so that they can control
the cost of production. There are various forms of cost are identified which are identified at the
time of manufacturing of goods and services which are as follow: Fixed cost: Cost of products are fixed and do not get changed according to time. Such
cost is consider as fixed cost of products which remain constant with every production
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and manufacturing cost of production. The ups and downs is hard to calculate and
managers do not measure the fluctuation. Variable cost: Every time production cost get changed and vary according to time. Such
sort of cost is signified as variable cost which are not constant in nature and get vary
according to time. Managers have to measure such things which are associated with the
manufacturing of product and then take appropriate action for that (Shah, Malik and
Malik, 2011). Direct cost: Overheads and expenses are a part of project which occur at any time. Direct
cost increase the cost of product and thus managers have to formulate budget through
which they can minimise the direct cost of product.
 Indirect cost: Few times project incur some unnecessary cost on project which is not
appropriate at all. As such cost always lead to increase the price of product and its a main
reason behind overcharging.
Income statement for a manufacturing products get framed by taking two major cost
concept in account which are: marginal costing and absorption costing. Managers are liable to
take adequate decision for their growth and development and offer products to user on right cost
and quality (Dillard and Roslender, 2011). Cost of products have to analyse by preparing a
income statement in which information which is related to overheads, sales etc. all get included.
Hence, all of them have to take in account by company. AB dynamics is one of a automotive
company whom have to analyse their income statement for taking better growth in business.
Absorption costing for Quarter 1:
Particulars Amount (in £)
Sales 6600
Less: Cost of sales
Opening inventory
production cost (78000*0.85) 66300
Closing stock (12000*0.85) 10200
7650
Gross profit -10500
Less: Fixed & selling expenses 520
Net profit -1570
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Absorption costing for Quarter 2:
Particulars
Sales 7400
Less: Cost of sales
Opening inventory (12000*0.85) 10200
production cost (66000*0.85) 56100
Closing stock (4000*0.85) 3400
6970
Gross profit -430
Less: Fixed & selling expenses -520
Net profit -950
Marginal costing for Quarter 1:
Quarter-1
Particulars Amount (in £)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Closing stock (12000*0.85) 10200
60900
Gross profit 5100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit -16100
Marginal costing for Quarter 2:
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Quarter- 2
Particulars Amount (in £)
Sales 74000
Less: Cost of sales
Opening inventory (12000*0.85) 10200
production cost (66000*0.65) 42900
Closing stock (4000*0.85) 3400
56500
Gross profit 17500
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit -3700
As per the above calculation it get identified that management have to take both of these
concepts in their account through which appropriate decision can be carried down. As per the
marginal costing for 2 quarter it get identified that management have worst profit rate and thus
this is consider as major factor for their weakness. But in 1 quarter company have to suffer heavy
loss which signifies that they do not have appropriate condition at all.
Along with that absorption costing, is such cost in which whole value for product is
measure. Management have to take this thing in their account for taking any beneficial decision
for their long term. For this purpose, income statement analysis is an essential concept for them
to attain their targets in an effective manner without any kind of deviations for long term and in
future.
PART B
P4 Advantages and disadvantages of different types of planning tool
There are various type of planning tool are used by a company so that they can take
adequate decision which are beneficial for them. It is a major duty of manager to use appropriate
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planning tool for making their work effective (Chenhall and Smith, 2011). As per the planning
tool it become helpful for an organisation to invest in projects which provide high return to them.
For this purpose, budget is considered as major effective tool in relation to invest and take
appropriate decision for further improvements.
One of an important tool which is helpful in taking short term decision and provide long
term strength to a business is managerial accounting. By utilising such approach, effective
decisions can be carried down which facilitate in removing deviations from business. Nero
limited is an organisation who involves in dealing with funding activities. As they require more
and more money for their operation purpose along with that appropriate budget allocation is also
compulsory for them. Nero limited have to use appropriate planning tools for budgetary control
system through which they can operate all task in an adequate manner.
Budget usually have four control purpose which are defined as below:
 They help manager in coordinating the resources properly.
 Set standard which are helpful in every division of company (Contrafatto and Burns,
2013).
 Help in utilising all the resources in an appropriate manner.
 Facilitate a platform through which managers and unit performance get evaluated
Budget is consider as helpful tool through which management can utilise all of their resources in
an adequate manner for making the results and outcome better. Nero limited is a funding
company and thus their overall resource is finance through investors and stakeholders of a
company. Hence, if an entity will lead to allocate fund or invest in any project then they have to
take appropriate step and divide their budget according to departments. This provide support to
them in operating all task and project in an adequate manner.
There are various types of budget are identified which can use by a Nero limited in
relation to use them according to time. Following are the several type of budget which have to
undertake by a company:
 Financial budget
 Operating budget
 Non monetary budget
Budgetary control is consider as an approach under which it get identify and monitor that how a
firm will utilise their budget and control cost and operations which are taking place during an
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accounting period (Albelda, 2011). As this terminology is helpful for a company for making and
conducting operations efficiently.
On the basis of such description, several number of advantages and limitations are find
out which are associated with the use of various planning tools in relation to budgetary control.
Advantages Disadvantages
1. Budget is an helpful tool through which
management can attain all of their aims and
objectives in a well defined manner. This
reduce the chances of wastage.
1. It is completely uncertain for a company in
making all investment and expenses according
to requirement.
2. Work as a guidelines on which whole
workers and employees will lead to work and
reach to their destination.
2. The analysis and evaluation of investment
and expenses in advanced is not appropriate.
Thus, chances and risk of failure is high.
3. Help in reducing the wastage by computing
all things in advance.
3. Involvement of senior authority is high and
thus many time conflicts arise in an entity
(Caglio and Ditillo, 2012).
4. Work as a capsule for a business under
which all expenses and investment get
calculated once.
4. Lengthy in nature which for evaluating and
create problem in working.
5. Support in resolve all financial problems of
a company.
5. Do not able to calculate the wastage in
advance.
Nero limited have to take all the advantages and disadvantages in their account as well as use all
formats of budget for a company. As it support in dealing with all problems of a company and
provide support to deal with all financial problems. Financial problems arise due to lack of focus
on business and managers have to keep their eyes on working and use planning tool for removing
such barrier as well provide strength (P. Tucker and D. Lowe, 2014).
P5 Use of management accounting is responding to financial problems
Management accounting is based on short period of time in which decisions are based on
regular and weekly reports. It is consider as helpful tool for taking decision on financial
problems which are taking place in an organisation. This source of accounting can used by any
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