Management Accounting Report: Unit 5 for ABC Ltd Analysis

This report provides a comprehensive overview of management accounting principles and their practical application within a business context, specifically using ABC Ltd as a case study. The report begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its role in internal decision-making. It explores various management accounting systems, including cost-accounting, inventory management, job-costing, and price-optimizing systems, discussing their essentials and applications. The report then delves into different management accounting reporting methods, such as budget reports, account receivable aging reports, cost managerial accounting reports, and performance reports, explaining their significance in performance measurement, financial control, and decision-making. Furthermore, the report examines cost analysis techniques, specifically absorption and marginal costing, illustrating how these methods are used to prepare income statements and analyze profitability. It also evaluates the pros and cons of different planning tools used for budgetary control and discusses how firms adapt management accounting systems to respond to financial problems. The report concludes by summarizing the key findings and emphasizing the importance of management accounting in driving business success.

Unit 5- Management
Accounting

Contents
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
P1 Management accounting and its many types of system.....................................................................3
P2 Explanation of different methods in management accounting reporting.............................................6
TASK 2.......................................................................................................................................................7
P3 Calculation of costs by use of techniques of cost analysis in order to make the income statements by
use of the absorption and marginal costs.................................................................................................7
TASK 3.......................................................................................................................................................9
P4 Pros and cons of types of planning tools that are used for the budgetary control..............................9
TASK 4.....................................................................................................................................................10
P5 Comparison as to how firms are adapting systems of management accounting for responding to
financial problem...................................................................................................................................10
CONCLUSION.........................................................................................................................................12
REFERENCES..........................................................................................................................................13

INTRODUCTION
The accounting may be referred to as the keeping of the record of money or the expenses
which incurred during the functioning of business. Every business is required to keep the record
of its monetary transaction and present it to the income tax department. The accounting helps in
calculating the profits and losses of the firm so that the member of business is known about the
financial performance of the firm. It is generally of two types, financial wherein it displays
money related transaction in order to identify the financial position of the company and other is
management accounting which system of accountancy which helps in providing the insight of
the management team of company which helps in making decisions. It supports the decision
making of company by giving wealth of statistical and financial information which is assisted by
the powerful tool of accounting (Amirbeyki Langroudi, Kordestani and Reazei, 2020). The
organization chosen for this report is ABC Ltd which a medium sized company that deals in
manufacturing. This report shall cover the understanding of management accounting and its
techniques, usage of planning tools in the management accounting and lastly the ways in which
companies can use it to respond to the financial problems.
TASK 1
P1 Management accounting and its many types of system.
Management accounting is referred to as the distinct kind of accounting from
that of the financial. It is more related and concerned with providing the financial information
which helps the managers in making decisions. This simply means that it beyond the recording
of day to day transactions of finance rather it focuses on forecasting and long terms decision
making of business. The key role in the management accounting is that it helps the managers in
deciding the price of the offering by stating all information which relates to the cost, profitability
and market factors. The management accountant also helps in determining lifecycle of the
products and the viability of new offering too.
The management accounting is involved in taking the financial data and information of
the undertaking and establishes the report for the confidential internal usage by the managers.
These report aids in the decision making and also identifies different ways in which the company

can be run in an effective manner. There are different management accounting systems which
reaches to all departments of firm such as marketing, information technology, human resource,
sales and operations. Management accounting systems mainly varies in their usage and each is
designed to give the management with various information that is based on their needs in order
aide in decision- making (ten Rouwelaar, Schaepkens and Widener, 2020). The basic types of
management accounting system are discussed below which can be opted by ABC Ltd-
Cost-accounting systems-
This is also known as costing or product costing system. It is the framework which is
used by businesses in order to estimate the cost of product in order to make analysis of
profitability, cost control and inventory valuation. It is mainly of two types which includes firstly
the job order costing and second is process costing. In this type of system, the allocation of cost
is mainly carried out which is based on either the traditional costing system or on the basis of
activity based system of costing (Finau, 2020).
Essentials of cost accounting-
 It involves estimating the cost of product.
 It is used for analyzing the profitability, inventory valuation and helps in cost control.
 It involves allocating th cost either by traditional or by activity based cost system.
Inventory management systems
Inventory is something which represents the stock of goods and materials of the business.
This system is a mixture of using of the desktop software, barcode printer and scanner and the
mobile devises so that the streamline organization of the inventory can be done. The stock
control is worked by tracking two essential functions of the warehouse and also the stock room
which involves taking which means incoming and delivering which is outgoing. Aim of this
control is to know accurately current level of stock and automatic minimization of the overstock
and under-stock situations (Almagtome, 2021).
Essentials
 It is used to represent the stock of the company.

 It uses combination of software, mobile device and barcode scanner and printer in order
to manage the inventory.
 It helps in controlling the inventory or stock and also helps in improving the inventory
accuracy.
Job-costing systems
This involves a process of accumulation of the information in respect of cost
that is related with the particular production or the job. This data can be needed when it is
requirement to provide the cost information to the consumer under any agreement wherein the
costs are to be reimbursed. It is important to accumulate three kinds of information which
includes firstly the direct labor, direct material and the overhead cost.
Essentials
 It involves information relating to cost of production of goods.
 This information can be given to the customers under contract wherein the cost is to be
reimbursed.
 There are three types of information involved in this which are direct material overhead
and labor cost.
Price-optimizing systems
This involves the mathematical programs which compute as to how demand is different
at many stages of price. It afterwards makes combination of data with information on the
inventory level and cost in order to suggest the price so that incomes are improved. This system
must factor in the three pricing fundamentals which are pricing strategy, tactics to manage all
basics that impact profits and a price of goods to seller and buyer both (Fırtın and Karlsson,
2020).
Essentials:
 It includes mathematical programs.
 It helps in recommending the price in order to make improvements in profit.

 It helps the business in determining the promotional and initial pricing and discount
pricing.
P2 Explanation of different methods in management accounting reporting.
This accounting emphasizes on the inside facts and figures which is received by the
financial accountancy. The reports of management accounting are mainly in usage for the
planning, decision making, regulating and also measuring of the performance. These are made
constantly in accordance with requirements throughout the booking record and accounting.
These are required to be crafted carefully as major decisions are taken as per these reports.
Different methods for management accounting reports that can be used by ABC Ltd are
discussed below-
 Budget reports- These are very serious while measuring of the performance of business
and is prepared department wise in big companies. The overall budget is prepared so that
grand scheme of the business can be understood. The estimate of the budget is made on
the basis of experiences but a great budget caters unforeseen circumstances which can be
arisen anytime. The budget report carries all the source of earnings and the expenditures
and the company can achieve its objectives of it stays with budgeted amount.
 Account receivable aging reports- this report is vital when the business relies on credit
extension. It is important to breakdown the remaining balance of clients into many
periods so that managers can identify the defaulters and if there are many defaulter, it is
essential for business to tighten their policies of credit so that cash flow can be made
critical to business operation (Afang and Francis, 2021).
 Cost managerial accounting reports- This involves computing cost of articles which are
manufactured. It contains the cost relating to labor, overhead cost, raw material and other
added costs. These all are divided by quantity of goods produced. This report provides
the summary of the information and offers the managers capacity in order to realize cost
price of all products versus the selling price of them. Through this report, the profit is
estimated and also monitored.
 Performance report- This is created in order to evaluate performance of whole firm as
well as each employee. This report is also created for each department in large
companies. The employers use this report to make many conclusions in context to the

organization’s future and the employees are rewarded for their excellent performance
while the under- performance are dealt as and when required. It helps in giving the
insight of the organization (Saliy and et. al., 2021).
TASK 2
P3 Calculation of costs by use of techniques of cost analysis in order to make the income
statements by use of the absorption and marginal costs.
Cost analysis can be referred to measure the cost output relationship, that is, economist is
concerned with the determination of cost incurred while hiring the input and these may be re
arranged in order to increase productivity.
Absorption costing is referred to as the method of costing to the accounting for al cost of
manufacturing. It is the way of preparing full cost of offering which puts the direct cost and
proportion of the overhead costs of production through one or the no. of overhead absorption
rates.
Marginal costing is a system of accounting wherein a variable cost is charged to the unit of cost
and a fixed cost of a period which is written off in contradiction of aggregate contribution. It is
the principle costing technique which is used while making decisions.
Profit statement (Marginal Costing)
Particulars GBP
May June
Sales 25000 20000
less:
opening stock
DM 6000 4800
DL 4000 3200
Variable production OH 2000 1600
less closing inventory -600
variable s commission 500 400

contribution 12500 9400
less
fixed costs:
production cost 2000 2000
selling and admin 4000 4000
Profit 6500 3400
Profit statement (Marginal Costing)
Particulars GBP
May June
Sales 25000 20000
less:
opening stock
DM 6000 4800
DL 4000 3200
Variable production OH 2000 1600
less closing inventory -600
variable s commission 500 400
contribution 12500 9400
less
fixed costs:
production cost 2000 2000
selling and admin 4000 4000
Profit 6500 3400

TASK 3
P4 Pros and cons of types of planning tools that are used for the budgetary control.
Budget is defined as a financial forecasting tool and financial plan which helps in
estimating expenditure and income for the purpose of future. It is prepared for a specific time
period wherein the organization can consider its cost and margin of inventory as well as th
resources. ABC Ltd must prepare the budget so that it can determine its financial transaction and
monitor its budgetary control system.
There are many steps involved in which the budget can be prepared. At the initial level,
the ABC Ltd must prepare the strategies and plan in order to prepare the budget and after its
formulation, it is important to take approval of the finance department so that it can be
implemented.
Different types of budget are discussed below which may be used by ABC Ltd-
Capital budget
This is considered as an investment appraisal that is helpful in the process of planning for
long term investment such as plant and machinery, products, etc. It involves large investment for
the specific time period in order to meet future requirements.
The main advantage of this is that it is useful in maintaining records of investment in a
project so that expenditure can be determined. With the help of this budget, the performance of
the organization can be analyzed in an effective manner. On other side, its main disadvantage is
that this budget involves long term decision making which may be irreversible in the future. It is
based on assumption for the prediction of future but the future is uncertain (Fullana and Ruiz,
2021).
Operating budget
It is generally obtained from estimated and predicted income and expenditure which is
totally dependent on forecasted profit and sales of business. ABC Ltd can consider this operating
budget in order to analyze monetary resource which is specified by company.

The main benefit of this is that it that helps the manager in ensuring proper utilization of
the resources, specifically financial. This helps in proper planning of the regular operations of
business. But its main disadvantage is that it takes huge time period and has rigid process of
decision making.
Some other alternative methods of budgeting is discussed below-
 Cash only or traditional budgeting- It is considered to involve the outflow and inflow of
the cash receipt and payments. The ABC Ltd can make use of this budget in order to
maintain its monetary resources. The main advantage of this is that it involves easy
analysis of the profit and loss in financial statement whereas its main disadvantage is that
it has limited ability for credit transaction.
 Zero based budget- This budget mainly begins with zero basis. In this, every expense is
justified basically in new period. ABC Ltd can utilize this budget so that it can determine
the cost related to the operations. The main benefit of this is that it is helpful in removing
the redundant and unproductive activity and the main disadvantage is that it is not
suitable for short term plans as it may contain biased records (Salterio, S.E., 2020).
TASK 4
P5 Comparison as to how firms are adapting systems of management accounting for responding
to financial problem.
The financial problem mainly determines the specific condition wherein the organization
faces many dues issues because of lack of financial resources. It is very important for the ABC
Ltd to analyze its causes of the problem and develop effective strategy to overcome the financial
issue (Vangermeersch, 2020). There are many problems relating to finance which are faced by
ABC Ltd which includes firstly the sudden expenses. As every business involves in certain
transactions on daily basis, they may face sudden or unplanned expenses due to non- utilization
of resources properly. Another problem faced by ABC Ltd may be late payments by customers.
Due to this issue, the company may face financial issue even to run the daily activity due to
shortage of liquid assets. It is very important to identify these problems and must use effective
techniques in order to respond to these financial problems. These are discussed below-

 Benchmarking- It is one of the most effective tool which is used for analyzing the
performance of the company. ABC Ltd can use this tool in order to identify the issues
such as late payment and make such strategies accordingly. This tool involves setting the
standard and comparing the actual performance with in order to identify the loophole.
This will help in responding to the financial problem.
 Key performance indicator- This tool is used for measuring the performance of while
market. There are two ways in which ABC Ltd can use this tool wherein in financial KPI,
it can identify the unexpected expenses and plan its strategy accordingly so that the
planning can be done to prevent any kind of financial problem (Tarmast, Alirezaie and
Hashemzadeh, 2020).
 Financial governance- This involves set of financial principles which must be followed
in every company so that they can prevent any type of financial problem from occurring.
ABC Ltd must implement the principles of financial governance so that they can get
prepared to meet financial problems.
 Budgetary targets- This is a tool used to estimate the amount of money for the financial
year. It involves identifying the revenues and expense so that finances can be managed
effectively. ABC LTD can get involves in making the efficient budget so that it can
determine the variance among the standard and actual figure so that it can deal with a
particular financial issue (Ditkaew, Pitchayatheeranart and Jermsittipasert, 2020).

CONCLUSION
It is concluded from the above report that accounting is an important function of the
business as it involves reporting the revenue and expenses of the business in a particular
financial year. Management accounting is the branch of accounting which involves analyzing,
communicating and implementing the information and data which helps in enhancing the
company’s performance. There are different management accounting system which involves cost
accounting, price optimization, price optimization and many others which helps in effective
management accounting. There are various management accounting reports which includes
budget, account receivable, performance and inventory management reports which helps in
making such strategies wherein the business can grow and succeed. At last it is concluded that
there are many kinds of tools which helps in budgetary control that involves capital budget,
operating, zero based and cash only budgeting which helps in planning budget in an effective
manner. Moreover, the financial problem of business can be improved by using tools such as
KPI, benchmarking, financial governance and budgetary targets.

REFERENCES
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