Management Accounting Report: ABF Plc, Financial Planning & Analysis

This report delves into the realm of management accounting, providing a comprehensive analysis of its systems, tools, and practical applications. The report begins with an introduction to management accounting, emphasizing its role in decision-making, performance improvement, and overall business strategy, using Associated British Food Plc (ABF Plc) as a case study. The first task examines various management accounting systems, including inventory management, cost accounting, price optimization, and job costing systems, highlighting their benefits and integration within organizational processes. Different methods used for management accounting reporting are also explored, such as accounts receivable, budgets, inventory management, and performance reports. The second task assesses the use of planning tools within management accounting, evaluating their application and effectiveness in addressing financial challenges. The report concludes with a summary of the key findings and a discussion on the significance of management accounting in the modern business environment, including the preparation of profit and loss statements using absorption and marginal costing methods.

Management accounting

Table of Contents
INTRODCUTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
PART 1........................................................................................................................................1
A) Different types of management accounting systems.............................................................1
B) Different methods used for management accounting reporting............................................3
C) Benefits of management accounting systems.......................................................................5
D) Integrated of system and reports within organisational processes.........................................6
PART 2 .......................................................................................................................................6
Three planning tools used in management accounting,.............................................................6
Evaluate uses of different planning tools and their application:.................................................8
Evaluate planning tools for accounting period to respond financial problems appropriately.....8
TASK 2............................................................................................................................................8
PART 1........................................................................................................................................8
PART 2......................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
APPENDIX....................................................................................................................................13

INTRODUCTION
In present business scenario, the process of controlling, managing, analysing,
interpreting, calculating and making meaningful decision for improving the overall position of
business is known as management accounting (Abdelmoneim Mohamed and Jones, 2014). The
concept is one of the most fundamental and classical aspect of business organisation that support
to make valuable judgement to manage daily activities and maximise the total profitability and
efficiency of worker and different operations. The collected financial and non-financial
information by manager is used for different purpose such as communicating financial events
within company, determinant to make decision on resources allotment and provide valuable
feedback for further improvement and quality assurance. To better understand the concept of
management accounting Associated British Food Plc is selected that is a multinational food
processing and retailing company with headquarter in London.
In this report, management accounting system and its benefits are defined with their
integration within organisation process and various reports are also elaborated. Analysis of
planning tool implemented in management accounting is discussed underneath. In addition,
statement of profit and loss are prepared by using absorption and marginal costing method for
each months and analyse of latest financial statement are defined in this report.
TASK 1
PART 1
A) Different types of management accounting systems.
Management accounting is defined as the process of gathering, posting, analysing,
measuring, evaluating and calculating the compete performance of company in term of actual
growth and development. This also help in setting strategies and policies that can be used to in
making daily activities
 It makes manager capable to compare and contrast the financial performance with the
help of collected data. This make the proper use of available resources, determine the
variances in revenue and cut the expenses which support in increasing profit.
 It support in preparation and implementation of effective policies that aid to grow stock
level, expansion of business and sales volume (Bagautdinova, Kundakchyan and
Malakhov, 2013).
1

 Management accounting ease the process of decision-making as it hold the detail
information about total financial and non financial happening within an organisation.
Overview of Company:
Associated British Food is one of the leading food company in UK that deals in
international food items, ingredients and retail items and have sales approx £15.6bn within in a
year. It have around 137000 employees and cover almost more than 50 countries across Europe,
Africa, America, Asia and Australia (About Associated British Food, 2019). The company have
five business segments which support them to enjoy high degree of Autonomy in gaining huge
success these group are Sugar, Agriculture, Retail, Grocery and ingredients. This company was
established in 1935 by W. Garfield Weston with the main purpose of providing good quality of
food item to the people o0f UK.
Management Accounting System: This system is a process of collecting, classifying,
recording, analysing, presenting and controlling the material information in such a way that
internal management may utilise this data in planning organizational operations and effective
decision making in order to achieve the objectives. Management Accounting involves financial
as well as non-financial information to help the management of Associated British Food Plc
limited in preparing and presenting the budgets, planning accordingly and focusing on analysis
of performance of the firm. Some of the management accounting system tools in context with
selected firm are presented below:
Inventory Management System: Inventory is the main key products which generate the
major part of revenue. An effective accounting process and track record is first priority of any
organization so that quality and availability can be ensured every time. Inventory management
system helps in keeping record from purchase of raw material to finished goods available. It also
includes information about cost of goods sold, goods shipped for delivery, goods sent on
consignment, sales return, etc. The management of selected firm uses inventory management
system to keep an eye on entire inventory, ensure availability of raw material on time, choose
appropriate method to evaluate cost of inventory and keep record of customers. An effective
inventory management system helps to eliminate shortage of goods, saves the time, energy and
space and build a satisfy customer base for respective firm (Bargate, 2012).
Cost Accounting System: It is very essential for an organization to record, analyse and
summarise all information for cost related to production. It is necessary to calculate and forecast
2

estimates related to cost of production very effectively so that decision and planning may be
execute efficiently. It includes events founded on accepting, recording, examining, grouping and
summarizing costs related with valuable goods and services. It is an accounting system that used
by manufacturing units to determines the cost of the finished goods for stored inventory, cost
controlling, profitability of the organization. In the chosen company, cost accounting system is
useful to calculate the total; cost included in running different production operation, cost incurred
by labour and other various cost. This further useful to calculate and measure the entire
profitability of business and in case of adverse outcomes, remedial improvement can be made to
attain desired results.
Price Optimisation System: Price optimisation system is a mathematical tool to opt out
the optimum price for any product in a particular market. This method is used to understand
reaction and behaviour of customers regarding different prices of a product or services. With the
support of Price optimisation system manager are able to calculate the best possible price of their
goods that will attract large number of customer and support them, top maintain desired profit.
The management of respective firm uses this system to fix the product price by analysing the
cost of production, understanding customer needs and evaluating desired profit (Bloomfield,
2015).
Job Costing System: Job costing system is a process to calculate and analyse the cost of
specific product or job provided by customers with some customisation. This costing system is
applicable in those industry where manufacturing cost is assessed as per the total number of
accomplished jobs. These type of customised goods are sent to the customers immediately after
production so costing of these products is not possible with inventory management or cost
accounting system, hence job costing is essential for customised goods. Associated British Food
Plc limited uses this system to evaluate the specific cost and efforts to motivate and reward its
employees.
B) Different methods used for management accounting reporting.
It is a process that includes financial data to operate the business activities to internal
stakeholder of an organisation. Management reporting is process that refer to monitoring,
controlling, evaluating the whole performance of the company in order to control the business
activities during the financial year. Associated British Food Plc uses the detailed financial
information and business matters to make these reports. These kind of reports manage the overall
3

business and commercial activities in order to assess the company’s overall performance.
Management accounting reports are used for regulating, planning and decision making in the
organisation.
Accounts receivable reports: It is a collective report that identified customer that owed
money with the firm and needs to be paid within the credit period. It is an effective way to
strengthen the organization's liquidity position by tighten credit period policy of the industry's
unit. It is accumulation tool of the management accounting reporting that shows unpaid
customer database with overdue payment in the organization (Collis and Hussey, 2017). This
reports are basically generated by the management of particular company which is dealing in
credit with its customer. It helps to management of Associated British Food Plc Limited to
identify the customer who have owed balance with company and they required to pay within the
credit time of period. This reports shows that how much amount is credit with customer and
needs to recover with them within particular credit period. Account receivable reports helps to
management to understand the Organization's liquidity position in short term period.
Budgets Reports: This is used by the manager to bring comparability and discover the
deviation among actual and budgeted result It is also used by manager to control costs that is
spend on different cost centers and average estimation in budgets if required. This is internal
management reports that used by manager of Associated British Food Plc Limited in order to
compare the budget estimates with the actual performance of the company. This reports shows
actual result of an organization regarding the conducted activities by the business. The analytical
report is initiate by the manager in order to know variance between actual and standard data. If
management finds some difference between these data, they needs to identify the reason behind
so that they can mind the gap between these data. These reports can help the manger to
understand the business strategies to make final decision for betterment of the organization.
Inventory Management reports: This report is related to real time stock inflow and
outflow for a specific time period. This report is generated by manufacturing and production unit
company in order to keep record of raw material stock. It may include unit of raw material,
finished goods, scrap, labor cost, other overhead related to stock item. Associated British Food
Plc Limited is preparing this report on weekly basis to know the manufactured item and their
cost of production in particular week. With the help of this report management can handle real
time stock movement at particular location of unit. There are some methods to evaluate the
4

finished goods inventory such as LIFO, FIFO and weighted average method. This report helps to
management in decision-making process related to valuation of inventory management at the end
of the financial year (Demski, 2013).
Performance reports: It estimates the overall performance of the firm along with its
employees. Annual performance report is made to know the result of every single operational
activities conducted in the business. This report is created by the management to review the
overall performance of an organization over a particular period of time. It is detailed report that
specifies to management regarding the actual result of the manufacturing activities of the
employees. Associated British Food Plc Limited uses this report to formulated the business
analytical process by assessing the current performance of the employees as well as company.
Management evaluates the achievement of employees against the assigned project and
contribution made by them to achieve the defined targets. So company can provides bonus and
incentives to the individual according to their performance.
C) Benefits of management accounting systems.
Each system of management accounting have its own importance for company support to
increase the performance and brand value in specific marketplace. Such as cost system is used to
define the cost related with every activity, price system to set the faithful price of goods which
help to recover cost and maintain profit. There are some other importance of these system that
are discussed below:
System Benefits
Cost Accounting system  With the assistance of cost accounting system
manager are able to determine the cost in order to
control the unexpected expenses to increase
revenues (Gullkvist, 2013).
 This system support in order to find out all those
activities which are unprofitable so that money can
be incurred on other activities.
Inventory Management System  It help to maintain a systematic record of total
goods that are available for sales which help in
making effective strategies to increase sales
5

volume and actual availability of raw material so
that production level can be increased.
 This support company to established better plans
which aid them to operate business in inflation.
Job Costing system  The primary assessment of this system is to figure
out most gainful occupation with respective
company to increase profit margin.
 It gives a platform to manager for predicting cost
of same jobs that are taken in future which further
support in future planning for production.
Price Optimisation System  This system is helpful in setting best suitable price
of specific good offered by Associated British
Food.
 It is also used in attracting large number of
customer base by providing required food items on
low prices (Kanellou and Spathis, 2013).
D) Integrated of system and reports within organisational processes.
In business world, different processes with organisation provide a basis for execution of
assorted management accounting systems and useful reports. For instance manufacture and sales
section of respective firm gives authentic information about total demand and supply of specific
goods that are in trend with particular time frame which enable top manager in execution of cost
accounting system, inventory management system and price optimisation system. It also aid to
develop annual performance report of employees and operation of company which make sure
that any possible improvement can be made in future. Other reports like budgets reports support
an organisation to predict amount future expenses in reliable manner so that actual revenue can
be earned. Thus it is stated that in business enterprise it is essential to integrate management
accounting systems and management accounting reporting within organisational processes.
PART 2
Three planning tools used in management accounting,
Benchmarking:
6

In general, by using this tool manager are able to compare the process, programs, policies
and execution matrices with similar company. Benchmarking is a process that measures the
performance of a company’s products and services against those of another business. It
evaluates the organisation's internal procedure and performance and compare with those of other
related organisation (Maher, Stickney and Weil, 2012). In this Comparison, It basically discuss
cost, time, quality standard and other basic dimensions. So business organization can add more
features in the productions. This is planning tool that evaluates company's annual performance
result with predetermined standards. It helps to increase in the operating business activities in
term of better, faster and cheaper. Associated British foods Plc is food processing and retailing
company which operate in sugar and baker yeast product in United Kingdom. Company analysis
the actual produces product quality with the set standard. Benchmarking is applied this
performance index techniques to know the efficiency of organisation against the best
performance in related industry.
Break even analysis:
It is refers to income needs to recover total cost of the organisation over s specific time of
period. It is a particular point where total cost and total income are equal means no loss or no
gain earned by the organisation. If a company wants to make abnormal profit then they need to
cross this point. But this point determine company is in secure position once an organisation
cross break even point, they are profit making company. Company is required to maintain this
level to earn more profit. In the Manufacturing industries normally every unit makes this analysis
to know the production level where cost are equal to selling units. Associated British foods
conduct this business analytical tool to maintain the level of production from where company can
able to generate more revenue. Following is a formula of break even point to compute the sales
level:
Break even point = Total Fix cost/contribution per unit
Here, Contribution per unit = sales price per unit–variable cost per unit
Fix cost refer to the cost which does not change with changes in production level. Where
variable cost are production cost that incurred to produce a single unit by a company (Malinić
and Todorović, 2012).
Activity based costing:
7

It is costing approach that monitor the resource consumption based activities. This cost
assign the production cost to manufacturing units. It simply means allocating the total cost as per
the machine hour. It is managerial accounting method which allocate total overhead to particular
activities. For example electricity expenses are allocated on the basis of machine hour rate. These
type of costing are used in manufacturing unit to production the related goods. Associated British
food Limited is using this method to know the actual cost of the production as per their units.
Manufacturing company used this method to increase the accountability of the cost driver.
Because it is more accurate way to allocating the indirect cost to production unit in
manufacturing units.
Evaluate uses of different planning tools and their application:
In different business situation managers are needed to apply appropriate planning tools
which support to upraise the quality of information that are essential while making any type of
budgets and reports as per the nature of business. Three main planning tool like benchmarking,
break even analysis and activity based costing are implemented by management of Associate
British food which make them sure to forecast the figures related with cost and total revenue. It
also aid to set the authentic values that are used in formulation of different budgets. All these
planing tools assist to create a legal framework which are further supportive to make decision for
better attainment of goals.
Evaluate planning tools for accounting period to respond financial problems appropriately
In business world, determination and responding to different financial problems is one of
the major task for manager. There are various problems such as unreasonable expenses, over
and under utilisation of resources, excess budging, etc. thus they are needed to be resolved at
specific time in order to achieve sustainability in competitive world. Different planning tools are
beneficial for company to determine several like benchmarking tool is used to determine the
weak area of business which make them work on these areas to increase profit (McLaren,
Appleyard and Mitchell, 2016).
TASK 2
PART 1
Income statement under Marginal costing
for the month ended May
8

Particulars Details Amount(£)
Sales revenue 400000*10.50 4200000
Direct material 550000
Direct labour 750000
1300000 1300000
Contribution 2900000
Fixed overhead costs 600000 600000
profit for the year 2300000
Income statement under Marginal costing
for the month ended June
Particulars Details Amount(£)
Sales revenue 360000*10.50 3780000
Direct material 550000
Direct labour 750000
Closing Inventory
(30000*13) 1300000 1300000
Contribution 2480000
Fixed overhead costs 600000 600000
profit for the year 1880000
Income statement under absorption costing
for the month ended May
Particulars Details Amount(£)
Sales revenue 400000*10.50 4200000
9

Direct material 550000
Direct labour 750000
Fixed overhead costs 600000
1900000 1900000
Gross profit 2300000
distribution and
administration cost 0 0
Net profit 2300000
Income statement under absorption costing
for the month ended June
Particulars Details Amount(£)
Sales revenue 360000*10.50 3780000
Direct material 550000
Direct labour 750000
Fixed overhead costs 600000
Closing Inventory
(40000*10.50) 420000
2320000 2320000
Gross profit 1460000
distribution and administration
cost 0 0
Net profit 1460000
PART 2
Ratio analysis: It is defined to be an meaningful quantitative method that support in
gaining insight within company overall liquidity, efficiencies and profitability by contrasting
information obtained from financial statement (Morden, 2016). It is mainly done by calculating
10