Management Accounting for Creams Ltd: Systems, Reports and Costing

This report provides a comprehensive overview of management accounting, focusing on its application within Creams Ltd., a medium-sized ice cream, doughnut, and waffle producer. The report explores various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their essential requirements and advantages. It also examines different types of management accounting reports, such as account receivable aging reports, cost accounting reports, performance reports, and budget reports, and their significance in business operations. Furthermore, the report delves into cost calculation techniques like marginal costing and absorption costing, evaluating their benefits and limitations. The integration of management accounting systems and reports is critically evaluated, emphasizing their role in informed decision-making and improved profitability. The report aims to enhance understanding of management accounting principles and their practical application in a business context.

Management
Accounting

INTRODUCTION
Management Accounting refers to the use of financial data and information in an
organization in such a manner so that the managers are able to take the right decisions which can
lead towards an increase in the overall profitability (Armitage, Webb and Glynn, 2016). When
the management makes use of its provisions it can ensure that right plans are made for the future
time period. The managers should focus on making use of its techniques so that they are able to
analyse and interpret the financial data and information to draw conclusions and
recommendations. This can be very helpful for them to bring the required efficiency and
effectiveness in the level of operations. For this report, Creams Ltd. has been chosen. It is a
medium-sized firm which deals in the production of ice-creams, doughnuts and waffles. In this
report, focus will be made on demonstration of understanding of management accounting
systems, application of a range of its techniques. Additionally, explaining the use of planning
tools and comparison of ways in which organizations can make use of management accounting
to respond to financial problems will be discussed as a part of this assignment.
TASK 1
P1: Management Accounting Systems and their essential requirements
Management Accounting has different types of systems. They are explained as follows-
Cost Accounting System- This system is used widely within the organizations because
its techniques are quite useful for the purpose of calculation of costs (Aureli and et.al., 2019). If
the managers of the organization are able to make use of this system in the right manner then it
will help them a lot in reducing the excessive costs and overheads in the different departments
resulting in maximization of profits. For the managers of Creams Ltd., this system is quite useful
in making of the right decisions effectively and efficiently.
Essential requirements-
 This system should be able to identify the different types of departments within the
organization like Finance, HR, Marketing, Sales etc. Thus in this way rectifying
techniques can be used so that these costs are reduced.
1

 With the use of this system different types of overheads can be identified as well as
segregated. This ensures that the companies are able to properly allocate them according
to the particular expenses made by these departments.
Advantages-
 By making the use of this system, an organization can ensure that costs are controlled in a
proper manner. Therefore for the managers of Creams Ltd. this is an advantage.
 When this system is used, an organization is able to use the techniques so that costs can
be reduced. This is beneficial for Creams Ltd.
Inventory Management System- With the use of this system the stock management can
be facilitated by the companies effectively and efficiently (Botes and Sharma, 2017). In this way
they can make sure that they bring the efficiency and effectiveness in their management of
inventory. In this way the managers of Creams Ltd. have an advantage in making use of this
system. This is so because by making the use of this system the managers can make sure that
they are able to track the inflows and outflows of stock without problems and issues.
Essential requirements-
 This system should be able to make use of the methods like LIFO, FIFO, Weighted
Average Cost etc. This will help the organizations in tracking the inflows and outflows of
stock.
 Inventory Management System should ensure that by making use of right techniques
efficiency and effectiveness can be brought in the management of the stock level.
Advantages-
 By using this system, proper maintenance of records of items in the stock can be
maintained. This can help Creams Ltd.
 When this system is used it can lead towards reduction in the cost of maintenance of
inventory. For Creams Ltd., it is very much beneficial.
Job Costing System- With the use of this system the companies can make sure that by
using it they can be able to find out the cost of their different job orders (Ghasemi and et.al.,
2016). By using it, the management of Creams Ltd. can identify the inflows and outflows of the
job orders and reduce the costs of its job orders.
Essential requirements-
2

 It should be able to maintain the records of different types of job orders. This helps in
bringing efficiency and effectiveness in the operations.
 Job Costing System must help the organizations in finding out ways to reduce costs of
job orders so as to maximize the profits.
Advantages-
 Job Costing System is helpful for the purpose of maintaining efficiency in the
management of job orders. This will help Creams Ltd.
 Job Costing System is useful for the managers so that they are able to identify the ways
through which profits can be enhanced by reducing the cost of orders.
Price Optimization System- The use of this system should be able to help the firms in
making sure that they are able to use appropriate techniques for the purpose of setting a right
price within the organization (Gibassier, 2017). This can help the managers of Creams Ltd. In
increasing profits as by setting an appropriate price they will be able to achieve the various goals
and objectives.
Essential requirements-
 Price Optimization System should make use of mathematical models and should forecast
the change in prices in the future time period. This can help the firms as they will be able
to make sure that they can effectively forecast the right prices to be used.
 Price Optimization System must make sure that by setting the right price profits can be
maximized. This can help the organizations in achieving their goals and objectives in the
long-run.
Advantages-
 Price Optimization System is helpful in ensuring that identification of right prices is
made in the organization. For Creams Ltd. this creates an advantage.
 Price Optimization System is advantageous for the managers in making sure that forecast
of change in prices can be made. The managers of Creams Ltd. therefore have an
advantage here.
P2: Management Accounting Reports
Reports are the important document of organisation which is prepared by management in
order to run the business and increase the profitability. For running a business and managing
3

activities there is need to focus on reports and accounting which can help to improve the business
productivity and profitability. Creams Ltd is using different types of management accounting
reports for the purpose of making a profitable business and operating a business by delivering
better quality of products and services.
Account Receivable Aging Reports – This report heavily depend on credit that states
how a business can make profits after receiving the payments (Herschung, Mahlendorf and
Weber, 2018). For businesses it is required to maintain proper records of credits that allows
managers to identify defaulter and receive the payment after a fixed period of time. The
managers of Creams Ltd is required to prepare the account receivable report by keeping proper
records of creditors and get a payment on fixed time. The credit period is 30 days, 60 days and
90 days in which unpaid customers make payment. Moreover, if there is bad debts then it need to
be written off so accurate profits can be calculated.
Cost accounting report – This reports stating the cost of organisation by involving all
income and expenses that are important to run the business and managing the activities properly
(Leotta, Rizza and Ruggeri, 2017). It is important for business industry to manage and run their
business by calculating cost and profitability. In context yo Creams Ltd managers are responsible
to prepare cost accounting reports by estimating cost and expenses which are incurred in
organisation and affected the business. This can help to manage activities as well as performance
in dynamic environment. This also provide an estimation of cost in relation to business that
covers raw material, labour, overhead, cost of inventory and transportation cost that can help to
manage the organisational performance.
Performance report – For reviewing the performance of company performance reports
are prepared by management that can help to evaluate the organisational and management
performance. Whenever organisation wants to expand their business then performance report is
helpful to evaluate the activities and making strategic plans which can help to generate higher
profits. In Creams Ltd, managers are required to prepared the performance report by evaluating
employee's and organisation's performance that can help to understand what need to do and how
it will help to improve the profitability. Moreover, employees are rewarded for their good
performance which shows by such reports that increase the motivation of them and give
confidence to work more.
4

Budget reports – This is defined as accounting reports in relation to a management that
needed to perform well by setting the budget properly (Hiebl and Richter, 2018). It is defined as
estimation of previous information and experiences that can help to make the right business
decisions. Creams Ltd can use budget report by involving all income and expenses which are
incurred in a business and helps to operate the business successfully. This can be uses to make
further plans of investment and completing the task in challenging situation by identifying cost
and make plans accordingly.
M1: Benefits of Management Accounting Systems
Cost Accounting System helps the organizations in segregating costs. Also it can be
helpful for them in reducing the costs effectively. Inventory Management System is helpful for
the firms in management of stock level. Also it can help them in tracking the inflows and
outflows of stock. Job Costing System helps the firms in managing the job orders in a proper
manner. Also it helps them in reducing the costs of job orders. Price Optimization System is
helpful for the firms in optimizing the price. Also it can be useful in maximization of profits.
Thus in this way it is beneficial for the management of Creams Ltd.
D1: Critical evaluation of integration of management accounting systems and management
accounting reports
These can be easily integrated within the organizational processes by making the right
use of correct accounting system and reports. This can lead towards effective decision-making
helping in bringing the required improvements easily. In this way the managers of Creams Ltd.
Can make sure that they are able to realize their goals as well as objectives and thus realize their
chance of maximization of the profits in the future time period helping them in achieving
sustainable success.
TASK 2
P3: Calculation of costs by making use of appropriate techniques
Profitability level can be identified with the use of various types of techniques. This can
be quite helpful in the context of the organizations. These techniques are-
Marginal costing-
5

It is a technique which is used quite commonly so that the organizations are able to find
out the break-even point (Honggowati and et.al., 2017). It is a point where it earns neither profits
nor does it incurs losses. This is useful for facilitation of comparison with other companies. In it,
the variable cost is charged to the units of production and fixed cost is written off against it.
Creams Ltd. can make use of this technique so that it is able to effectively find out its profits
easily.
Advantages-
 The use of Marginal Costing technique is helpful for the managers in determining the
break-even point. Thus in this way it is advantageous for the management of Creams Ltd.
 This technique is very useful for the managers because it is very simple to use and
understand. This is beneficial for Creams Ltd.'s management.
Disadvantages-
 It is not useful in the computation of overheads within the organization which is quite
crucial. This creates disadvantage for the managers of Creams Ltd.
 Marginal Costing technique can be disadvantageous because it is not comprehensive in
nature. This is a disadvantage for the management of Creams Ltd.
Absorption Costing-
It is a technique in which the comprehensive computation of overall costs within an organization
is made. The managers of Creams Ltd. can make sure that by making use of this technique they
are able to evaluate the total costs in the company.
Advantages-
 Absorption Costing technique facilitates the treatment of overheads incurring within the
organization. This is an advantage for the management of Creams Ltd.
 This technique helps in the segregation of the different types of costs which are incurred
in the departments. In this way an advantage is created for the managers of Creams Ltd.
Disadvantages-
 This technique is not helpful for the managers in comparing and controlling the costs in
the organization. This is a disadvantage for Creams Ltd.
 Absorption Costing technique does not helps the managers to take decisions. For the
managers of Creams Ltd., this is a disadvantage.
6

7

8

9

M2: Application of management accounting techniques
Both of these costing techniques can be used by the companies for the facilitation of the
calculation of costs and profits. This helps in producing financial statements in the organization.
Thus the managers of Creams Ltd. are required to ensure that they can make use of these
techniques effectively and efficiently and provide good financial statements which reflect the
financial position of the company so that appropriate comparison can be made with other firms
and the necessary improvements can be made with the use of rectifying techniques.
D2: Producing of financial reports
Cash Flow Statement, Trading A/c, Profit and Loss A/c and Balance Sheet are financial
reports which are very helpful for the managers because they not only reflect the profitability and
financial position but also help in analysis and interpretation. Using them, the management of
Creams Ltd. can find out the problems and issues which they are facing and thus in this way can
use techniques to find solutions to them.
10