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.
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 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-
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 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
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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.
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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-
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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.
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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.
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TASK 3
P4: Advantages and Disadvantages of planning tools for budgetary control
Budgetary Control is a technique through which the budgets are framed within an
organization and the detailed forecasts of incomes and expenditures is made for the future time
period in order to make plans and to take decisions effectively. It is used by the managers of
Creams Ltd. for the purpose of increasing their efficiency and effectiveness.
Operating Budget-
Operating Budget refers to the forecast of operating revenues and expenses over a
particular period of time which is mostly a year (Kastberg and Siverbo, 2016). This can be used
by the management of Creams Ltd. So that they are able to find out the way their operations can
be carried out to ensure maximum efficiency and effectiveness.
Advantages-
 This budget can be helpful for the companies so that they are able to track and manage
their operating expenses and incomes. For Creams Ltd., this is an advantage. For
example- In Creams Ltd. The use of this budget can be made for identifying expenses and
incomes associated with selling ice-creams.
 It can be useful for the firms to make sure that they can identify the techniques of
maximization of the operating profit. This is advantageous for the management of
Creams Ltd. For example- In Creams Ltd. It is required that the managers are able to
identify the methods through which they are able to sell more ice-creams and enhance
operating profit.
Disadvantages-
 With the use of this budget there is a lack of flexibility which is created in the context of
the organizations. In the context of Creams Ltd., this is a disadvantage. For example- In
Creams Ltd. The use of this budget creates a limit on the operating expenses.
 This budget is based on accuracy of facts and information. If they are wrong then it can
give wrong results. This can create a disadvantage for Creams Ltd. For example- If there
is a mistake in the books of accounts of Creams Ltd. Then this can lead to preparation of
wrong budget.
Sales Budget-
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Sales Budget refers to a plan of the money which must be spent by a company for
producing and selling goods or services in a particular period (Sales Budget| Process,
Importance & Examples, 2020). Creams Ltd. can make use of this budget so that it is able to
predict the changes in sales revenue in the future time period and take decisions accordingly. In
this way they can make sure that they bring efficiency and effectiveness in their sales operations.
Advantages-
 By using the sales budget the right comparison can be made by the organization with the
data of previous years (Turner and et.al., 2017). This is advantageous for the managers of
Creams Ltd. For example- The managers of Creams Ltd. Use it for comparing with
current year sales with previous year.
 This budget can help the organizations so that they are able to make sure that they can
predict the sales figures for the future time period (Usenko and et.al., 2018). Creams
Ltd.'s managers have an advantage here. For example- In Creams Ltd., the managers use
this budget for forecasting of future sales.
Disadvantages-
 Sales Budget does not considers the different types of market fluctuations which can
affect the sales revenues earned by an organization. This creates a disadvantage for
Creams Ltd. For example- The sales of Creams Ltd. Keeps on fluctuating and this cannot
be considered by Sales Budget.
 There are certain expenses which are not included in a sales budget and can create an
influence on the organization. This is a disadvantage for the management of Creams Ltd.
For example- In Creams Ltd., certain indirect expenses are not included as a part of the
budget.
Production Budget-
Production Budget can be prepared by the organizations to identify the expenses to be
incurred and revenues to be generated through production during a fixed time period (Malmi,
2016). Thus this budget is helpful for the management of Creams Ltd. So that they are able to
take the correct decisions.
Advantages-
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 With the use of Production Budget the organizations can make sure that they are able to
use the correct methods and techniques for optimizing the production (Manyaeva,
Piskunov and Fomin, 2016). For Creams Ltd. 's managers this creates an advantage. For
example- In Creams Ltd. The mangers identify the extra expenses they are incurring in
production and try to reduce them.
 This budget is useful in controlling the expenses incurred in production (Otley, 2016). In
the context of Creams Ltd., this is advantageous. For example- In Creams Ltd. The
managers identify the expenses which can be controlled and use methods for controlling
them.
Disadvantages-
 Preparation of Production Budget is time-consuming. This is a disadvantage for Creams
Ltd. For example- A lot of time is taken for preparation of Production Budget in Creams
Ltd.
 Its preparation is quite costly in nature and therefore demands a lot of expenditure. For
Creams Ltd., this creates a disadvantage. For example- In Creams Ltd., there is an
increase in the overall expenditure due to the preparation of this budget.
Justification- Operating Budget can be used by the management of Creams Ltd. Because
it provides a comprehensive overview of operating expenses and incomes helping them in taking
decisions.
M3: Analysis of use of planning tools
Companies like Creams Ltd. can make use of the planning tools in the correct manner.
This can ensure that the organizations are able to identify the right way to make the required
plans. Through it the managers can make the required strategies to target the maximization of the
profits in the future time period. Therefore the firms should put their concentration on optimizing
the usage of these tools so that the correct recommendations and conclusions can be drawn
which form the course of taking the necessary action for the future time period.
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TASK 4
P5: Comparison of organizations in the adoption of management accounting systems to solve
financial problems
Financial Problem- Organizations have different types of financial problems and due to
it they can face financial constraint (Pavlato and Kostakis, 2018). Different companies face it at
some point of time. Like other organizations, Creams Ltd. also faces certain financial problems.
These are described as follows-
 Poor inventory management- There is lack of proper inventory management within the
organization. This is creating issues for the management of Creams Ltd. because this can
affect the value of the stock of the company.
 Poor management of job orders- The company receives job orders from many clients.
However recently it is witnessing poor management of its job orders. This is creating
problems for its managers as it leads towards lower profits.
Financial governance- Financial Governance means the way in which financial
information is collected, managed and monitored by an organization (Pelz, 2019). Creams Ltd.
should use ensure it which will lead towards establishment of financial discipline within the
company. Also it will enable it to solve its financial problems easily.
Comparison of organizations-
Basis Asda Aldi
Financial Problem Asda is incurring higher
expenditures in its operations
which is decreasing its profits.
Aldi is facing lower profits
because of setting of wrong
price which is leading to a
reduction in its profitability
level.
Management Accounting
System
Asda can make use of Cost
Accounting System.
Aldi can make use of Price
Optimization System.
Application of the system Asda can apply this system in
its processes by identifying the
Aldi can apply this system by
making sure that it sets the
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different types of costs. correct price by forecasting the
price changes.
Use of the system Asda can use this system
effectively to reduce costs and
maximize the overall profits.
Aldi can use this system to set
a price which helps in
increasing the profits.
Techniques-
 KPIs- These are Key Performance Indicators (Quattrone, 2016). They help in assessing
and determining performance. By using them the managers of Asda can solve the
problem of higher expenditures in operations as they are helpful in the correct assessment
of the financial situation through which the management can resolve this problem.
 Benchmarking- It is a technique commonly used to set benchmarks and standards
(Quinn and Hiebl, 2018). Using it the managers of Aldi can make sure that they solve the
problem of setting of wrong price as they can compare their prices with the industrial
standards and forecast the correct prices in the future time period helping them to
enhance their profits.
From the above comparison of Asda and Aldi, it is recommended to the managers of
Creams Ltd. That they make use of the management accounting systems which will help them in
solving the financial problems. They should make the use of Inventory Management System to
solve the problem of inventory and must use Job Costing System so that they are able to solve
the problem of job orders effectively and efficiently. Thus in this way the processes of the
organization can be made even more better and this will allow the organization to be able to
attain sustainable success in the future time period.
M4: Analysis of response to financial problems
If the managers of Creams Ltd. are able to resolve the financial problems in the correct
manner then they will be able to lead the organization on its path towards sustainable success.
Thus the response to these problems must be appropriate from the side of the management and
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they should aim to accurately determine the action which they can take to solve them as soon as
possible so that they do not affect the profitability level.
D3: Evaluation of planning tools
Planning tools should be used by the managers of Creams Ltd. so that proper short-term,
medium-term and long-term plans can be made for the future time period. Therefore this ensures
that they are able to maximize the potential of the enterprise and use the appropriate methods and
techniques which will allow them to increase the revenues and profits and thus ultimately the
company will achieve sustainable success. Thus it can be concluded that these tools are of
immense benefit to any organization.
CONCLUSION
From the above report, it can be concluded that management accounting is helpful for the
management in taking appropriate decisions. They are important as they determine the future
course of action. Its provisions are useful from the point of view of the managers so that they can
summarize the given financial information in a correct manner and draw conclusions and
recommendations. Therefore it has to be used appropriately by the managers. It has different
types of systems which benefit the managers. Its reports are useful in analysing and interpreting
the given information. Its techniques can be used for the purpose of calculating costs and
determining profits. Planning tools can be used for the purpose of making detailed plans for the
future time period. Organizations are making use of management accounting systems to solve
financial problems which are faced by them in the conduction of their various types of regular
activities and tasks.
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