Management Accounting Report: Cost Analysis, Planning, and Adaptation

This report provides a comprehensive overview of management accounting principles and their practical application within the context of Western Food Limited, a UK-based food manufacturing company. It delves into various aspects of management accounting, including explaining management accounting systems, methods of reporting, and calculating costs using marginal and absorption costing to prepare income statements. The report also examines different planning tools used for budgetary control, analyzing their advantages and disadvantages, and compares how organizations adapt management accounting systems to respond to financial problems. The analysis includes practical examples such as break-even analysis, variance analysis, and the identification of fixed and variable costs, offering a detailed understanding of cost behavior and its impact on profitability and decision-making. The report uses real-world scenarios to illustrate the importance of accurate financial data for strategic planning and organizational success. Finally, the report concludes with a concise summary of key findings and recommendations.

Management
accounting
Table of Contents

INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.................................................................................................3
P2 Explain different methods used for management accounting reporting.................................6
TASK 2............................................................................................................................................7
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................7
TASK 3..........................................................................................................................................12
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.......................................................................................................................12
TASK 4..........................................................................................................................................14
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
Books and Journals:...................................................................................................................17

INTRODUCTION
Management accounting is the procedure of accounting system that provided detail
structure and documents of accounting information using through various tools and techniques.
Management require the operation's of planning functions and in accordance with that collection
of resources and makes its fuller utilisation. However, accounting system consist the same role as
a part of management function. It plans the cost, expenditure, incomes and reserves into
systematic manner. Involving appropriates accounting standard helps in retention of employees
and attracting shareholders towards organisation profitability and accuracy. It helps in
identification of financial and non financial data of the organisation that provide assistance to the
managers in making decisions regarding finance sources, keeping records, data entry and
comparison between past and present growth (Ravenda and et.al., 2019). According to the
provisions of CMA cost management accounting system, country like London involves
accounting as a term of making policies and strategies top look at organisation glow of monetary
elements and at which source. This report is going to consist role of management in accounting
standard in the context of western food limited, it is a medium scale enterprise in London UK.
The company has manufacturing concern into food products. It has taken into consideration all
the counting measures for the enterprise to attract shareholders and enhance expansion.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting is a appropriate system of identifying, analysing, recording and
deciding the financial outcome of the company. In involves managers decision making regarding
needs of financial funding and capital investment into the organization. Management accounting
provides an initial structure of techniques to record transactions on daily basis, prepare
statements and take decisions regarding buying investments. In carries out the activity of
preparing statements and records to gather wide data into one single documents, these data are
collected for stakeholders preferences as it work as a proof of companies profitability into
market. The documents show organisations potential in order to stand against competitive
market.

There are two main source of accounting process but are differentiated from each other.
The most popular function is managerial accounting as it is broadly used into the context of
organisations purpose.
Basis Managerial Accounting Financial Accounting
Content Financial and non-function
both the aspected is related
with this accounting.
This function only focus on
financial criteria. As it is its
main purpose.
Uses and Purposes The function in integrated and
executed by the stakeholders
within the organisation to take
proper decisions regarding
both the aspect (Forghani, and
Tavasoli, 2017).
This function based on
stakeholders interest into
organisation function by
knowing information
regarding financial position of
the company.
Rules, Regulations and Laws This process does to involve
any provision of eyes of law
because it is used for internal
purpose only to make records
and data for their self use.
This process has affected by
many rules and regulations of
law that is needed to taken into
concern for financial mangers
while preparing reports.
Auditing It is a function in part of
accounting system to analyse
and check the performance
through reports and data
collected in figures in order to
take effective measure so that
problems would get overcome
and organisation sounds
profitability.
This function indulge auditing
through outsiders through
chartered accounts. They go
through with all the records
and ensure about its
creditability into market. So
that, the company will not lack
with any legislation of laws
work under accounting
regulations.

There are further different accounting systems which are mentioned below:
Cost Accounting System: this system consist the data and facts of cost related facts of the
organization. These cost could be any of like variable, fixed, accumulated or semi-variable that
an organisation incurred while running organisation functions. This system provide an assistance
regarding lowering down all these costs by taken corrective measure and cost effective
techniques where he organisation lack of efficiency. Organisation existence is based on its
profitability which will be provided by analysing and minimizing cost and maximizing the
profit.
Inventory Management System: this accounting and management is all based upon the
inventory and stock which company maintains for manufacturing and selling. It does include all
the unfurnished products like raw materials, semi-finished and fully finished products in order to
make them available for resale. This stock in due and maintain for specific time period that cost
extra to the company. To reduce these extra cost companies use this system of accounting and
clear unsold stock first (NGUYEN, 2020) (Talebi, and Bahri Sales, 2018).
Job Costing System: this cost is basically incurred on working on special and specific
product as per customers requirement. As western food limited provides product with customer
demand it incur cost of production process. It is needed to analyse these cost in order to attain
profits over expenditure. It consist all the expenditure incurring relation to production,
promotion and selling aspect.
Price Optimizing System: this process is all based on evaluation prices and cost of
products. By indulging this process, The western food Ltd will be identify what should be the
minimum price for their product which ill cover the profit over costs. Price optimization is an
essential function to facilitate process as per customer creditability for purchasing.
These are the major accounting systems which are followed by the organisation to the
most of extent and provide accurate assistance in leveraging profits and minimizing cost. Some
of the methods are cost effective and some are to take decision for future purpose (Das, and
Singh, 2018).

P2 Explain different methods used for management accounting reporting.
Reports are the major part of accounting system theta specifically shows the data, facts
and figures drives from the organizational performance. These reports are significant to optimize
company potential over their cost and expenditure that will make them reliable to take
competitive advantage. The main purpose of preparing report is to make differentiation among
past performance with the current trends and money worth This includes all the cost and incomes
regarding operations, working capital, sales and purchase also other fixed and variable costs.
Managers will get assistance through these data in decision making purpose to decide where to
cover the cost and make it convert in6to profits. A business organization will only look forwards
to the factor where they get maximum profits and make all these scenario of this purpose only.
The report must be prepared in accurate and relevant way by building correct data and facts.
Any up down in figures will lead to cause a hurdle into whole organisation performance. So that
it is all are in the hands of accounting manager to be authentic and reliable with reports
formation. There are many reports that are essential to prepare for mangers are described below:
Budget Report: this cost is initial that needs to be prepare for the foremost aspect as it
contains budget for the company performance. The budget has been prepare on the bass of past
performance and must considers to eliminate all the expense which are not feasible for the
organization (Kim, And Matsumura, 2017).
Job Cost Report: this report is based on the special cost occurred in the special events
and production. The purposed report consist all information regarding expense labors,
transportation and accumulated cost of machinery.
Inventory and Manufacturing Budget: the report includes all the information regarding
goods, inventory whether it is opening or closing, sold or unsold. Each details will be covering
into structure of report and managers make final conclusion on which elements needs to move
out from the process on inventory flow.
Order Information Report: under this process, the management of organization prepare
reports for all the orders received an enormous numbers through different location. That needs to
be record so that no order will be left out from its delivery and information containing its price
and invoice that will show actual profit company has earned.

Accounts Receivable Aging Report: under this report, organization keep records of
receivables data I.e. whom goods have provided them on credit basis and money is about to be
revived. It is required to keep their information so that no amount will convert into bad debts.
Performance Report: this report consider performance of organization function through overall
companies working in terms of employees, stakeholders. It sets appropriation standard to be
effective and profitable into all the management criteria (Altukhov, Predeus, and Predeus,
2019).
TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
Income
Statement
as per
Absorption
costing
Particulars Working Amount
Sales 1500*35 52500
Less: Cost
of goods
sold 1500*20 30000
Gross
Margin 22500
Less:
Selling and
administrati
on
expenses

Variable
Selling and
Administrat
ion expense
52500 *
15% 7875
Fixed
Selling and
administrati
on
expenses 10000
Net
operating
income 4625
Working
Note:
Particulars Amount
Direct
Material 8
Direct
Labour 5
Variable
manufacturi
ng
overheads 2
Total
variable
production
cost 15
Fixed
manufacturi
5

ng
overheads
Unit cost 20
Income
statement
as per
marginal
costing
method
Particulars Working Amount
Sales 1500*35 52500
Less:
Variable
Expenses
Variable
production
cost 1500*15 22500
Variable
Selling and
Administrat
ion expense
52500 *
15% 7875
30375
Margin
Contributio
n 22125
Fixed
Expenses
Fixed
production
15000

overhead
Fixed
selling and
administrati
on expense 10000
25000
Net Profit -2875
Working
note:
Particulars Amount
Direct
Material 8
Direct
Labour 5
Variable
manufacturi
ng
overhead 2
Unit cost 15
2 a
1. Identify which costs are fixed and which costs are variable.
Fixed cost:
Activities Amount
Manager Salary 5000
Rent Expenses 5000
Insurance Cost 500
Utility 500
Advertisement cost 1000
£12000
Variable cost:

Activity Amount
Direct Material costs per unit of Pizza 3.50
Direct Labour costs per unit of Pizza 1.50
Direct Overhead costs per unit of Pizza 0.50
£5.50
2. Show the Break-even point using a Break-even graph.
Break Even Point (In unit): Fixed cost / contribution per unit
Contribution per unit = Selling Price per unit - Variable cost per unit
= 9.50 - 5.50
= 4.00
BEP = 12000 /4
= 3000 Units
Break Even Point (In revenue): Fixed costs / PV. Ratio
PV ratio = Contribution/selling price*100
= 4/9.50*100
= 42.10%
BEP (In revenues) = 12000 /42.10 %
= £ 28503
3. What would be the Margin of Safety if the organization managed to sell 2500 Pizzas?
Margin of safety sales = Sales unit - BEP in Units
= 2500- 3000
= -500 Units
4. If the manager’s salary is increased to £6,000, how will this affect the BEP in units and in
sales value?
If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New Break Even Point (In unit) = 13000/ 4
3250 Units
New Break Even Point (In revenue) = 13000/ 42.10
= £ 30878

2 b
Preparation of graph:
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed Cost 12000
Break Even Point 28503
Variance analysis report:
Actual units sold = 12000
Budgeted units to be sold = 10000
Budgeted price per unit = 9.50
Sales volume variance = (Actual units sold - Budgeted units sold) x Budgeted price per unit
= (12000- 10000) * 9.50
= 2000 *9.50
= 19000 Favourable
Flexible budget
Items Actual Budgeted Variance
Sale price 10 9.50 .50 Favourable
Sale units 12000 10000 2000 Favourable
Revenue 120000 95000 25000 Favourable
Fixed costs 15000 12000 3000 Adverse
Variable costs 5 5.50 .50 Favourable
TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Management accounting need to improve its credibility by taking appropriate measures
through controlling and measuring allocated budgets. There are various merits and demerits of
recognizing budgets into well manner. This will provide benefits in accepting flaws and make
measures to achieve objective of company. The western foods limited make ensure about tools
which could be used for controlling budgets so that it move further for its execution to grow and
expand sound position of company (Ehalaiye,Redmayne, and Laswad, 2020).