Management Accounting Systems & Techniques Report: Financial Analysis

This report provides a comprehensive overview of management accounting systems and techniques, focusing on their application within a small international marine container leasing company, Blue Sky Intermodal Ltd. The report delves into various types of management accounting, including price optimizing, job costing, and inventory control systems, and explores the benefits of each. It examines different management accounting reporting methods, such as budgeting and job costing reports, and integrates these with organizational processes. Furthermore, the report presents cost calculations to prepare income statements using both marginal and absorption costing methods. It analyzes different planning tools for budgetary control and discusses their advantages and disadvantages. Finally, the report compares how small companies adapt management accounting systems to resolve financial problems, leading to sustainable success. The report provides detailed financial analysis and insights into effective financial management practices.

Management Accounting
Systems & Techniques

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its different types................................................................1
P2 Methods for management accounting Reporting..............................................................3
M1 Benefits of management accounting systems and their application................................4
D1 Management accounting systems and management accounting reporting is integrated. .4
TASK 2............................................................................................................................................4
P3 Cost calculations to prepare an income statement ...........................................................4
M2 A range of management accounting techniques..............................................................8
D2 Analysis and Interpretation of data...................................................................................9
TASK 3............................................................................................................................................9
P4 Advantages and disadvantages of different types of planning tools for budgetary control9
M3 Analyse different planning tools and their application for preparing and forecasting
budgets..................................................................................................................................11
TASK 4..........................................................................................................................................11
P5 Comparison on how small companies adapt management accounting system to resolve
financial problems................................................................................................................11
M4 Analysis on how management accounting lead to sustainable success.........................13
D3 Evaluation of how planning tools respond to solve financial problems.........................14
CONCLUSION..............................................................................................................................14

INTRODUCTION
Management accounting is considered as main function of business under which manager
prepares different reports. It provides detailed information related to operational activity which is
further used for effective planning and controlling major decisions of business (Schaltegger and
Burritt, 2017). Therefore, this concept is equally important for small and large organizations as it
helps in monitoring and managing entire performance of business. The present report will make
a critical discussion on importance of management accounting and its different methods like job
order costing for a company.
Blue Sky Intermodal Ltd is taken for this purpose, which is a small international marine
container leasing company of UK. It offers different kind of services like leasing, financing,
trading, portfolio management and more. Under this assignment, an explanation on various
managerial accounting reports such as inventory, budget, job cost and more is made.
Furthermore, concept of various planning tools for budgetary controls also highlighted. Other
than this, on the basis of marginal and absorption costing methods, an income statement is
prepared for this company. At last, a comparison is made to reflect how management accounting
helps in responding from financial issues.
TASK 1
P1 Management accounting and its different types
Management accounting can be stated as a process of making reports and information
by which a company can analyse current state of business. It provides essential information to
managers of an enterprise, that helps in formulating polices, decision-making process and day-to-
day operations. Moreover, management accounting plays vital role in business that helps in
forecasting the future performance and cash flows, taking short-term and long-term decisions,
identifying variances and rate of return as well (Klemstine and Maher,2014). Blue Sky
Intermodal Ltd is a small organization of UK and deals in transportation & Logistics sector.
This firm was founded in 2003 and its business line include wide range of services related to
transportation. Therefore, it is necessary for managers of this enterprise to prepare essential
reports and information in regular manner. This would help in formulating plans related to
budget and managing accounts as well in appropriate manner.
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Blue Sky Intermodal Ltd is customer-centric service enterprise, use different types of
management accounting system. It helps in enhancing and creating more value of business (Bui
and De Villiers, 2017). Thus, in this regard, types of management accounting system used by
this company are:-
Price optimising system: This system refers to analyse how demand of a product
fluctuate with different-different price strategy. Therefore, this concept aids managers of Blue
Sky Ltd, in developing strategies for retaining satisfied customers. Along with this, it also helps
in maximising price against willingness of customers to pay. For example: If a product is priced
too high then it may not sell at all. While, if price of goods is reduced then it will not generate
profit for business. Thus, under this condition, by using price optimisation technique, managers
of Blue Sky, can find a perfect balance between value and profit of business.
Job costing system: It is system of management accounting technique which helps in
assigning manufacturing cost to products on individual basis. But, job order costing is only used
in those companies where manufactured goods are significantly different from each other. Since
Blue Sky deals in transportation sector, under which wide range of services are offered, related
to marine shipping, logistic, leasing, financing and more (Bennett and James, 2017). Therefore,
job order costing aid this firm in keeping track of production cost by job. This procedure consists
of:- Receive enquiry- Customers can get enquiry about quality of material, price and time
consume to complete the order. Estimate price- Job costing is generally done by accountant of company who determine
price of each unit as per taste and preference of consumers. Order receive- When customers give their assurance for price of a commodity, then order
will be placed thereafter. Production order- It is placed for opening the production process. Cost recording- Under this process, every aspect in production related to cost is recorded.
 Completion of job- On completion, a comparison is made with estimated cost, then this
report is provided to accounts department for final costing of job.
Inventory control management system: This concept is used to maximize the use of
inventory for a company. By using this system, managers of Blue Sky Intermodal Ltd can
generate high profitability from least investment on inventories. It also helps in tracking
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inventory levels, sales, orders and deliveries as well. For this process, inventory management
system includes various methods like FIFO (First-In First-Out), LIFO (Last in first out) and
Just-In-Time approach. The present company use JIT system of inventory management for
increasing efficiencies of production. It helps in improving cash flow and lower inventory
holding costs.
P2 Methods for management accounting Reporting
Accounting reports are important part of any business to provide the true and complete
picture of an organization and assist them in preparation of management reports (MOUSAVI
and Shakeri, 2014). It includes accumulation of data that gives important information for
decision making. It helps organization in forecasting business operations and provide
information about accurate financial position of the organization from financial and non-
financial indicators. These reports are prepared by business on weekly, monthly, quarterly or
yearly bases. Blue Sky is a marine container leasing company. In case of Blue Sky, it is
important to prepare these kind of reports as it gives information about the financial health of
company to its stakeholders as well as help in better decision making because it will help
organization to analyse operations. The following are some management accounting reports
which companies prepare in order to determine actual position:
Budgeting reports: It is one of the most elementary report in management reporting. It is
prepared to determine estimated cost and helps owner to determine performance of business.
These reports are prepared on basis of expenses of previous years. it will assist Blue Sky in
examining the performance of all of its departments and assist businesses in controlling costs as
well as to determine the actual performance with standard performance. These reports assist
management in motivating employees to enhance their performance.
Job costing reports: This type of report assist in identifying the cost, revenue and
profitability specifically related to project. It will help Blue Sky to identify the profit-making and
non-profit-making areas of operations in business (Hiebl and et. al., 2015). By this organization
can put extra efforts on profit making operations for enhancing their profitability. It will also
assist in reducing wastage of cost as this is using in inappropriate manner so that it can be more
efficient and profitable.
Accounts receivable ageing reports: This kind of reports are related to managing
account receivables for companies who extend credits to their customers. It provides information
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of credit balances and divide them into various classes for invoices like 30, 60 or 90 days late
and helps in finding problems related to credit collection. In case of Blue Sky, it help the
company to prepare credit report and it will also help them to reformulate credit policies if
creditors are not paying their credits on time. This report also helps in examining the expenses
related to the projects by identifying those areas where cost is using in inappropriate manner so
that it can be more efficient and profitable.
M1 Benefits of management accounting systems and their application
Various advantages of management accounting systems are as follows:-
System Benefits
Job costing system  It is very effective for Blue Sky
company as it helps in estimating all
types of costs through manufacturing
process.
Cost accounting systems  It helps in giving required information
for planning,
Price optimizing system  It is very much effective in developing
the operating profit of the organisation.
D1 Management accounting systems and management accounting reporting is integrated
Types of Reporting Integration with organisational processes
Job cost reports It is recommended that the activities which are
required to be conducted in blue sky should be
directed to make easy pricing strategies.
Performance reports Its integration with organisation process will
help the management of company in sales
analysis through which customers can be
tracked as well.
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TASK 2
P3 Cost calculations to prepare an income statement
The amount of money which has to be paid and spent on product or services, to buy or
obtain something refers as cost in business (Tucker and Schaltegger, 2016). While costing is a
system for assigning cost to different elements of business. In general, there are mainly two types
of cost, found in business that are- Fixed and Variable Cost.
FIXED COST :-The cost which remains same or fixed irrespective of level of output,it
varies on the bases of time hence also known as period cost. It doesn't fluctuate with rise in
production and considered as expense that a company has to be paid. For example taxes, rent,
salaries etc. It is calculated as
FC= Total cost- variable cost
VARIABLE COST :-The cost which varies as per fluctuations in volume of output, is
called as variable cost. Therefore, it depends on production output and change accordingly. For
example: Sales commission, cost of raw materials, direct labour cost etc. Thus, it can be
calculated as:-
VC=Total cost -fixed cost
Marginal Costing: The change which occurs in the total cost due to fluctuations in level
of production i.e., either in increase and decrease of one unit of the product, is known as
marginal costing (Ahmad and Mohamed Zabri, 2015). This costing refers to an effective tool for
determining the efficient sales particularly when the business is in low movement.
Absorption Costing: The type of costing under which entire manufacturing costs are
absorbed, is termed as absorption costing. Under this type of costing, expenses are generally
classified on the basis of different functions of business. For inventory valuation, absorption
costing consider overall cost of business. It includes fixed (direct material, labor etc.) and
variable cost (manufacturing overhead expenses due to which it is also referred as full costing).
Working Notes:
Income statement as per marginal costing:
Net income = (sales revenue – marginal cost of goods sold) = (contribution – fixed cost)
Particulars Amount
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Sales revenue = (no. of units sold x selling price of each = 600 x 55) £33000
Marginal Cost of products sold: £9600
Production = (units produced x marginal cost per unit = 800 x 16) 12800
closing stock = (closing stock units x marginal cost per unit = 200 x
16) 3200
Contribution £23400
Fixed cost ( 3200+1200+1500 ) £5900
Net profit £17500
Income statement as per absorption costing:
Net Income = (Sales revenue – Cost of goods sold) = (Gross profit – Selling and
Administrative expenses)
Particulars Amount
Sales = (selling price x no. of units sold = 55 x 600) £33000
Cost of goods sold = (total expenses per unit x actual sales = 23.375 x 600) £14025
Gross profit £18975
Selling & Administrative expenses = (variable sales overhead x actual sales +
selling and administrative cost = 1 x 600 + 2700) £3300
Net profit/ operating income £15675
Break-Even Analysis: This tool helps in evaluating the relationship between variable
and fixed cost of business in terms of revenue (Dekker, 2016). It forecasts at which point, sales
of a company will generate high revenue. Therefore, managers of Blue Sky Intermodal Ltd use
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this analysis, to determine how many units of products are required to sell for covering overall
costs of production.
The basic formula for break-even analysis:
BEQ = FC / (P-VC)
where, BEQ = Break-even quantity
FC = Total fixed costs
P = Average price per unit, and
VC = Variable costs per unit.
A. The no. of products to be sold to Break-Even
Sales per unit 40
Variable costs VC = DM +
DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
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Margin of safety (MOS)- It shows the exact variance between budgeted sales and break-
even point of an enterprise i.e. If sales revenue of a company will go beyond BEP, then there will
be high risk in business and vice-versa. According to above calculative part, it has analysed that
when actual sales of Blue Sky Intermodal Ltd is 800 units and break-even sales is 500 units then
margin of safety will be obtained as 37.5 units.
M2 A range of management accounting techniques
Management accounting techniques are procedure to collect and interpret internal
financial information to help in decision making process (Nielsen, Mitchell and Nørreklit, 2015).
In this information is provided to internal managers so that they can take decisions related to
their business. In case of Blue Sky these techniques will assist them in taking managerial
decision and in measurement of performance of operations and help them in planning,
performance evaluation and operation control. The following are some important accounting
techniques:
 Standard costing: It is a technique of setting anticipated cost to provide comparison
between standard cost and actual cost occurred. It will help Blue Sky in examining
variances between these two cost and also important in controlling cost.
 Marginal costing: it is technique to identify the cost which occurs due to production of
an additional unit. It includes variable cost and some portion of fixed costs. This
technique will assist Blue Sky in determining the consequences arising due to increasing
or decreasing the level of production through break even analysis.
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