Management Accounting Report: Cost Calculation and Reporting Methods

This report delves into the realm of management accounting, focusing on its application within Access Hire Nationwide Limited, an automotive company. The report explores the core concepts of management accounting, including its role in providing financial data for internal decision-making, and contrasts it with financial accounting. It examines different cost accounting systems such as traditional cost accounting, lean accounting, throughput accounting, and transfer pricing. The report further discusses various management accounting reporting methods, including budget reports, financial planning, account receivable aging, job cost reports, and inventory management. The report also provides insights into cost calculation using income statements, advantages, and disadvantages of different planning tools, and comparisons of management accounting systems. The aim is to provide the best alternative methods for effective decision-making in the business.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK1 ............................................................................................................................................3
P1 Management accounting with different type of accounting system .....................................3
P2 Methods for management accounting reporting....................................................................5
M1 ..............................................................................................................................................6
D1................................................................................................................................................7
TASK 2............................................................................................................................................7
P3Calculation of cost with the help of income statement...........................................................7
M2 ...........................................................................................................................................10
D2..............................................................................................................................................10
TASK 3..........................................................................................................................................11
P4 Advantages and disadvantages of different planning tools in relation with budgetary
control.......................................................................................................................................11
M3.............................................................................................................................................12
D3 .............................................................................................................................................12
Task 4.............................................................................................................................................13
P5 Comparison adapting management accounting system through which the financial
problems get solved...................................................................................................................13
M4 ............................................................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCE.................................................................................................................................14
....................................................................................................................................14

INTRODUCTION
Management accounting refers to the provision of financial data and advice to the
company for use in the organisation to take the effective decisions which helps in the
development of the firm(Ahadiat, 2013). The proper maintenance of the financial data helps in
making the planing for the organisation for the entire accounting year. It is a information and
data for the internal audience of the business, on monthly and weekly basis. It helps in measuring
the performance so on such basis company can maintain the position in market place. Present
report is based on the Access Hire Nationwide Limited which is a automotive company. Their
main motive is just to provide the quality vehicle to their customers in which they are providing
luxury vehicles for the high class people as well as vehicles of low price with high quality
service for the lower class people. Their prices are generally affordable for everyone. In the
present assignment management accounting is discussed with the methods which are used in this
context. Along with that cost and the cost measurement is also going to discussed in this report.
Moreover the advantages and disadvantages are also going to be elaborated in this assignment.
TASK1
P1 Management accounting with different type of accounting system
Management accounting is the process of identifying, communicating, measuring,
analysing and interpreting the information for the pursuit of organisational goals. This branch of
accounting is also known as the cost accounting. It is helpful in making the decisions which are
taken by the managers on the daily and short term basis. This enables the decision making easy
and effective(Baldvinsdottir, Mitchell and Nørreklit, 2010 ).
The major key difference between in the managerial accounting and the financial
accounting termed as that management accounting is fully focused on the internal audiences and
decisions of the organisation where as financial accounting refers for the outside parties of the
business. It includes different methods and techniques which can be used by the Access Hire
Nationwide Limited for making the decisions effective and made positive impact over on all the
stakeholders. It also enables them to use the alternative decision as well as helps in making the
proper evaluation of performance and control(Bodie, 2013).

It is helpful in making the goals and objectives of the firm on the correct information
basis. So that whole work can be done out in the smooth and flexible manner. Top authorities
can take decisions and make strategies on the basis of managerial accounting.
Management accounting system helps in focusing on the cost which is incur on the
production of goods and service in an organisation. There are different system which helps an
organisation in tracking the cost of production. A few most common methods of the management
accounting are: traditional cost accounting, lean accounting, throughput accounting and transfer
pricing. All such systems are used and serve as the essentials factor in reducing the cost of
production with the help of proper tracking. Failure in this prospect will going to suffer high
pricing or lower gross margins(Bouten and Hoozée, 2013).
Like if cited organisation wants to produce such type of vehicles which is accelerating
with the natural gas then they have to properly examine the cost by using such system approach
and then implement the plan. In traditional management costing method, tracking of cost can be
made with the help of job order or process costing method. It helps in determine that how
company can allocate cost in relation with the direct material, direct labour and manufacturing
overheads.
According to job order process it is used for the large projects in which company have to
invest for the higher profit. So, for this concern cost tracing is easy where as on the other hand
process costing method the cost is based on the number of process. These products are produce
continuously and their examination of individual cost is difficult.
Lean accounting system is a revolutionary system because it focus on such strategies
which are helpful in reducing and eliminating the waste. Thus it never focus on the solely cost of
an individual project. So accountant provide the necessary information to the company on the
basis, through which in any case if company found that cost wastage then it will directly cut
down from the project.
Transfer costing means the addition in cost in which goods are transfer from one
department to another each one is going to add small portion of their into that. The common cost
which is added in the transfer price is the variable cost and opportunity cost.
Although these are basic essential system approaches which can be chosen by the
organisation for their growth and benefits. Hence, it also helps them in take care about the
interest of the customers. Access Hire Nationwide Limited can choose the lean accounting

system because it helps them in reducing the wastage which is generally occur in the
organisation by consuming different resources(Christ and Burritt, 2013). Managers have to adopt
proper approach which helps them in taking the effective decisions which are beneficial for the
internal audiences as well as also for the external factors in the business. There are various
number of systems which are helpful in identifying about the management accounting system. In
this relation various number of approaches which are helpful for a company to utilise appropriate
technique of management accounting are as follow:
1. Cost accounting: This method is usually used with a purpose to capture all cost which is
related with production by properly assessing the expenditure on input and output. It is
used with a purpose to improve management of cost so that an organisation can set such
price which is affordable to its target users.
2. Job costing system: This process signifies that all batches product are similar in cost and
do not get vary according to time.
3. Inventory management system: This management system accounting purpose is to
manage stock of an organisation through which inconvenience to their target users get
refused.
P2 Methods for management accounting reporting
There are many methods which can be used by the firm for maintain their records. Thus
for maintain proper reports several management accounting reporting are used. It helps to the
managers and owners for monitoring the performance. It also helps in taking the decision which
are important and give benefits for them. Depending on the project and time sensitivity of the
information, such reports are prepared on the monthly, weekly or on daily basis. Several methods
are used by the cited organisation to determine their project effectiveness and its survival in the
long run:
1. Budget reports: Budget is generally prepared for the whole year and it also helps in
analyse the company performance. In large business firms managers analyse the
performance of departments and their cost also. This helps in control the cost which is
going to incur on the project. Estimated budget helps in determine the actual expenses on
the prior year as base(Contrafatto and Burns, 2013). Budgetary control helps in
controlling the financial performance of the business.

2. Financial planning: The main objectives of any business is just maximise their profit and
attain whole objectives which are set by the management for an accounting year. Hence,
sound financial planning helps in achieving the goals and objectives in the set time
period.
3. Account receivable aging: This helps in maintain the cash flow of the company that
extend credit to the customers. A manager can use the aging report so that they can find
out the problem which is associated with the collection process. If the significant number
of customers are going to fail in the payment then company have to tighten their policies
of credit. It also enforce the collection department to overlooking the old debts.
4. Job cost report: It shows the expenses for the specific project. They are estimated with the
revenue so that company can evaluate job responsibility. This helps them in identify the
higher areas of earning of the company so that they can earn higher profit and less risk
can be measure out with the help of that. It also helps them, in minimise the areas in
which the wastage is high so that company can use such projects in which the wastage
can be reduced(Cuganesan, Dunford and Palmer, 2012).
5. Inventory and manufacturing: Company can use the management accounting document
so that they can maintain their reports and make their manufacturing more effective.
Which helps them in getting high return and profit. These reports generally include items
which are related with the inventory, overhead cost and hourly labour cost. It also helps
in providing the bonus to such departments whose performance are better and their
results are efficient(Dillard and Roslender, 2011).
6. Decision making accounting: Problems which are generally faced by the cited
organisation at the time of manufacturing and be sorted out with the help of adopting best
alternative methods. For selecting the best option the cost relevant techniques is used.
With the help of that comparison between such two projects selection process of the
lower cost with effective result can be taken into consideration.
7. Revaluation accounting: This account is prepared with the purpose of revaluation of all
the fixed assets, so that company can show their values in the capital account with assets.
These various methods of accounting reports are used by the company. So that they can
utilise the best output from the project which they want to introduce in the competitive market.
Along with that it helps them in determine the internal process of the organisation. From the

above mentioned methods, a company can adopt any method for getting the result which is
effective and beneficial for them. These methods provide benefits to the organisation like, if
company want to choose the decision making accounting method, then it helps them in getting
the best alternative method for their work. Thus all types of accounting method are useful
according to their nature.
M1
Business owners use the management accounting system for tracking the price, making
the records and use the best alternative for their project which they want to conduct in the near
future. It never follows any specific nature and standard for the accounting but owners design
this system according to their nature of business. It has some advantages which helps them in
getting the best result. Like this helps them in taking the best advantage from the competitive
market like if their cost get controlled and become relative cheaper from other, then it helps in
business for their profitability. It helps them in getting the effective business decision from using
the management accounting. Along with that it also helps in improve the cash flow of the
company by preparing the proper budget for the company. Applications of management
accounting helps in getting the effective result which serve as the one of the major benefit by
using such applications(Englund and Gerdin, 2011).
D1
Access Hire Nationwide Limited is a automotive company in which they have to take
decision which provide benefit to their customers. In an organisation all activities are inter
related with each other. Management accounting system and management accounting reporting
both are integrated activity because both helps in taking the effective decisions which are
beneficial for the profitability purpose as well as for the growth and survival in the market.
TASK 2
P3Calculation of cost with the help of income statement
Cost refers to as the total amount which is spent on the product manufacturing. It helps in
determine the actual amount of money which is spent on the product. It is calculated with the
help of total output on the product. Final cost is based on the end result which is get by the
company on the manufacturing. There are basically two methods which are helpful in determine
the net profit of the business(Garrison, Noreen and Brewer, 2010).

Absorption cost: It is cost of finished inventory at the last in which direct labour, direct material
and both the cost fixed and variable are included. That's why it is termed as the full costing
method because it absorbs the full cost which is incur on the project. Absorption costing is useful
in taking the external decisions of the business as well as the income tax reporting.
Income statement on the basis of Absorption costing method:
Selling Price £10,000
Unit costs
Direct materials £4000
Direct Labour £1000
Variable Production overhead £500
Variable sales overhead £500
Budgeted production for the period is 600 units
Fixed cost for a month:
Production overhead: In this budgeted cost is £1,800 and Actual cost is £2,000
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £3
Fixed cost £5
Total £19
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*19 = £1900
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £3300

Fixed overhead: £3500
Total £200(over absorbed)
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod. O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Net Profit
0
13300
(1900)
1800
700
600
21000
(11400)
200
9800
(3100)
6700
Marginal costing: The marginal cost of an item is its variable cost. The marginal production cost
is the sum total of the direct material cost, direct labour cost, and variable production overhead
cost. When the volume of production and sales increases total variable cost automatically rises in
its proportionate. Marginal costing is also be used as the principle costing technique in the
decision making process through which company can measure the variances which occurs during
the production and they start focus and take into consideration such changes which occurs due to
change(Lee, 2011).
The contribution costing lies at the heart of marginal costing:
Contribution = Sales price - Variable costs
It helps in examine that how much money company can contribute towards for paying the
overheads of the organisation.
The formula for calculating the marginal cost is as follow:
Marginal costing = Change in consumption/ Change in quantity of the product.

Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales
Less Variable costs
Opening stock
Manufacturing
Closing stock
Variable sales
Contribution
Less Fixed costs
Fixed Production expenses
Administration cost expenditure
Selling cost
Net Profit
0
9800
(1400)
2000
700
600
21000
(8400)
(1800)
10800
3300
7500
M2
Effective managerial techniques are used by the firm for taking the effective decisions for
the organisation. It helps them in engage in such activities through which they can run their
operations smoothly as well as provides flexibility in their activities. In the Access Hire
Nationwide Limited there are more than 50 employees but their turnover is not so high. This

affects the business more and more. Because it hinder them in performing all the activities in a
proper manner. Company can use some techniques and approach through which they can manage
their activities in a proper and significant manner(Macintosh and Quattrone, 2010).
1. Financial statement can be analyse with the help of making comparative statement, trends
and graphs. This helps them in analyse the previous year reports and firm can use such
data for maintain and formulate the strategies.
2. Business forecasting is also an appropriate technique which helps in taking the effective
decision. Company is suffering from low turn over hence, they have to analyse their
business and forecast their business in the next few years by introducing some new
projects.
D2
Financial report helps in interpreting the data and leads an entity to take effective
decision for their business. Financial report promotes the collection of data and take effective
decisions on such basis. Access Hire Nationwide Limited have to make their financial reports in
a effective manner so that it aid the investors to invest and helps them in taking the corrective
decisions which are important for an organisation. Financial documents provides and overview
and on such basis shareholders can invest into the company if they find that suitable for them.
By applying both the methods I:e marginal costing and absorption costing it is find that profit is
different from such approaches. This help the investors to invest in the proper manner by taking
corrective decisions for investment(Nandan, 2010).
TASK 3
P4 Advantages and disadvantages of different planning tools in relation with budgetary control
Budgetary control refers to as the ability of the managers in an organisation that how
effectively they are going to utilise the budget and control cost for an accounting year. In other
similar terms, it is concluded that budgetary control is a process for managers in which they can
set goals with budget and adjust them according to the needs and requirement of time with actual
results.
There are typically major four steps which are helpful in making the budgets. At first
budget is created which means all the targets and objectives of an organisation are set. These
objectives are sales and spending which company wants to spent.

After the creation of budget management needs to analyse, interpret and compare the
actual performance with budget goals. In this process, management should have to show more
and more concentration.
On the third step, after the finding out the deviation path of the business, managers have
to provide some strength to the unfavourable goals. The areas which are favourable in nature are
marked as the F where as the unfavourable division are set with the U(Otley and Emmanuel,
2013).
Management start working on such aspects which are unfavourable in nature and on the
fourth step they maintain the whole accounts of the entire accounting year. And they start
making plan for the next year. This helps them in making comparison between actual results and
performance with last year.
While preparing the budget all aspects of the business should have to be included in that.
It helps them in making the result effective with high productivity. Budget is also a part of
planning management. It is prepared with planning and consider such aspects which are
favourable for an organisation. The budget should be prepared in the corrective form so that it
can be easily understandable.
By proper planning it helps in minimise the wastage of resources and promotes the proper
allocation of resource. For making an effective budget proper coordination and communication
have to take place. This helps in making the planning of budget effective. Planning promotes the
formulation of strategies, setting up the goals and objectives etc. All such facts have to be
included in the budget so that a proper and effective plan can be maintain. But there are some
advantages and disadvantages are also concern with this approach which is as follow:
Advantage: 1. It helps in managing all the activities and strategies which are concerned with the
business and its future. This is an appropriate manner for working and maintain the better result
in future(Renz, 2016).
2. It improves the performance of the employees because a provision is maintained for
providing the remuneration to the workers.
3. It helps in maintain the proper and effective communication with the help of facts and
figures because with the help of them proper picture of the organisation can be maintain.
Disadvantages:1. This budget force to all the employees to achieve their targets on time and it
create pressure on their mind. So, that it leads in reducing the effectiveness of an organisation.