Management Accounting Report: Decision Making and Performance Analysis

This report provides a detailed analysis of management accounting principles and their practical applications within organizations. It explores the importance of management accounting in the decision-making process, focusing on how it improves overall performance by providing crucial financial and operational insights. The report delves into different management accounting systems, including job costing and inventory management, and examines the benefits derived from various reports such as budgeting, accounts receivable, and inventory reports. It further investigates the application of cost accounting techniques, specifically marginal and absorption costing, in the formulation of income statements. The second section of the report focuses on planning tools used for budgetary control, evaluating their advantages and disadvantages, and demonstrating their use in solving financial problems to achieve sustainable success. Additionally, the report assesses the effectiveness of management accounting systems in addressing financial issues and contributing to an organization's long-term success. The analysis includes case studies of companies like Rollin-son and Nero Ltd to illustrate the real-world application of these concepts.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
1. Importance of management accounting in decision making process for improving
performance.................................................................................................................................1
2. Different kind of management accounting systems ...............................................................2
3.Application of different kind of reports and benefits of management accounting systems ....3
4. Application of cost accounting techniques for formulation of income statements.................5
SECTION 2......................................................................................................................................8
PART A...........................................................................................................................................8
1. Advantages and disadvantages of planning tools used for budgetary control .......................8
2. Application of planning tools to solve financial problems and to attain sustainable success
...................................................................................................................................................10
PART B..........................................................................................................................................10
1. Effectiveness of management accounting systems to deal with financial problems ............10
2. Contribution of management accounting to lead organisation to attain sustainable success11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is important principle which combines accounting and costing
concepts with business operations and techniques which adds real value to the organisation.
Accounting officer of the organisation has the duty to implement accounting provisions which
help in functioning of different activities like planning, controlling, monitoring, risk assessment
etc. It helps in development of all areas and performance of every department. Through
collection of such different statistical and non statistical information different kind of reports are
formulated which helps to drive sustainable success (DRURY, 2013).
Section 1 includes the description about different kind of management accounting
systems and reports which are used by accounting officer of Rollin son and its importance
regarding improvement of the decision-making power. Also, application of marginal and
absorption costing for development of income statements. Section 2 of the report present about
different planning tools used by Nero Ltd. For budgetary control. Also, about use of management
accounting systems to respond financial issues.
SECTION 1
1. Importance of management accounting in decision making process for improving performance
Accounting officer of Rollin-son uses the provisions of management accounting to
improve their internal decisions and formulation of important policies which improves overall
performance of organisation. With the help of these systems large number of reports are prepared
which helps in determination of the roles for each and every employees. It contributes regarding
providence of direction to employees while performing their functions. Large number of benefits
are gathered by the management of Rollin-son through application of management accounting
provisions which are defined below:
 Formulation of plan: Success of organisation is depends upon successful forecasting
and planning about future operations. It helps the production department of organisation
to produce the goods according to the needs of their customers. It helps in analysis of
present and future trend of business.
 Determination of objectives: Provisions of management accounting helps in collection
of information about the functioning of different departments. On the basis of such

information manager of organisation formulates the goals and provides the route which
helps in achievement of same.
 Better services to customers: Application of cost control devices helps in reduction of
the cost and expenditures of their products. It helps in development of the felling of cost
conscious among employees. This system provides more emphasis on the maintenance of
quality of their products and provides to their customers at affordable prices.
 Measurement of performance: The tools which are used by the accounting officer for
measurement of performance are budgetary control and standard costing. The method of
standard costing helps in determination of standards first and its comparison with actual.
Such comparison provides the information about deviations. It seems that performance of
organisation is good if actual cost not exceeds standard cost. On the other hand, method
of budgetary control helps in identification and measurement of efficiency of employees.
 Helps in attainment of maximum profits: Management accounting provisions helps in
controlling unnecessary expenses. It provides the opportunity regarding removal of
inefficiencies. New techniques are identified which helps in achievement of the
predetermined goals and objectives. This results in attainment of maximum profits out of
the capital which is invested in business (Zang, 2011).
 Forecasting cash flows: It is important for every organisation to improve their
understanding about the revenue which is going to ascertained in future period of time. It
can be analysed with the help of preparation of different kind of budgets and trend charts.
It helps in effective allocation of money and resources which provides opportunity to
attain maximum returns for their investments.
2. Different kind of management accounting systems
Management Accounting: It is the process which includes different functions like
collecting, analysing, reporting of information about the operations and finances of business.
These information is generally used by the the internal parties of organisation like manager for
proper operation of day to day functions and improvement of short term decision-making. It
includes the use of different kind of tools like budgeting, variance analysis, BEP etc. which
contributes in accomplishment of the common goals of organisation. It assist the manger of
Rollin-son regarding achievement of better planning and control through preparation of various
strategies and budgets.

Different management accounting systems
Provisions of management accounting includes different kind of systems which helps in
controlling the different aspects of organisation. It is the duty of accounting officer of Rollin-son
is to integrate the functions of these systems with organisational processes. There is huge
requirement of implementation of such systems in organisation for completion of the tasks and
activities within stipulated period of time. It improves the overall efficiency of each and every
department of organisation. These accounting systems are defined below:
 Job costing system: This system helps in tracking of the cost which is incurred on labour
used on performance of any particular job. It is used as profitability reporting enabling
from performance of job. It is used by the organisations which are manufacturing
different kind of products. It provides the opportunity regarding identification of most
profitable project on which need to provide more efforts for achieving maximum profits.
 Price optimising system: It helps in analysis of the behaviour of customer. There is
direct relation of price regarding influencing the behaviour of customers. This system
helps in determination of the response of customers due to change in prices of different
products. It provides the opportunity to management of organisation is to adopt best price
strategies and policies which helps in attainment of objectives and maximisation of
operating profits (Qian, Burritt and Monroe, 2011).
 Inventory management system: It is the process of supervision and monitoring the
existing stock and assets of organisation. Through implementation of this system
management of Rollin-son ensures effective and efficient flow of inventory within
organisation. This system helps in tracking of goods through entire supply chain. This
will include about adoption of inventory management software's which has different
features like bar coding, reporting, inventory alerts, inventory forecasting etc. In
manufacturing organisation like Rollin-son, process of inventory management includes
about materials tracking, level of stock of parts and finished products, automatic recoding
and integration with ERP software.
3.Application of different kind of reports and benefits of management accounting systems
It is a document which contains the information about diversified activities. Accounting
officer of Rollin-son prepares different kind of reports like performance, budgeting, accounts
receivable, inventory management etc. These reports makes the comparison work of actual

performance with budgeted more easy. On the basis of such comparison, new methods are
adopted which helps to improve the level of work and contributes in achievement of such
standards. Different kind of reports are mentioned below:
 Budgeting reports: This reports are prepared on the basis actual expenditure which is
incurred by organisation in earlier period of time. The main aim behind formulation of
this report is to provide help in evaluation of each and every department's performance. It
helps in controlling unnecessary expenses. Incentives programmes are designed by
management on the basis of their actual performances. It motivates the employees to earn
large through performing well in organisation.
 Accounts receivable report: This report presents the list of unpaid customers. It is
considered as primary tool which helps in collection of the due amount within given
period. By using this system unpaid invoices are segregated on the basis of time period. It
helps in determination of the issues which are associated with collection process of
organisation. It helps in tightening of credit policies which contributes in reduction of
old bad debts and maintenance of effective working capital requirements (Lukka and
Vinnari, 2014).
 Inventory and manufacturing reports: This report is prepared by manufacturing
organisation like Rollin-son for development of their manufacturing and inventory
process more effective and efficient. It improves the production capacity of the
organisation and brings quality in their products which satisfies the different demand of
customers. Effective and timely allocation of resources helps in optimum utilisation of
resources and reduction of wastes during manufacturing process.
Benefits of different kind of management accounting systems
There are many accounting systems are adopted by the management of Rollin-son which
are discussed above. All such systems have their own different benefits in organisation. Benefits
of all individual accounting systems are mentioned below:
Job costing system
 It helps in identification of the profitability of the each job
 It helps in detailed evaluation of the cost of material, labour and overheads
 It helps in saving time and money through identification of defective work and processes
Price optimisation system

 This system helps in determination and influencing the attitude of customers
 It provides opportunity regarding segmentation of customers
 It helps to earn large number of profits through selection of affordable pricing strategies
Inventory management system
 It helps in ordering of the inventories at that time when they are needed
 It provides the opportunity to management regarding saving of their time and cost
through attainment of effectiveness in inventory control system
Integration of reports with organisational functions
 Budgeting reports: Integration of these reports helps in designing path which includes
the information regarding objectives and targets. It helps in providence of roles and
responsibilities to employees.
 Accounts receivable report: Integration of this report helps in collection of due amount
by implementation of new credit policies. It brings flexibility and accuracy in their
policies which helps in maintaining liquidity in organisation.
 Inventory and manufacturing reports: This report helps in management of level of
stock in organisation. It improves the productivity and quality of their existing products
and provides opportunity to satisfy the different demand of their customers (Bodie,
2013).
4. Application of cost accounting techniques for formulation of income statements
Cost: It is the amount which is paid or charged for achieving something special by
management of organisation. It provides the opportunity to the manager of Rollin-son is to
produce quality products which satisfies the different requirements and preferences of customers.
It is the monetary value of expenditures like raw materials, equipment, supplies, labour, products
etc.
Cost is bifurcated into different types in organisation. For ex., fixed and variable,
opportunity and outlay, historical and replacement cost etc. Variable and direct cost are
considered as most relevant which helps in maximisation of their profitability. Direct cost
includes important aspect which are related to the final mark-up stages of product or service.
Difference between Marginal and Absorption costing

Marginal cost: This method considers only variable cost which are charged against units
produced by organisation and fixed costs are totally write off. It helps in short term decision
making.
Absorption costing: This method considers both fixed and variable costs which are
incurred during the production of products. It helps in long term decision making. It is also
known as full costing method (Arroyo, 2012).
Marginal costing Absorption costing
Fixed overheads are not charged to cost of
production
Fixed overheads are added to the cost of
production
It helps in short term decision-making It is important to take long term decisions
Costs are segmented as fixed and variable The overheads are segmented as factory,
administrative and selling and distribution.
Marginal costing
Quarter 1
Particulars
Amoun
t (in ￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock
(12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 1900

Quarter- 2
Particulars
Amoun
t (in ￡)
Sales 74000
Less: Cost of sales
Opening inventory
(12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock
(4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 4700
Working note Q1 Q2
Variable costing profit 1900 4700
Opening inventory 0 7800
Closing stock 7800 2600
Absorption costing profit 4300 3100
Opening inventory 0 10200
Closing stock 10200 3400

Absorption costing for Quarter
1:

Particulars
Amount
(in ￡)
Sales 66000
Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900
Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Absorption costing for Quarter
2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
Less: selling expenses -2800
8300
Fixed expenses 5200
Net profit 3100

Working note
Fixed costs 16000
Budgeted cost of production
80000
per units
Budgeted fixed cost 0.2
Variable cost per units 0.65
SECTION 2
PART A
1. Advantages and disadvantages of planning tools used for budgetary control
Budget: It is an document which estimates about cost, revenue and resources for specific
period of time. Such budget reflects the financial condition of organisation in future and goals. It
is considered as important administrative tool which serves different functions like planning of
action to accomplish quantified objectives, development of standard for measuring performance,
developing device which helps to cope up with unseen adverse situations.
Budgetary control: It is the process of calculating variances by comparison of actual
results with standards. It helps in ascertainment of discrepancies and providence of remedial
measures at proper time. It is continuous process which helps in planning and coordination
(Burritt and et. al., 2011).
Steps of budgetary control
 Determination of plan which provides direction and brings coordination
 Oversee the actual performance of employees
 comparison of actual results with planned
 Identification of variances and reasons behind them
 providence of remedial actions
Planning tools: It includes such techniques which helps in planning about the future
actions. Such actions helps in implementation of program in ore effective and efficient manner.
Adoption of planning tools improves the strength of management of Nero Ltd. To attain goals
and objectives (Otley and Emmanuel, 2013). Different kind of planning tools are mentioned
below:

Forecasting tool: This tool is used by the manager for prediction about their future
activities. The management of organisation is need to have good skills regarding formulation of
budgets. It helps in development of proactive strategies which contributes to grow business and
increase profits.
 Advantages: It helps in determination of aim. According to such aims roles are provide
to employees.
 Disadvantages: Strategies are made on the basis of estimation so, it does not provide
optimum results every time.
Scenario tools: This tool is used regarding identification of the uncertainties which are
present in organisation in future period of time. This can be ascertained by the management with
the help of selection of best alternative which provides effective solutions regarding such
problems (Chen and et. al., 2011).
 Advantages: It provides opportunity regarding adoption of best method which helps to
deal different situations.
 Disadvantages: Information which is gathered with the help of this tool is not relevant
for decision-making. It is considered as time consuming method.
Contingencies tools: Important planning tool which improves response of organisation
towards the specific and uncertainty situations which are arises in future. To effectively
implement this tool need to evaluate HR management facts and resources.
 Advantages: It helps in reduction of extra costs and improvement of the profit margins.
 Disadvantages: It is complex in nature.
2. Application of planning tools to solve financial problems and to attain sustainable success
There are many planning tools which is implemented by the management of Nero Ltd. To
overcome from financial problems and to gain sustainable success which are mentioned below:
 Contingencies tools: This tool helps in preparation of the policies which are used in
future during the occurrence of situation of uncertainties. So, it provides the opportunity
regarding reduction of costs which helps to improve their profitability.

 Scenario tools: This tool helps to understand about the fear and their consequences on
operations. Through use of this information best alternative is select which improves their
performance (Goyal, 2014).
PART B
1. Effectiveness of management accounting systems to deal with financial problems
In one financial year, there are many issues are faced by the organisation which impact
their financial strength and profitability (Ward, 2012). It is observed that such issues are arises
in organisation because of lack of effective techniques and methods. Not keeping proper record
of cash transactions creates the difficulties in performance of day to day functions. This will
affects their ability regarding satisfaction of the different requirements of their customers. There
are many tools and techniques which are used regarding overcome from such issues and attain
desired outcomes. Such outcomes are bases on financial terms which helps to become financially
strong in future.
Financial problems in Nero Ltd.
 Profit level: Due to having interdependency upon functioning of different aspects to able
to satisfy different requirements and attain competitiveness in market. This will impact
their profitability.
 Product and service quality: The low quality of their products and services also one of
the reason which reduces profitability of organisation.
Tools to respond financial issues
 Key performance indicators: It is important tool which helps in development of the
performance of overall organisation. Financial KPI like income statement and profit and
loss account depicts issues and helps in designing of appropriate solutions.
 Benchmarking: This tool helps in setting of fix standards. This tool helps operation team
to achieve their targets.
Nero Ltd. Rollin-son
Need to apply SMART objectives to respond
present situations
The tool of financial governance helps top
attain good position in all over the world
Operates at large scale needs to use KPI tools Operational control device helps to operation