Management Accounting: Methods, Reporting, and Cost Analysis Report

This report provides a comprehensive overview of management accounting principles and practices, focusing on their application within Avon Rubber Plc. It begins by defining management accounting and outlining its essential requirements, differentiating it from financial accounting. The report then delves into various management accounting systems, including cost accounting, price optimization, inventory management, and job costing, explaining their functionalities and importance. It further explores different methods used in management accounting reporting, such as budget reports, account receivable reports, job cost reports, and inventory and manufacturing reports, highlighting their roles in decision-making, controlling, and planning. Additionally, the report includes calculations and an income statement analysis using marginal and absorption costing methods, with an annexure showcasing these calculations. Finally, the report compares how organizations adapt management accounting systems to address financial issues, offering valuable insights into the practical application of these concepts.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 Explain management accounting and its essential requirements of different accounting
system..........................................................................................................................................1
P2 Explain the different methods used for management accounting reporting..........................3
LO 2.................................................................................................................................................5
P3 Calculation and income statement.........................................................................................5
ANNEXURE A ..........................................................................................................................5
ANNEXURE B .......................................................................................................................11
ANNEXURE C.........................................................................................................................12
LO 3...............................................................................................................................................13
P4. Identification of advantages and disadvantages of various planning tool utilised for
budgetary control ....................................................................................................................13
LO 4...............................................................................................................................................15
P5. Comparing the way organization are adapting management accounting system for
responding to financial issues ..................................................................................................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is the precondition of fiscal information as well as utilised by
management in an enterprise. Accounting is represented the various accounting information and
results of management in term of framing policies and daily routine work in organisation. This
help to management of company to perform their function like planning, organizing, staffing,
directing and controlling of accounting results (Alsharari, Dixon and Youssef, 2015). It is
through the financial accounting company is get proper financial information on the time that
helps manager in forecasting and analysing different activities to be undertaken for the growth of
organisation. The present report will be based on “Avon Rubber Plc” which is British
engineering company. The company is manufacturing of respiratory protection equipment for
military, milking products for the farmers and rubber products for personal protection.
The study lays emphasis on the management accounting and give essential requirements
of different types of management accounting system. The report will explain by the different
methods which are used for management accounting reporting.
LO 1
P1 Management accounting
The management accounting is term which has refers the provision of accounting
information for better informing to manager. It is adds performance and management for control
functions. It is the practical application of professed skills as well as knowledge in collecting
accountancy content (Weetman, 2019). This is provided in financial reporting and control for
assessing management implementation of company strategy. This defined as an outcome which
is happened surrounding the business by considering needs and wants.
This provide financial data and statistical information to manager of Avon company with
the help of making the short term and day by day decision. Managing professional practices of
accounting that is highly important and essential for growth and development of business
(Järvenpää and Länsiluoto, 2016). This help to take each and every decision-making process of
the organisation which is help to manage records, financial reports.
Different types of management accounting system and its requirements
Cost accounting system

Cost accounting is the process of summarizing, recording, classifying, assessing and
allocating of current cost and prospectives expenditure that are related to the procedure and
developing after in different courses of actions for controlling cost.. It is advising the
management and also optimising practices of business which has totally based on the capabilities
and efficiency of cost. This is also provided the detail and prefect information of the cost which
is help to manage and required controlling actual transaction and planning. If Avon organization
is follow this than they are able control current operations of business.
Cost accounting system is required for taking decision which optimize revenue and
profitability of company (Different types of management accounting system, 2018.). It is internal
reporting system for management take all decision as per requirements. This is important
because with the help of this manager able to understand cost of running business.
Price optimisation system
The price improvement scheme is a mathematical model which is help to calculate
various demands prices level for recommended price which are help to improve profit and
revenue. This is also uses the data and analyse to predict potential buyer and their behaviour at
different price of product and services. This allow to Avon company to use price of product as a
powerful profit level which is under developed. With the help of this company is able to manage
their account and price optimism of system by profit. This is start with the segmentation of
customers where seller estimates customers at various segments and it will respond to various
pricing strategy by many channels.
Inventory management system
Stock administration method is a software tracking system at the different level like sales, orders,
deliveries and others. Mostly this system is used in manufacturing company and industry for
creating and tracking orders of work, bills materials and all the documents which are related to
production. The Avon company is manufacturing company which is used inventory management
software for reducing wastages from outages and overstocks by inventory control management.
It is important tools and techniques which are help to organize inventory data before and it was
generally stored in hard copy and spreadsheets.
This system is essential and important for raise sales and tracking each and every units by
prefect stock management, fulfil the orders and control software of the inventory. This help to
specifying place and shape of stock goods in stores area (De Villiers and Maroun, 2015). It is

required or supplying the facilities at different location for preceding planned and regular courses
of production and stock of all materials.
LIFO is the method which is used in the inventory accounting. In this method, cost is most
important and recent products purchased are the first to be expended. As per this method,
company is use last inventory in first and first inventory in last.
FIFO is stand as the first in first out, as per this method company is use first inventory and raw
material first in use of production.
Job costing system
Job costing system is types which is utilized for trade good are made on the basis of
specific customer requirement and order. It is allowed the job numbers which has been assigned
to the single products of revenues and expenses. This helps to assess all expenditure which are
included in the construction of job and manufacturing products and services in discrete batches.
All the cost are keep in the account book throughout the job. After, then it had been summarized
in the final trial balance earlier set up the statements of manufacturing and job cost.
Those are highly important and essential for business and its growth for keep their records and
control resources in proper manner. Those are important for company with the help of this
company make their accounting and records of their raw material in effective manner.
P2 Explain the different methods used for management accounting reporting.
). It is specifically used for decision-making, controlling and planning of business which is
depends on the financial statements (Wagenhofer, 2016. There are different methods which are
used in management reporting. Those are as follows:
Budget report
Budget management accounting report is very critical which is help to measures
performance department wise. Every company is make budget for understand their business. It is
estimation which is based on the previous experience and report estimation. The budget report
helps to owner of the business for assessing manager and employees performance of their
departments. This is generally made for apply before financial year plan and also adjust future
projections (Types of management accounting reporting, 2017). Avon company is spend list of
all sources of income and expenses. With the help of this company is tried to achieve gaols and
objectives of company. Manager of Avon company used budget report in order to providing

incentives and compensation to their employees. This is also helped to comparing set of data and
evaluates accurate and realistic data by predictions.
Account receivable report
. The report of management accounting is break into remaining balance of clients and
customers into specific time which is allowed manager of Avon company for identifying issues
in company collection of process. It is basically presents money which is generated by entities of
organisation on sales of credit products and services (Schaltegger and Burritt, 2017). This can be
mailing and electronically delivering to their customers. The account receivable is charge get
funds on the place of organisation. This is applies on its actual pending balance. This is effective
and best accounting report which is help to manage credit sales of product and services. It is
important for company because with the help of this manager is able to manage accounts
inventory on daily basis.
Job cost report
The job cost report shows expenses for a specific projects which are financed by
business. The main goal of job methods is to estimation of profitability and revenues that are
evaluated by profitability of job. It has also helped to research the higher earning of area which is
focused on the additional and hard efforts of money in wasting time on lower profit margin. This
also used for observing the expenses while the project in progress of company. This process is
help to determine labour cost and material cost of every aye work in effective manner and also in
systematic manner (Boiral, 2016). This is basically used in virtually in the Avon company which
is help to management for ensure price of products and cover accurate, current cost and its
provide revenue.
Inventory and manufacturing report
The inventory and manufacturing system is help to manage the physical inventory and
produce item which can be used in the managerial accounting report in order to remove hurdles
from manufacturing process and also make it more efficient and effective (Kaplan and Atkinson,
2015). This can includes the waste inventory, per hours labour cost at per unit overhead costs.
This help to compare in different lines and departments of business which highlight those areas
where have need fir improvement and best performance of different department.
Execution report

Management accounting is used for spending plan to contrast genuine uses and also
incomes by planned sums. The finding of new budget can be changed all intend has been
analysed to all data amount which are listed in the performance report. Every pass year is
performance report is calculated (Mårtensson and et.al., 2016). This types of report enable for
director to ready for address future wants and demand in the production and in the cost. There
are many of reports which are help to arranged records with the help of management accounting.
In order to analysis placed and received order and booking company is use information report
because in company there are lots of products and services are manufactured and ordered which
are summarized in this report. This report is made for assessing opportunities to settle all the
choices with respect to present for future organisation conditions.
Those are the management accounting reporting which are help to manager of Avon
company to keep record of employee performance and get ready for future situation (Warren Jr
and et.al,, 2015).
LO 2
P3 Calculation and income statement..
Cost accounting is very important and effective part of the company. This is the process
of recording, analysing and summarizing cost of production process. There are four types of cost
which are as follows:
 Fixed cost is not varied according to the amount of work.
 Variable cost is cost which is variable in company like packaging, shipping and
processing cost.

 Direct cost is directly related to the production and selling the company products.
ANNEXURE A
Calculation of profit in marginal and absorption costing pertaining to table:

Under Absorption costing (table)

Calculation of profit under the marginal and absorption costing pertaining to 'chair'
Under marginal costing (Chair) per unit cost
Particulars Amount (in ￡)
direct material cost 20
Direct Labour cost 30
Variable O/H 5
Marginal cost per unit 55
Selling price 90

-Marginal cost per unit -55
Contribution per unit 35
Period 1
Particulars Amount (in ￡) Amount (in ￡) Net Amount (in ￡)
Sales (16000*90) 1440000
Cost of sales:
Opening inventory 0
Material (20000*20) 400000
Labour (20000*30) 600000
Variable o/h (20000*5) 100000
1100000
-Closing inventory (4000*55) 220000
880000
560000
Contribution 560000
-Fixed costs 102500
Actual Net profit/(Net
Loss) 457500

Under absorption costing (Chair)
Particulars Cost per unit for Period: in £ 1
Direct Material 20
Direct Labour 30
Variable O/H 5
Fixed o/h 20.5
Total absorption cost per unit 75.5

Calculation of the table and chair under the both marginal and absorption costing is more
than the marginal cost because under absorption cost is the fixed which is value on the cost per
unit. This carry cost evaluation of under the control in absorption costing as well as profit is
increases. Other hand, the marginal costing is charge all the variable cost because in this cost of

company is increased and profit is decrease. Thus, under the marginal cost profit of company is
unevaluated due to charging of whole cost which are fixed.
ANNEXURE B
Question number 5.
For that company have to produce 650 units and 63 sells as a per unit basis. With the help
of this company get 7690 profit. Other hand, the contribution of sales which is shows that at 1
Euro sales is giving in that how much contribution of company. This is calculated with the help
of decreasing direct expenses of company.In this company break even point have to attain the
356 level units are sold at 70 units. With the help of this company is get situation which profit or
loss.
ANNEXURE C
Question number 3
Particu
lars Project X
Discount
rate @ 12%
Discounted
cash flows Project Y
Discount rate
@ 12%
Discounted cash
flows
Initial
Investm
ent -5000 1 -5000 -8000 1 -8000
1 2500 0.89 2232.14 1500 0.89 1339.29
2 1000 0.8 797.19 2000 0.8 1594.39

3 1000 0.71 711.78 2500 0.71 1779.45
4 500 0.64 317.76 1000 0.64 635.52
5 1500 0.57 851.14 1000 0.57 567.43
6 1000 0.51 506.63 2500 0.51 1266.58
Net
Present
Value 416.65 -817.35
Particulars Project X Project Y
Initial Investment -5000 -8000
1 2500 1500
2 1000 2000
3 1000 2500
4 500 1000
5 1000
Pay Back Period 4 years 5 years
Here, is recommended for company to select the project X because this project is giving
more profit as compare to project Y. In project X, the pay back period is 4 years and in the
project Y the pay back period is 5 years. As per that company can go with project X.
LO 3
P4. Identification of advantages and disadvantages of various planning tool utilised for budgetary
control
Budgeting can be defined as procedure of preparing the detailed projections of future
amounts. It can also be defined as planning the business operations that are to be performed in
the future by establishment of performance objectives and positing them in formal plan.
In context of Avon rubber PLC, management in an organization can utilize the different
planning tools for performing different business operations such as :

Budgetary control: It can be defined as procedure of taking an initiative for minimizing the
expenditures. Budgetary control activities include preparation of budge. In relation to Avon
rubber organization manager in an organization should prepare budget, It is the tactic which will
also help management in determining an appropriate measure which can be taken for reducing
such variances in costs. Budgeting control technique also provides management an ease in
tracking as well as managing its funds which is very much essential for improving the financial
performance (Weetman, 2019). It is the budgeting technique which also help an organisation in
identifying the suitable ways of earning high revenue as well as profit.
Sales budget: Such type of budget is completely based on the forecasting of sales during
particular accounting year. The different variables of sales budget are price per unit, Unit as well
as gross sales. Such type of budget are created by finance manager in an organization by keeping
in mind various variables such as production capacity, economic condition of market as well as
country etc. Key purpose of preparation of sales budget by finance manager in Avon rubber PLC
is to aid an organization is to control the both direct and indirect costs. (Clarke, Steenkamp and
Zwikael, 2019). Sales budget also assist management as well as operational department in
determining the quantity of goods or services.
Pros of sales budget :
In addition to this, sales budget also helps management in making suitable business
decisions in context of sales, distribution , marketing etc.
Cons of sales budget :
The biggest drawback of the sales budget is that it can be quite time-consuming activity
as the research has to be conducted by management for analysing the fluctuations in the different
external factors.
Production budget: It includes the analysis of finished inventory. Production budget is created
on the basis of sales forecast. Such type of budget is required to be prepared by the finance
manager ion Avon rubber company, as it will help them in determining the number of units of
particular goods to be produced. Production budget are created by the finance manager in Avon
rubber company on quarterly basis.
Benefit of production budget:

Such type of budget is helpful in relation to development of plan for the production
activities. The other main advantage of production budget is that it assists management in
minimizing the excess production which might lead to wastage of resources afterwards. In
addition to this, such type of budget also aid an organization in reducing the cost of production.
Drawback of production budget :
Lack of flexibility is considered to be as one of the biggest cons of production budget. As
due to strict budget it becomes quite difficult for operational department in an enterprise to re
schedule production activities on the basis of changes in demand of specific product (Malina,
2018.).
Cash flow budget: Such type of budget include forecasting of revenues as well as expenditure .
It is the type of budget which is utilised by management for managing cash inflows and
outflows. Cash flow budget is the estimation of the cash revenues and cash expenses to be used
for various activities in the future. It is basically utilized for planning the activities which are to
be performed in the future.
Advantages :
cash flow budgets is that it aid an enterprise in eliminating the unnecessary spending
that could have adverse effect on financial performance of company. In addition to this, such
type of budget also enables organization to keep some amount of capital reserve which can be
utilized for meeting the requirement of business operations at the time of financial crisis.
Disadvantages : The cash flow budget could be easily manipulated. It can also lead to falsify
outcomes. The other drawback of cash flow budget is that cash flow budget are prepared on the
basis of past financial record due to changes in situation, the information in the cash flow budget
are less reliable.
LO 4
P5. Comparing the way organization are adapting management accounting system for responding
to financial issues
In relation to the Avon rubber PLC, an organization is facing the different types of
financial issues such as related to sales, profitability etc.The Finance manager in Avon rubber
organization can utilized the management accounting system for providing suitable response to
financial issues :

Benchmarking: It is the management activity which includes evaluation of firm performance in
relation to products as well as procedures. Benchmarking enables management to compare actual
business performance with standard. Such type of management practices is utilized by finance
manager in Avon rubber organization for dealing with different business problems.
Benchmarking is the procedure which assist an organization in bringing improvement in the
business procedures as well as products or services. It also assists an enterprise in improving
business performance (Englund and Gerdin, 2018). Benchmarking also support management in
addressing the main cause of issue that is effecting the performance of organization. It also helps
firm in maintaining the financial stability. Main advantage of bench marking management
accounting technique is that it enables management to measure the performance of an individual
functional division. . It will thus resolve problem related to ineffective as well as inefficient
business procedure and operations consequent in decrease in profit margin. Management by
using the benchmarking technique can also monitor the performance of business department on
individual basis. It assists organization in establishment of performance targets, improvement in
business operations etc. for making more profit.
The main drawback of benchmarking as management accounting practice is that it doest
not help in measuring the effectiveness as well as operational efficiency of an enterprise.
Variance analysis Variance analysis as management accounting practice includes assessing the
difference between two figures. Ion relation to Avon rubber company, variance analysis is the
technique which is utilized by finance manager in enterprise for identification of the actual
expenditure with that of planned expenses (Cowton, 2018). It is also utilized by finance manager
in an enterprise for assessing the productivity as well as relativity of specific project. Variance
analysis is considered to be as one of the crucial tool in the budgetary control system of an
enterprise.
Pros
The biggest advantage of variance analysis is that it assist finance manager in planning as
well as forecasting the future. In addition to this, variance analysis helps management in
development of suitable strategies for eliminating such type of differences in the future.
Cons
The major disadvantage of variance analysis is that it could be quite time-consuming
procedure.

Key performance indicator: It is one of the method of management accounting technique
which mainly includes evaluation of individual business activities. The key performance
indicator is utilized by management in Avon rubber organization for analysing the overall
business performance of organization. In relation to the Avon rubber company, finance manager
as well as management in an organization has set the key performance indicator in order to assist
an organization in accomplishment of business objectives. The key performance indicator as the
management accounting technique can be utilized by finance manager in Avon Plc for
measuring the performance of each department in an enterprise (Dearman, Lechner and
Shanklin, 2018.). It can also be used for evaluating the performance of workers and analysing the
contribution made by each employee in accomplishment of desired results. Key performance
indicator is used by the management in Avon Plc for dealing with the issue high cost of
production. It is the technique which has also assisted management of Avon Plc in overcoming
its issue related to poor working culture and methodology used by its employees resulting in low
production and high cost.
In context of Avon rubber Plc, finance manager in an organization as set key
performance indicator in order to deal with the different financial issues such as increase in cost
of production. The main advantage of setting the key performance indicator is that it can be
helpful in positively influencing employees to improve their performance at workplace.
Financial governance : It is basically a way through which finance manager collect, controls as
well as organizes and monitor financial information. Financial governance can be considered to
be as one of the best management technique which can be utilized for controlling internal data
for proper work flow, tracking information and ensuring its security by determining risk
associated. It is considered to be as one of an essential tool which can be utilized for resolving
financial issues (Zou, Zhou and Xiao, 2019). Financial governance helps finance manager in
tracking the business transactions. It is the tool which has assisted Avon rubber PLC in
mitigating its problem related to low customer and stakeholders interest in enabling them to
identify all the frauds, error and mistakes made in the financial reports.
CONCLUSION
From the above study it had been concluded that the management accounting has used by
manager of company for collecting the accounting information. This has better for taking any
decision for company in effective manner. It had been concluded that the different types of

accounting system has important and essentially required for company in order to keeping
records of resources. The report had been prepared by the income statement by using marginal
and absorption cost. It had been also concluded that the advantages and disadvantage of the
different planning tools which has used for budgetary control.