Higher National Diploma: Management Accounting Report, Unit 5, 2023

This report delves into the realm of management accounting, utilizing Connect Catering Service as a practical context. It begins by defining management accounting and exploring various management accounting systems, such as price optimization, inventory management, job order costing, and cost accounting systems. The report then examines different methods of management accounting reporting, including performance, budget, accounts receivable, and inventory management reporting, along with their advantages and applications. A significant portion of the report is dedicated to cost calculations, comparing marginal and absorption costing methods. Furthermore, it discusses planning tools used for budgetary control, highlighting their advantages and disadvantages. Finally, the report concludes with a comparative analysis of Connect Catering Service and a competitor, Rusty and Roses Catering Service, evaluating their responses to financial problems and the management accounting systems employed.

Unit 5 – Management
Accounting
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Table of Contents
Introduction......................................................................................................................................3
MAIN BODY...................................................................................................................................3
Task 1 ..............................................................................................................................................3
P1 Management accounting and different types of management accounting systems...............3
P2 Different methods of management accounting reporting......................................................5
Task 2...............................................................................................................................................7
P3 Calculation of costs...............................................................................................................7
Task 3.............................................................................................................................................11
P4 Advantages and disadvantages of different planning tools used for budgetary control .....11
Task 4.............................................................................................................................................13
P5 Comparison between two firms in adapting MAS to respond to financial problems .........13
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
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Introduction
Management of an organisation requires different sets of financial and non-financial
information to reach to the conclusions that can enable them to make informed decisions about
the affairs of the firm. These information are made available to the management in the form of
various reports that have been generated using various management accounting systems
(Rozhkova, Blinova and Rozhkova, 2017). Therefore, it can be said that financial accounting
deals with only information of financial nature while management accounting deals with
information of both financial and non-financial nature. Further, users of financial information are
both external and internal stakeholders while users of managerial accounting information are
only internal to organisation.
This report has been developed taking Connect Catering Service as context to evaluate
different aspects and practices related to management accounting concerned with the company.
Connect Catering Service is based in Oxfordshire, UK and is a family owned and operated
catering firm. To begin with, management accounting and different types of management
accounting systems have been discussed in the report. In addition, various reports developed out
of those management accounting systems have also been elucidated. Further, a practical
demonstration of cost problem have been illustrated and also, statements of income have been
prepared using absorption costing and marginal costing. In the next part of the report, planning
tools for budgetary control have been discussed and finally, a comparison have been drawn up
between Connect Catering Service and its competitor Rusty and Roses Catering Service to
evaluate financial problems faced by the two firms and different management accounting
systems used by the two to overcome those problems.
MAIN BODY
Task 1
P1 Management accounting and different types of management accounting systems
Management accounting: This is process of report preparation with financial details that
help managers of organisation take effective decisions in long or short run (Malik and et.
al.,2021). In relation with Connect catering services, main aim of company leaders is to forecast
future plans, cash flows, understand performance variances and determining return rates on
existing or future investments.
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Accounting systems in management: These are systems adopted within chosen firm
internally for providing critical information to company managers. In relation to Connect
catering services, these system also known as cost accounting systems are utilized by managers
for determining, analysing, interpreting and communicating appropriate information to users
helping them achieve business goal objectives.
Price optimisation system: Following system help market researchers decide price of
their manufactured products with mathematical accuracy. In context with Connect catering
services, this system help managers identify market demand and accordingly create pricing
strategies such as premium, skimming, economic value and penetration.
Inventory management system: This form of system is a combination of organisational
procedures and technology to monitor stock inventory of chosen firm (Libby and Salterio, 2019).
In relation with Connect catering services, various form of inventory management software's are
adopted by managers to apply following methods:
 AVCO(Average cost method): This method help managers allot costs to stock
items based on total goods purchased within a specific time period. This is also
known as weighted average method as it is used by chosen entity to determine
cost of quantity goods over certain period monthly, yearly or on regular basis.
 LIFO(Last in first out method): This method is used by managers when they
have to use fresh stocks entered in books recently (Quinn and Strauss, 2017). In
relation with Connect catering services, recent products are calculated first by
accountants of firm to assume actual cost of goods sold currently.
 FIFO(First in first out method): This method is mainly used by enterprise to use
products registered earlier. Under this method older products are first sold by
company present in stock inventory. In relevance with Connect caterers, have
adopted this food storage system to distribute older items first for streamlining
inventory practices and keep recent products preserved.
Job order costing system: This system deals with accumulation and assigning of
manufacturing costs as per individual units (Kumarasiri, 2017). In context of Connect catering
services, uses this system of accounting to decide price of every product manufactured with
reasonable rate for consumers in market. Job order costing is calculated with following elements
that consist of direct material, labour and estimated overheads.
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Cost accounting system: Cost system of accounting is utilized by manufacturers of
organisation to track stock flows within inventory management system. Managers of
organisations such as Connect catering services use this accounting to analyse cost of production
activities with systematic track of raw material.
There are a lot of uses and application of above discussed accounting systems to
effectively carry on activities of manufacturing, production and inventory management within an
organisation discussed below.
P2 Different methods of management accounting reporting
Management accounting reporting is a process of producing internal reports by
stakeholders of organisation in form of periodic statements or mathematical calculations.
Managers use accounting reporting to manage basic operations running within company
internally (De Boer, Brouwers and Koetzier, 2019). Connect catering services create different
form of reports consisting of accounting records and financial data. This data comprise of
various transactions, profit of products sold, regional goods sold and cost during company
operations.
Performance reporting: This form of reporting is used by company superiors to set
baselines for allotted projects to employees at workplace (Schaltegger, 2020). Organisations such
as Connect catering services create performance reports for utilizing useful resources of
communicating project to others in group. Chosen firm accountants also forecast management
progress in construction of various plans by use of these performance reports.
Budget reporting: This is a written blueprint that show costs or revenues that are going to
be managed by company owners or staff employees. The main purpose behind formulation of
these budget reports in context of Connect caterers is to know actual spending of business as
compared toe profits earned.
Accounts receivable report: This is a periodic report that is created according to time
length of outstanding invoices. Main focus of manager behind formulation of these reports is to
determine financial health of company (Bennett and James,2017). In relation with chosen entity,
there are various key performance indicators that are focussed upon in accounts receivable
reports consisting of daily sales, outstanding payments, turnover ratio, revised invoices, bad-
debts, staff productivity and credit percentage etc.
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Inventory management reporting: Inventory is unit of products that are preserved for
sale in future by retailer of organisation. Stock inventory are of various types categorised into
raw material,unfinished goods, in transit goods and cycle inventories etc.. In relation to Connect
catering services, managers create various type of reports fro inventory management such as in-
hand stocks, low stocks, product performance, benchmark variances etc.
Advantage and use of above discussed accounting systems in relevance with chosen
organisation:
Management accounting system Advantages and application
Price optimisation system Use: Chosen firm use this accounting system
to set price for their manufactured products as
per consumer preferences within reasonable
rates (Song and et. al., 2019).
Benefit: This system is helpful in market
analysis of competitive firms sand substitute
products based on their existing price rates.
Inventory management system Use: This system is utilized to maintain stocks
and monitor track record of every product
within organisation.
Benefit: This help chosen firm keep up to date
information of product details and transactional
information helping them reduce duplication of
activities, decrease red tap-ism, eliminate
wastage of resources etc.
Job order costing system Use: Following accounting system use this
system to monitor costs within manufacturing
process of goods or service production
(Amahalu, Nweze and Chinyere, 2017).
Benefit: Connect catering services have
advantage of analysing individual profit reports
on basis of performance, benchmarks, measure
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indirect cost expenditures etc.
Cost accounting system Use: Selected firm apply this accounting
technique to compare goods & services with
their cost prices in market. It help manager
know efficiency level of product cost as
compared to its competitive goods in industry.
Benefit: This is a flexible method of
determining costs. The system benefits chosen
entity with presentation of cost data of every
product, ascertain profits from every activity,
systematic record product costs.
Management accounting system and reporting process integration within
organisational context: Main purpose of every organisation behind regulating various
operational activities is profit maximisation. In order to achieve long term goal of organisation
such as Connect catering services it is important for manager to conduct systematic processes
with use of appropriate accounting systems (Xueyi, 2017). For example, cost accounting method
is a simple and flexible way of differentiating various costs into variable, dependent, independent
or fixed costs etc. Also price optimizing accounting system is useful for creating performance,
budget and inventory reports helping manager keep track of every product detail available for
sale or stock. Performance report also help manager know best performers from employees that
help leaders motivate them to give their best in achievement of organisational objectives.
Task 2
P3 Calculation of costs
Marginal costing system: This costing system is adopted by Connect catering services to
determine additional units of production according to extra cost units (Álvarez, Adhikari and
Mejía, 2021). Marginal costing technique is helpful for chosen firm to analyse optimum
production quantity.
Absorption costing system: This system is used by Connect catering services to
determine overall cost overheads derived from activities of manufacturing & production. This
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technique is useful for managers to recover costs of sales by absorbing maximum expenses from
selling same units.
Application of appropriate management accounting techniques for creating financial
statement with final accounts:In order to know actual business position, Connect catering
services have used various accounting techniques for regulating company operations.
Standard costing: This process is used by accountants of chosen organisation to know
actual differences between set budget cost standards with actual cost incurred. Following
technique is useful for Connect caterers to know reason behind cost variances occurred between
standard and actual costs.
Normal costing: This technique is used by Connect catering services to know actual
value of products derived from manufacturing or production within organisation (Adler,2018).
Managers apply this technique for allocating cost resources in correct way.
Historical costing: This is traditional form of accounting technique used to analyse assets
and liabilities as well as record them in financial accounts with their original value. Chosen firm
uses this tool to know real financial position of organisation in competition market.
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Task 3
P4 Advantages and disadvantages of different planning tools used for budgetary control
Planning tools refers to those tools or techniques that are used managers to facilitate
effective planning and decision-making (Shil, Hoque and Akter, 2019). Main purpose behind
deploying planning tools are to ensure that business operations are planned and performed
according to the strategical goals and objectives as decided in accordance with the mission,
vision and values of the organisation. These planing tools also acts as standards for controlling
function as well. Management deploys various kinds of planning tools to improve performance
of the different kinds of organisational processes. One such process is the development of
budgets by managers of Connect Catering Service, which are not only planning tools but also act
as standards for controlling function, hence are called as budgetary controls.
Budgets are forecast statement that are based on the historical figures but are itself
futuristic. In other words, budgets are estimated future statement of respective income,
expenditure or capital on the basis of past performance. These budgets act as standards for
monitoring and controlling function further. Actual performance is compared against budgeted
estimates to find out the variances. These variances are deviation that are capable of impacting
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operations, profitability and financial management of the firm. Therefore, in order to mitigate
and eliminate such chances, corrective actions are taken to remove the negative deviations
occurred from the standards. Organisations prepare various operational and capital budgets to
prepare a master budget which act as guiding agent for the operations of the respective period for
the organisation. Connect Catering Services can use below mentioned planning tools to prepare
the further mentioned budgets:
Management by Objective (MBO)
It is a planning technique which objectifies to clearly define the targets that are aimed by
company in order to achieve success and growth (Tucker and Schaltegger, 2016). These aims
must be developed in agreement with both management and employees so that they can be
achieved actually. For example, management of Connect Catering Services want to achieve a
20% increase in sales-volume. They can then create SMART goals related to it before preparing
sales budgets for the period and prepare the budget accordingly. This budget can then further act
as standard against which actual performance would be reviewed and corrective actions be taken.
This would enable company to facilitate better planning, coordination and utilisation of its
resources but on the other hand, since the planning for future would be based on historical data,
it is not appropriate to develop a perfect framework in a cost efficient manner.
Benchmarking
It is a planning tool which targets to improve performance of the company at par with the
best performance in the industry in which the company operates (Weygandt, Kimmel and Kieso,
2020). It aims to plan for both short-term and long term for the company. For example, with the
help of benchmarking tool, managers of Connect Catering Services realise that there is need for
improvement in their cash planning . They can therefore, develop cash budgets accordingly to
improve their performance further. It would benefit company by determining the lag in its
performance and further suggesting improvements that can make it best in the industry.
However, these are again based on unpredictable future and cannot help plan future in accuracy
to make company best in the industry. Also, it is a costly technique and is able to disrupt
financial management of smaller firms.
Cash Budget
It is a budgetary statement for estimation of inflow and outflow of cash and cash
equivalents of a firm in a defined period. It helps management in ensuring efficient financial
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health of the company. Its biggest advantage is that it will help managers of the Connect catering
Services in ascertaining transactions related to cash payments and cash receipts in the budgeted
period to help it avoid the conditions of over liquidation and under liquidation. However, future
is uncertain and it is possible that such conditions arise in future which gives unexpected blow to
the business. Cash budget can turn rigid in those condition and would not be much helpful in
dealing with those losses, making it, its biggest disadvantage. Therefore, company should
prepare flexible cash budget which is capable of incorporating mid-year changes.
Capital Budgeting
While budgets like cash budget, sales budget, etc. are revenue in nature, opportunities
also arise in business which are capital nature (Bedford and Speklé, 2018). Businesses then
perform capital budgets to look for the viability of further investment and expansion
opportunities. For example, Connect Catering Services is getting the opportunity to serve
catering services in a bigger project which would be providing it new and higher regular income.
But for that, they need to invest in new plant and machinery which requires huge funds. To
evaluate, if the project is worth the investment or not, company should undertake capital
budgeting tools and techniques like NPV, payback period, etc. for all the options that are
available for investment like new purchase, second-hand purchase, hire-purchase, etc. Biggest
advantage that they offer are it helps select best options out of all available to avoid major blows
to its financial health. However, all these tools are based on estimates that can also turn out
wrong and in that case, it can take company to path of negative growth, which is its biggest
disadvantage (Dahal, 2018).
Task 4
P5 Comparison between two firms in adapting MAS to respond to financial problems
While managing the finances of the company, managers come across various issues that
are capable of having an impact over the financial health of the company. These issues can range
from simple problems to serious disruptions that can also give fatal blows to the company.
Below mentioned are some issues that are capable of giving blows to financial health of the
company: Decline in revenue streams - Business operate in a dynamic environment and there are
various regular and special reason that contribute to decline in sales and revenue streams
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like business cycle, pandemic caused disruption, intense competition, etc. This further
causes decline in profit margin of the company and is capable of eventually stagnating
growth opportunities of the business. Since, these are market led conditions, company
can change its marketing policies to counter them (Fleischman, Johnson and Walker,
2017). Disrupted cost structure - This is an operational issue under which cost of the processes
increase even when revenue is either increasing or stagnant. This could be either be a
result of unnecessary wastage of resource, increase in cost of raw material, inaccurate
budgeting, below par standard performance of employees, etc. Disproportionate increase
in cost structure can lead to decline in profit margins. Since, these issues arise at
operational end, they must be dealt by making necessary changes in operational processes
only.
Tools and techniques to solve financial problems
There are various tools and techniques that can be employed by management of the
company to solve these issues like for solving market generated issue, it can change marketing
and pricing policies while for solving operational issues, it can make changes in operational
policies using tools like bench-marking, key performance indicators, financial governance, etc.
(Ghasemi and et.al, 2016) Key performance indicators – These are those financial and non-financial factors that act
as assets for the business and help it improve its performance. Company should identify
its USP to identify those factors that are capable of mitigating the operational issues that
business has been facing. Pricing policies – To deal with market related issues, change in marketing policies of the
companies are effective manner to deal with it. Accordingly, company can also change its
pricing policies like choosing differential pricing, penetrative pricing or competitive
pricing policies, etc. Company is in catering business, it should offer customised
packages to clients to attract them.
Comparison between dealing of financial problems in two catering companies:
Connect Catering Services Rusty and Roses Catering
Financial problem Company is trying to increase its
area of operations and variety of
Company has observed that even after
having stable revenue in last few years,
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clientele but the growth pace is not
increasing and market share is yet
constant.
its profit margin is declining.
Planning tools and
techniques used to
identify issue
Company should use technique of
bench-marking to analyse
practices adopted by the best firms
in the industry. With its help, they
recognise the reasons which are
causing lag in the growth in the
market share and it turned out, that
they are not well connected with
the potential market and the
changes they have come in the
market that they serve.
Company should prepare various
budgets like sales budget, cash budget,
purchase budget, etc. for previous
years and then compare actual
performance to identify the reason of
decline (Grishanova, Tatarinova and
Kirina, 2016). With its help, they
recognised that even though revenue is
stable, cost has increased in last years
disproportionately, declining the profit
margin as a result.
Management
Accounting System
used
Once the problem has been
identified, management should
decide on resolving it. It should
use pricing strategies to choose to
create competitive advantages.
Like differential pricing policies,
competitive pricing policies, etc.
for the various catering services
that they offer. Options to
customise conditions of contract
always have a positive impact over
the clients. In addition, company
should change its marketing
strategies and offer more
promotional offers that can attract
clients and help it enhance its
As identified earlier, financial problem
faced by company is related to increase
in cost structure. Therefore, it should
employ cost accounting system to
identify points where actual costing
increases budgeted costing. It can also
employ source tracking technique to
track those sources which have
contributed to disproportionate
increase in cos structure. Accordingly,
corrective actions can be taken by
managers to optimise cost structure in
relation to the revenue earned by the
company to manage profit margin.
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market share (Hoozée and
Mitchell, 2018).
CONCLUSION
In the report, management accounting has been discussed and it can be observed that
management requires both financial and non-financial information to make complete and
accurate business decisions. Further, it can be seen that there are various systems under
managerial accounting that are to be used by management according to their requirement and
accordingly, reports are prepared by management accountants. Also, in the report above, it can
be seen that budgetary control tools and techniques are aimed at future but are based on historical
information and plays an important role in both planning and controlling function of the
management. Further, financial problems have been discussed and various tools to analyse and
solve those problems have been suggested to enable management of the firm to maintain a
healthy financial structure of the business.
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