Management Accounting Report: Cost Analysis, Budgeting, and Planning

This report delves into the core aspects of management accounting, providing a comprehensive analysis of costing methods, financial reporting, and budgetary control. The report begins with an introduction to management accounting and explores various management accounting systems, including traditional cost accounting, lean accounting, throughput accounting, and transfer pricing systems. It then examines different methods used for management accounting reporting, such as budget reports, cost reports, performance reports, and other relevant reports. The report further applies appropriate costing techniques to prepare income statements using both marginal and absorption costing methods, demonstrating the practical application of these techniques. It also discusses the advantages and disadvantages of different planning tools used for budgetary control and compares how organizations adapt management accounting systems to address financial problems. The report uses T.M.A Engineering Ltd as a case study to illustrate these concepts, offering practical insights into financial resource allocation, cost control, and performance evaluation.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
P1 Management accounting and essential requirement of different types of management
account system.............................................................................................................................4
P2 Different methods used for management accounting reporting.............................................6
TASK 2............................................................................................................................................7
P3 Calculating the cost using appropriate technique of cost analysis for preparing the income
statement of marginal and absorption costing.............................................................................7
M1 & D1 financial report..........................................................................................................10
TASK 3..........................................................................................................................................11
P4 Explaining the advantages and disadvantages of different types of planning tools used for
budgetary control.......................................................................................................................11
P5 Comparing how organisations are adapting management accounting systems for
responding financial problem....................................................................................................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management account is is the most important aspect of the business which handle all
work related to financial resources and costing etc so as to set up the price of the product and
services effectively to get the amount of profit effectively. Present report is based on T.M.A
Engineering Ltd is operating in UK with 25 workforces and handing work related to projects.
management accounting has been explained along with essential requirement of different types
of management accounting system. Furthermore, different methods used for management
accounting reporting are also explained. In addition to this, advantages and disadvantages of
different types of planning tools which are applied for budgetary control are also explained.
Moreover, appropriate costing techniques have been applied to prepare the income statement of
marginal and absorption costing.
TASK 1
P1 Management accounting and essential requirement of different types of management account
system
Management accounting is is the important field of the organization which covers all
related activities of accounting so as to keep detail regarding the product and services which are
used by business. It is helpful to allocate financial resources for each department which
contribute towards increasing the flow of production and determining the success of the business
effectively (Ahadiat, 2013). Role of management accounting is important as it is helpful for the
corporation to evaluate the process and summarize the information in order to formulate the
policies related to internal department of the business. There are four types of management
accounting system used by corporations but the selection of most suitable one is based on
requirement of the business. The scope of management accounting is very higher due to its
contribution in the better production management and supporting all operational activities in an
effectual manner. These are explained as follows-
Traditional cost accounting system
It is considered as the most significant approach for the propose of calculating cost of a
single project or the entire batch. Under this, direct or indirect cost of production is calculating in
order to assess the exact cost incurred to produce a particular project. For this purpose, it is

important to shed light on cost drivers and allocation of resources on overheads, labor and
material which tend to affect the performance of business to a great extent (Chenhall and Smith,
2011). It is the very simple procedure of calculating the cost of product because corporation just
list all of the cost which is being incurred during the production phase and then accordingly add
the margin of profit. It reflects that traditional cost accounting system is very important for
determining the price of product and services effectively. Furthermore, location of resources is
done in accordance with material, overheads and labour so as to simplify the procedure of cost
calculation.
Lean accounting system
This is another method of management accounting system under which management
process, accounting, controlling and measurement of performance is included. This proves to be
effective for T.M.A Engineering Ltd to save the time taken in finding the price of product and
services. It proves to be effective for catering requirement of all related parties and support
business to increase overall rate of return in the marketplace. By using the lean accounting
system, it is effective as this is considered as less complex and cost effectively. It facilitates to
preset number of accounts or transactions separately (Contrafatto and Burns, 2013).
Throughput accounting system
The throughout accounting system consists of identification of constraints within
production system of an organization. For this purpose, approaches and principles is applied in a
simpler form. It aids to control the insufficient level of production capacity, labour and material
(Lee, 2011). It proves to be effective to reduce the issue related to accounting procedure and
accordingly support all related activities contribute towards taking the fruitful decision.
Transfer pricing system
This method is applied for the purpose of recognizing the cot and moving the good from
one to another department. However, a very small portal of cost is added in each items through
which processing of different department can be recorded effectively. However, transfer price of
production consists of opportunity and variable cost both. It is considered as the benefit for the
T.M.A Engineering Ltd (Lukka, 2010). In this manner, it becomes easy to control the cost and
carry out all operational activities effectively so as to cope up with changing scenario. This is

effective for appropriate record keeping and enables firm to cater requirement of all related
parties and support business to accomplish long as well as short term objectives of the business.
P2 Different methods used for management accounting reporting
The management accounting report refers to the results, recording or findings related to
the department of account for the purpose of estimating regarding the profit and need of further
financial resources to speed up the flow of production. It enables corporation to integrate all
related resources and contribute towards the success of the business so as to produce valid
outcome (Macintosh and Quattrone, 2010). Being small size company, T.M.A Engineering Ltd
can apply following method for the management accounting report in order to allocate the
financial resources in a most effective manner and integrate all related activities for the
production of valid outcome. Any of the following method can be applied by the business in
order to report for the accounting policies or report related to varied products and services
effectively. It has been explained as follows- Budget reports-This is another important aspect for reporting of accounting information
and letting the department know about the financial performance of the business. This is
helpful for corporation to integrate all related resources and enables business to cater
requirement of all related parties in an effectual manner. This report is effective to access
the financial resources and allocate them appropriate on different project activities so as
to determine the success of the business. It would be effective for corporation to integrate
all related activities and support business to deliver good quality of services to large
number of buyers (Schaltegger, Gibassier and Zvezdov, 2013). Cost reports-The department of accounting do manage or prepare the cost report by
focusing on aspects such as raw material, produced goods and labour charge etc. Along
with that additional cost is also considered through which it becomes easy to cope up
with the changing scenario and support all operational activities in an effectual manner.
The summarized form is used for the purpose of preparing cost report (Van der Stede,
2011). It would be effective to cater requirement of all related department and assists
corporation to accomplish long as well as short term objectives effectively. In this
manner, cost taken for the production of product is divided into several parts so as to

accomplish the purpose of the business and create competitive edge in the marketplace
effectively. Performance report-Performance report is prepared on the basis of combination of
several kind of report such as budget and cost report. This proves to be effective to cater
requirement of business and accomplish the related objectives in a most effective manner.
Furthermore, performance report is prepared on the basis of comparison made in the light
of standard and actual income as well expenses (Kaplan and Atkinson, 2015). In this
manner, management take further decision for future business activities and preparing
budget to determine the certainty. Furthermore, performance report is prepared by T.M.A
Engineering Ltd on the basis of year, quarter and month as well as week as per the nature
of the business and requirement of the same. In this manner, forecasting is done effective
by using the performance report and keeping it as the basis.
 Other reports-Other reports are prepared by the business in order to keep record related
to cash flow. For example, specific report related to suppliers, customer complaints etc
and its direct impact on the profitability. It is helpful to monitor the cash flow of the
business and enable management to have better control over the expenses (Bennett
Schaltegger and Zvezdov, 2013). Apart form this, specific information is gathered
regarding the purchase and other related activities so as to manage the businesses
activities effectively to cope up with changing scenario. Moreover, other report such as
purchase and sales report are prepared through which it becomes easy to understand the
concept behind higher cost of production and apply suitable strategy to control the same.
In this manner, all related reports are helpful for the business to manage the productivity
and and keep effective related to all kind of cost.
TASK 2
P3 Calculating the cost using appropriate technique of cost analysis for preparing the income
statement of marginal and absorption costing
There are different types of cost methods applied by business in order to control the cost
and promote the business activities for increasing the flow of rate of return. However, application
of suitable technique of costing make it possible for corporation to manage the corporate
activities effectively and delivery good quality of services to large number of buyers.

Furthermore, income statement would be effective to cater need of all related parties through
which financial activities can be integrated for the purpose of reflecting the financial position of
the business and cater requirement of all related parties effectively. Furthermore, income
statement proves to be effective to provide the information related to liquidity of the business
and expenses incurred in a particular time span (Vosselman, 2014). However, marginal and
absorption costing are considered for preparing the income statement of T.M.A Engineering Ltd
Table 1: Income statement for marginal costing
Particulars Amount Amount
Sales (600*35/unit)
Less: Variable costs of sales
Beginning stock
Production (13/per unit*700 units) (see working note 1)
Closing stock (100*13)
Cost of goods sold
Contribution
Less: Fixed costs
Fixed manufacturing expense
Administration cost
Selling cost
Sales overheads
Net Profit/loss
Nil
9,100
(1,300)
2000
700
600
600
21000
(7,800)
13,200
10800
(3,900)
9,300
Working Note 1: Calculation of per unit cost under marginal costing
Direct material £6
Direct labor £5
Variable cost £2
Total £13
Table 2: Income statement for absorption costing
Particulars Amount Amount
Sales (600*35)
Less: Cost of Sales:
Beginning stock
Production (16*700) (see working note 1)
Closing stock (16/unit*100)
Less: Over absorbed of fixed production overhead (2000-2100)
Nil
11,200
(1600)
21000
(9600)
100

Cost of goods sold
Gross profit
Less: Other expenses
Administration costs
Selling overheads
Fixed selling costs
Net earnings
700
600
600
9500
11500
1900
9600
Working Note 1: Calculation of per unit cost under absorption costing
Direct material £6
Direct labor £5
Variable cost £2
Fixed cost £3
Total production cost/unit £16
According to the above mentioned table, it has been found that T.M.A Engineering Ltd is
generating the appropriate rate of return in term of both marginal and absorption costing method.
However, the proportion of profit in both cases will be different in respective income statement.
For example, £9600 was the rate of return generated by the corporation on the basis of marginal
costing which reduced in the another aspect of absorption costing as £9300. It is showing that
both methods differ from each other and accordingly procedure of record keeping also varies. In
this manner, corporation to follow the appropriate kind of procedure so as to manage all related
activities of finance.
However, business do prefer the absorption costing method over the marginal costing due
to its focus on variable and fixed cost both. Owing to this, preparation of income statement is
made possible by using absorption costing. This proves to be effective to maintain the certain
rate of profitability in T.M.A Engineering Ltd.
Difference between the marginal and absorption costing
The absorption costing is calculated with the help of allocation of cost to different cost
center where marginal costing facilitates to take appropriate decision so as to manage all
business activities effectively and speed up the flow of production in an effectual manner. Apart
form this, inventory and product costing as well as fixed & variable are the categories of

absorption costing whereas marginal cost consider only variable cost. On the other hand, the
overheads in case of absorption costing method is classified into different categories such as
production, administration, selling and distribution etc. This tends to affect the business of the
corporation in an appropriate manner due to proper record keeping. Not only this but the profit
determination of the respective method is completed by using fixed cost on each product. This in
turn business get affected to a great extent as each product carries certain proportion of cost. In
addition to this, per unit cost of the product and services are affected through variance which is
the difference between opening and closing stock. The ratio of profitability also remains
relatively low in case of absorption costing which is considered to be higher in other kind of
method of calculating the cost. On the other hand, cost per unit in case of marginal cost is not
affected through the variance of opening and closing stock. Owing to this, appropriate measures
are taken to keep record related to performance of the business by focusing upon its cost
structure. However, the classification of cost is based on fixed and variable cost only. In addition
to this, profit volume relationship is considered in order to find the ratio of profitability for the
project.
M1 & D1 financial report
To
T.M.A Engineering Ltd
Date: 1st April 2017
Subject: Reporting on cost
According to the calculated information, it has been found that ratio of gross profit is
higher in marginal as compared to the absorption costing. It is due to fixed production cost is
not considered in the marginal cost but do consider in the absorption cost. Owing to this,
business should follow the absorption costing method to find the fruitful and more reliable
outcome.

TASK 3
P4 Explaining the advantages and disadvantages of different types of planning tools used for
budgetary control
The planning tool refers to the appropriate kind of techniques applied by the business in
order to select the most suitable project to meet the requirement of business and assists
corporation to integrate all business activities in order to generate valid outcome. Furthermore,
budgetary control is helpful for taking appropriate decision with respective to ensure the better
control on the financial resources. However, specific focus is laid on cost and other related
aspects for selection of the project for the business. It is made possible with the help of
application of appropriate budgeting tools so as to complete the operational activities in an
effectual manner (Capital Budgeting: Capital Budgeting Decision Tools, 2017). There are
different kind of budgetary tools are used such as net present value method, payback and internal
rate of return through which the most effective project is selected and accordingly aim and
objectives of the business can be achieved effectively. In addition to this, selection criteria are
decided in the advance that at what time initial investment should be recovered and project
should generate profit so that effective selection can be done. With the help of appropriate
budgeting control techniques corporation can create its image in the marketplace. This in turn
overall rate of return can be increased so as to create competitive edge of the business. It is
covered under the capital budgeting techniques through which corporation can effectively utilize
all its resources in order to produce the valid outcome. Payback- It is considered as the most effective technique for calculation of the time
period taken to recover the cost. Under this, project is assessed on the basis time period
allotted for a single project so as the find the most suitable one in accordance with the
less time taken for a project (Vosselman, 2014). However, two project must be available
to select from. In this manner, corporation tend to focus on reduction of the cost and
increase in the profitability in the an effectual manner.
 Net present value method- T.M.A Engineering Ltd also uses the most effective approach
for the selection of the project as per the provided details. At this juncture, project is
assessed in accordance with future value of the each one so as to select the best one
effectively. The below mentioned table shows that calculation related to net present

value. However, the net present value of project A has higher value whereas project B
does not incur the higher net present value.
 Internal rate of return-Under this, corporation need to select project in accordance with
rate of return. As per the below mentioned example, Project A is more suitable as it is
generated higher rate of return and meeting the requirement of the business in an
effectual manner. However, it is made possible only with the help of calculation of the
internal rate of return of the project. Owing to to this, project A should be selected for
increased rate of return for the T.M.A Engineering Ltd.

Advantages of capital budgeting
 The technique of capital budgeting tend to exploit the resources for the purpose of
increasing overall rate of return.
 Use of capital budgeting is helpful for T.M.A. Ltd to select the most suitable project in
accordance with given time line.
 The techniques included in the capital budgeting are easy to understand and apply
 Time and cost saving approach for selection of the most suitable project
 The techniques like net preset value method provide the right direction to invest the
resources and utilize the financial aspect of the business in a most effective manner Appropriate application of techniques like internal rate of return prove to access the most
suitable project and increase overall rate of return (Schaltegger, Gibassier and Zvezdov,
2013).
Disadvantages of capital budgeting
 The accounting expert can only perform the activities related to capital budgeting
 The time taken approach with specific techniques like internal rate of return affect the
performance of the project to a great extent.

 Appropriate record keeping is necessary along with experienced personnel otherwise
management might get confused related to activities of project management
 The wrong forecasting might lead to loss of the corporation due to selection of the wrong
project.
 There are some issues with project like pay back period method under which it is not
possible to select the appropriate project
P5 Comparing how organisations are adapting management accounting systems for responding
financial problem
Management accounting is defined as techniques that is being used for different types of
financial problem that is being faced in the company. Different tools are provided by
management accounting and it aids in resolving the critical and complex problems that are faced
in the company. Business organization gets benefited through this method and it helps in
reducing the risk that has been associated with the business. Probability for achieving the success
for the entity can be enhanced and competitive advantage can be gained by making use of
management accounting (Lee, 2011). Diverse range of financial issues are faced in the company
and it is assertive that proper methods should be used for resolving the issues that are being faced
in the company. IT becomes liability of accounting manager of T.M.A Engineering limited that
techniques of management accounting should be used in appropriate manner. Following methods
shows how technique of management accounting can be used in business. On the basis of financial accounting :- It is assertive for the accounting officer to
properly use the data and information so that financial performance of the business can be
ensured. There are many critical decisions that are needed to be taken in the T.M.A
Engineering limited. It will aid for resolving the financial issues that are being faced in
the company and growth of the entity can be ensured through this. Approaches that area
used in management accounting are as follows (Chenhall and Smith, 2011). Comparative financial statements :-Financial information of the company can be used
for evaluating the existing performance of the business with the past performances and it
will help for assessing the weak performing areas of the business. It is assertive that
systematic and strategic approach should be used by an organization for making
significant improvements in the existing performance of the business. This method will

render an effective tool for using the past performance of the business for enhancing its
existing performances. Ratio analysis :- Current financial position of the business can be assessed by making use
of this approach and analysis of ratios can be done for assessing financial position of the
business. Moreover, interpretation of ratio requires to be done so that analysis can be
done about current performance of business and steps can be taken for improving them. It
will support for making strategies related to growth and expansion. Along with this ratio
analysis method will support for collecting necessary data and information that is
required by them for taking financial decisions for the enterprise (Lukka, 2010). Fund flow analysis and cash flow analysis :- It is an important technique that is being
used in management accounting. Financial resources of the enterprise can be utilized in
optimum manner and it will aid for making improvements in revenues and profitability of
the enterprise. Short term objectives and long term objectives that have been set by
accounting manager and finance manager can be achieved by making use of this
technique. Cost accounting method :- It is also a major technique that could be used by accounting
manager for managing the financial performance of the business unit. It is a cost control
tool that can be used for controlling the cost in the enterprise (Kaplan and Atkinson,
2015). Marginal costing :- This technique can be used for resolving diverse range of critical and
complex problems that are being faced in the entity. Accounting officers that are working
in T.M.A.Engineeruing limited and Power press repair limited can make use of this
method for doing cost volume profit analysis. It will provide an effective medium for
regulating and controlling the flow of cash and better performance of the entity can be
ensured. Analysis of cost variance :- Difference between actual cost and budget cost is explained
as cost variance, there can be two different results that could be received and it includes
positive cost variance and negative cost variance. Negative cost variance shows that firm
has failed in accomplishing its set budgetary targets. Moreover, cost variance can be
effectively track by using the changes between the actual and expected results so as to

bring improvement in the performance of the business and ensure its successful operation
for longer time span. Prediction or estimation-The varied methods can be applied by the both corporation such
as T.M.A. Engineering Ltd and power press so as to predict the future business
profitability and manage all related operation activities in an effectual manner.
Furthermore, financial performance of the company can be effectively managed by
tracking the record related to upcoming projects and business activities (Bennett,
Schaltegger and Zvezdov, 2013).
 Budgeting and budget-Under this process project plan is developed by the corporation
with the focus upon aspects such purchasing land or new machinery etc. This proves to
be effective for cost control and allocating the financial resources in a most effective
manner. With the use of such kind of tools organization can integrate all related activities.
Moreover, expenditure incurred on different financial activities will be controlled with
the use of appropriate budgeting tools. It contributes towards the success of the business
and increment in the overall rate of return. In this manner, both corporation can use
appropriate kind of techniques to change or follow the most suitable accounting policies
and procedure for supporting organization to accomplish overall rate of return in the
marketplace.
CONCLUSION
The aforementioned report concludes that management of project can be done in
accordance with available information and financial detail through which corporation can utilize
all limited resources in a most effective manner. It can also be concluded that application of
suitable accounting methods is helpful to present the information in an appropriate manner in
order to create the competitive edge of the business. In addition to this, accounting department of
the corporation can consider the suitable techniques of capital budgeting so as to select the
project effectively on the basis of certain specific standards or aspect. This would be appropriate
to allocate the financial resources in a right manner and meet the objectives of all related parties.
Moreover, T.M.A. Engineering Ltd uses budget and cost report to control over the expenses and
increase the transparency in the field of accounting. It contribute towards successful operation of
the business and optimum utilization of limited resources.

REFERENCES
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Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
and management accounting: A processual view.Management Accounting
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Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Lee, K.H., 2011. Motivations, barriers, and incentives for adopting environmental management
(cost) accounting and related guidelines: a study of the Republic of Korea. Corporate
Social Responsibility and Environmental Management. 18(1). pp.39-49.
Lukka, K., 2010. The roles and effects of paradigms in accounting research.Management
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Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An
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Schaltegger, S., Gibassier, D. and Zvezdov, D., 2013. Is environmental management accounting
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Online

Capital Budgeting: Capital Budgeting Decision Tools. 2017. [Online]. Available through:
<http://www.investopedia.com/university/capital-budgeting/decision-tools.asp>.
[Accessed on 1st April 2017].