Management Accounting Report: AP Diving - Cost and Reporting

This report provides a comprehensive analysis of management accounting principles, systems, and reporting methods, using AP Diving, a scuba equipment manufacturing company, as a case study. The report begins with an introduction to management accounting, its importance in organizational decision-making, and its application within AP Diving. It then delves into various management accounting systems, including inventory management, cost accounting, and price optimization, highlighting their essential requirements and benefits. The report further examines different methods of management accounting reporting, such as budget reports, accounts receivable reports, and performance reports, along with their integration into the organizational process. The analysis includes the benefits of management accounting systems and how they are integrated within the organization. The report also includes financial analysis using absorption costing and marginal costing methods, presenting income statements for the first and second quarters. The report concludes by emphasizing the significance of management accounting in achieving organizational goals and objectives.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1....................................................................................................................................1
PART A.......................................................................................................................................1
PART B........................................................................................................................................5
ACTIVITY 2....................................................................................................................................8
PART A.......................................................................................................................................8
PART B......................................................................................................................................12
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management accounting is the analysis of business activities and functions which further
helps the management to take effective decision in order to achieve their organisational goals &
objectives. It is also called managerial accounting where manager use the various provisions to
control their functions (Arroyo, 2012). Basically it is used for the internal analysis where
manager of the company take important decision on the basis of their available financial
information. AP Diving company choose for the better understanding of this concept. AP Diving
is scuba equipment manufacturing company established in 1969 and it's headquarter in Cornwall,
England.
This report include the various topics such as understanding of management accounting
systems, it's essential requirement, management accounting reporting and use different methods
to calculate cost and prepare income statement. In addition, it also include the manage
accounting techniques for the planning and control the internal functions. Along with this, how
organisation used these techniques to solve their financial problems.
ACTIVITY 1
PART A
Management accounting: It is also called managerial or cost accounting which analyse
the cost of business and prepare the financial report on the basis of internal operations. It include
the recording and reporting which further helps the manager to take important decision on the
basis of financial reports. Management accounting help the manager to build strategic plans and
it's implementation will help to achieve their business goals & objectives. With the help of this
accounting, AP Diving Ltd manage their operations which helps in decision making process.
Management accounting system and it's essential requirement:
It include the various system which help the business to organize, measure or evaluate the
process. With the help of financial accounting information, manager take effective decision in
respect of the organisation to achieve their business goals & objectives. Their are some of
management accounting system which is followed by the AP Diving company for the effective
or efficient performance (Ball, 2013).
Inventory Management System: It is software of system which help the organisation to
management their inventory level for the purpose of sale, order raw material and for the delivery.
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Basically it is used for the manufacturing company where business need to maintain their stock
level for the manufacturing purpose. In AP Diving Ltd, this system help the organisation to
manage their inventory level because if manager to take care of it then they have to face
challenges in the future. Shortage of stock will affect the production which automatically impact
the profit margin of the company. Over inventory in the warehouses will increase the carrying
cost which increase the production cost and it also affect the profitability of the company. It is
required by the manager which help the business to regular track their inventory and then take
decision according to the requirement.
Cost Accounting System: It is called product costing system where this framework help
the business to estimate their each unit cost. It will further help the organisation to identify their
expected profit, inventory valuation and for the control of cost. AP Diving Ltd use this system
for the estimation of each unit cost that will further provide the overview of the profit margin. It
is required by the manager to take effective decision in respect of the organisation to achieve
their business goals & objectives (Bromwich and Scapens, 2016). By using this system, manager
identify the cost, try to reduce each unit cost which increase the profitability and build various
strategies for the further functioning.
Price Optimisation System: It is a mathematical analysis which help the organisation to
identify their customer's reaction on different price range of product. It also determined that
product price will meet with company's objectives or not. It is required for the determination of
price which suits the customer's expectation. In AP Diving Ltd, manager use this system for the
analysis of price where consumer happy to pay for the equipment. So manager of the company
build various strategies to accomplished their organisational goals & objectives. Develop
strategies on the basis of market situation, perception of their clients and current demand which
attract the targeted costumers. Essentially required to fix the price of their manufactured products
which increase the profitability of the company.
Different methods of management accounting reporting:
It is also called accounting reports which help the organisation to identify their
performance as well as their employees performance (Management accounting reporting, 2017).
With the help of reporting, manager can develop various strategies, take essential decision in
respect of the business to measure performances. Reports will be prepared for the whole
accounting period because important decision will be taken on the basis of it. Manager of AP
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Diving Ltd build various report for the analysis of their operational function and for the future
decision. Some of the accounting reports are discussed below:
Budget Report: It is a formal statement which is prepared on the basis of their previous
experience. It include the all expenses related to the production and estimation of revenue. This
budget report include the all sources of earning and expenditures. With the help of this budgeted
report, manager of AP Diving Ltd complete their task in order to achieve their business goals &
objectives. It provide the guidance regarding various incentives which is going to offer
employees on the basis of their performances in the organisation. Manager of AP Diving Ltd
prepare this report for the analysis of all the expenses or incomes which further affect the
decision. With the help of this report manager build effective strategies which increase the
productivity as well as profitability of the AP Diving Ltd (Cokins, 2013).
Account Receivable Report: This report prepared by those organisation which provide
the goods on credit. So it is required to report their creditors for the recovery of their amount in
the future. Specially for the large organisation, because they are not able to recognize their each
credit sale. So it beneficial for the company to prepare this report and it help the company at the
time of recovery. With the help of this report company identify their defaulter who not paid their
amount. AP Diving Ltd use this report to record their creditors who purchase equipments on
credit and it used at the time recovery. With the help of this report, manager develop more strict
policies to reduce their defaulters.
Performance Report: This report prepared by the organisation for the analysis of
employees performance as well as the whole business. It also include the departmental
performance which is generally used by the large organisation. Manager of the AP Diving Ltd
use this report and develop strategies for the future. With the help of this performance report,
manager award the various incentives to the best performer in the business. To offer various
incentives or reward to the employees will increase the motivation level of individual. Which
further help the organisation to achieve their business goals & objectives. Along with this, it
al;so helps in increasing their productivity or profitability. Performance report used for the
decision making process.
Benefits of management accounting system:
Management
Accounting System
Benefits
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Inventory management
system
 With the help of this system, AP Diving Ltd achieve
efficiency & effectiveness in their operations.
 Minimise the carrying cost which automatically increase the
profit margin and sale of the products.
 Manager regularly track their inventory level.
 It helps in taking future decision which affect the productivity
as well as profitability.
Cost accounting system  With the help of this, business identify the accurate cost of
each unit.
 Identify the cost and then try to reduce it to maximise their
profit margin (Cooper, Ezzamel and Qu, 2017).
 With the help of this costing system, manger take essential
decision in order to achieve their business goals & objectives.
 Control on cost and maintain for the whole production period.
Price optimisation
system
 Help the AP Diving Ltd to identify the customer behaviour
regarding their price,
 Immediate financial benefits which increase the sale as well
as profit margin.
 This system minimise the manual work which reduce the
chances of errors.
 With the help of this system, manger can take effective or
quick decision in order to achieve business objectives &
goals.
 Company analyse the buying pattern of the consumer and
their reaction regarding price.
Evaluate that how management accounting system or reporting integrated with
organisational process:
Management accounting system and management accounting reports both are interlinked
with each other and with organisational process. Above mentioned accounting system help the
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AP Diving Ltd company to build strategies which helps the business to increase their
productivity as well as profitability. Manager take effective decision in order to achieve their
business goals & objective. Such as cost accounting system, price optimization and inventory
management provide various information which further helps in decision making process.
They will provide financial or non–financial information which required in organisational
process. With the help of available data, manager build strategies and then implement in the
organisation for the successful results (Dekker, 2016). Manager of AP Diving Ltd use these
information to prepare accounting reports which include the performances of an individual.
Company prepare these report for the internal as well as external analysis which directly affect
the organisational process. Basically accounting reports and system used for the decision
making process which help the AP Diving Ltd to achieve their desire profit or increase their
product demand in the market for the effective competitive advantage. For the successful
outcomes, business need to use management accounting system or management accounting
reports. It is integrated with the organisational process. Because by using this, AP Diving Ltd
accomplished their goals & objectives.
PART B
ANNEX (A):
Absorption Costing Method: It is a method which accomplish all the manufacturing
cost associated with the production. It include the all fixed and variable overheads such as direct
materiel, labour, production overhead and fixed expenses related to production or selling &
administration.
Income statement by using Absorption costing method (1st Quarter):
Particulars Details Amount
Sales (4500*95) 427500 427500
Less: Cost of Sale -231750
Gross Profit 195750
Add: Under/ Over Absorption 6800
Actual Gross Profit 202550
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Less: Fixed expenses -45000
Net Income 157550
Working Notes:
* Total variable cost per unit = 51.5
* Cost of Goods Sold (COGS) = Production Cost – Closing Cost
= 257500 – 25750
= 231750
* Under or Over Absorption:
Income statement by using Absorption costing method (2nd Quarter):
Particulars Amount
Sales (95*3000) 285500
Less: Cost of Goods Sold -180250
Gross Profit 104750
Less: Under Absorption -5476
Actual Gross Profit 99247
Less: Fixed expenses -45000
Net income 54274
Working Notes:
* Total variable cost per unit = 51.5
* COGS = Opening cost + Production Cost – Closing cost
= 25750 + 303850 – 1493501
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= 180250
* Under absorption = Fixed production cost – actual cost
= 75000 – 80476
= -5476
Marginal Costing Method: This method also known as variable costing because it
includes those cost who change the according to the change in production. It does not include the
fixed overhead. It help the business to identify accurate cost of product (Kihn and Ihantola,
2015).
Income statement by using Marginal costing method:
Particulars Details Amount
Sales 427500 427500
Less: Variable Cost
Direct Labour (15*5000) 75000
Direct Material (18*5000) 90000
Production Overheads ( 9*5000) 45000
Variable @ 10% on sales value 42750 252750
Less: Direct labour (15*500) 7500
Direct material ( 18*500) 9000
Production Variable (9*500) 4500 -21000
CONTRIBUTION 195750 195750
Less: Fixed expenses (180000/4) -45000
Profit for the year 150750
Interpretation: From the above calculation it is concluded that total production overhead
of product X is 72000 and product Y is 192000 by using the absorption costing approach. In case
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of ABC analysis total production overhead of product X is 82749 and Y is 181255. it is also
observed that different activities which are included in the production process. In case of activity
based costing method machine hour per period of product X is 24000 and the other hand for
product Y machine hour per period is 16000.
ANNEX (B)
(a) Labour Hour:
Product X = 6000 * 1 = 6000
Product Y = 8000 * 2 = 16000
22000
Labour Hour = 264000 = 12 per hour
22000
Overhead absorption on Labour Hour:
X Y
Overhead Absorption 1*12 = 12 2*12 = 24
Total Overheads =6000*12
= 72000
= 8000*24
= 192000
(b) Using ABC:
Machine Hour per period:
Product Amount
X (6000*4) 24000
Y (8000*2) 16000
Total 40000
Cost Driven Rate:
Cost Driven Rate Amount
Production Set Up = 179000/60 = 2983 per set up
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Order handling = 30000/72 = 416.66 per order
Machine cost = 55000/40000 = 1.375 per order
Overhead using ABC approach:
Particulars Product X Product Y
Set up cost = (15*2983)= 44745 = (45*2983) = 134235
Order cost = (12*417) = 5004 = (60*417) = 25020
Machine cost = (24000*1.375) = 33000 = (16000*1.375) = 22000
Total 82794 181255
ACTIVITY 2
PART A
Budgetary Control: It is a process where manager of the company fix their goals
regarding finance or performance of the organisation. It will help the business to compare their
actual performances with the standard one. Basically, this budget help the business to control and
monitor their internal process for the effective results (Budgetary Control, 2019). Budgetary
control involve the various activities such as planning, coordinating, organizing and take
effective decision in order to achieve their business goals & objectives. It is used by the top
management of the company where they develop budget in order to control their product cost
and monitoring the other activities. Their are various planning tools which is used by the
manager of AP Diving Ltd for the effective control in their organisation. It is used for the
financial or non financial objective where it helps in achieving business goals & objectives.
Their are some planning tools used by the AP Diving Ltd for the budgetary control along with
it's advantage or disadvantage and it will be discussed below:
Flexible Budget: It is more sophisticated budget in comparison to other budget because
budget will be change according to the change in the volume or in the activities. It help the
manager to analyse their actual or standard outcomes. It help the organisation to achieve their
desire profit because according to the requirement they can change their budgeted amount which
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