Management Accounting Report: Budgeting and Financial Solutions

This report provides a comprehensive management accounting analysis of Beigel Bake, a bakery and shop. It begins with an introduction to management accounting and its role in business decision-making. The main body of the report includes the production of financial reports using both marginal and absorption costing methods to analyze budgeted and actual profits. The report then evaluates the advantages and disadvantages of various planning tools for budgetary control, such as zero-based and activity-based budgeting, and explains their uses and applications. Finally, the report addresses how management accounting systems can be adapted to respond to financial problems, including how planning tools can help resolve these issues. The report concludes with a summary of the key findings and provides references for further reading.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..............................................................................................................................3
LO 2.................................................................................................................................................3
1. Producing financial report along with interpretation of the budgeted and actual profit.........3
LO 3.................................................................................................................................................6
1. Evaluating the advantages and the disadvantages of various planning tools of budgetary
control.........................................................................................................................................6
2. Explaining the uses and the application of the different planning tools.................................9
LO 4...............................................................................................................................................10
1. Adaption of management accounting system for responding to financial problems............10
2. Planning tools helps in resolving financial problems faced by the business organisation....12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is defined as method of preparing and presenting all the information of
accounting, statistics and financial nature. It helps in managing and formulating of policies, plans
and strategies which assist in day to day management of company. Management accounting thus
supports manager of the company in making crucial business decision related to business
operations for earning more profit margins. Thus, it is related with methods, systems, concepts and
techniques which are used by the management for achieving the set defined aims of the business in
an effectively and efficient way. This report is related to Beigel Bake, a 24-hour bakery and shop in
Shoreditch, London, England founded in 1974. This manufacturing firm is engaged in the business
of baking beigels, a jewish style bread filled with stuffing such as hot salt beef, mustard, chopped
herring, salmon and also cream cheese. It also provides other bakery products such as Danish rolls,
Eccles cakes, Cheesecakes etc. The report will provide cost analysis calculated with the help of
marginal and absorption costing technique. Also, it is going to discuss about different types of
planning tools which can be used by Beigel Bake for the management accounting process. At last, it
will streamline about manner in which the business firm can overcome its financial nature issues
with the help of management accounting system.
MAIN BODY
LO 2
1. Producing financial report along with explanation of the forecasted and actual profit.
Marginal Costing – The term Marginal costing is known as the system of accounting in
which all the costs amount of variable nature are charged against cost units. Whereas in case of
fixed costs incurred in carrying on business operations of the definite time period are written off in
full against all the contribution made on aggregate basis. This method of costing is applied only to
those business cost to inventory which was incurred at the time of production of each individual
unit.
Absorption Costing – This technique of costing depicts that all the cost amount related to
the manufacturing operations had been assigned to all the units produced. The cost of producing a
finished product includes all the costs such as direct materials, direct labor etc.
A. Budgeted Profit and Loss Statement of Beigel Bake
Absorption Costing
Particulars Amount in £
Sales (16000*50) 800000

Cost of sales:
Opening inventory 0
Direct Material (18000*10) 180000
Direct Labour (18000*20) 360000
Fixed Overhead (18000*5) 90000
Variable Overhead (18000*5) 90000
720000
-Closing inventory (2000*15) -30000
620000
GP 180000
-Selling expenses of
Fixed nature 0
-Selling cost of
Variable nature 0
Actual NP 180000
Marginal Costing
(MC)
Cost per unit
(in £)
Material 10
Labour 20
Variable O/h 5
Marginal cost per
unit 35
SP 50
Marginal cost per
unit 35
Variable selling price 0
Contribution (per
unit) 15
Particulars Amount in £
Sales (16000*50) 800000
COGS:
Inventory at
beginning 0
Material (18000*10) 180000
Labour (18000*20) 360000
Variable O/h (18000*5) 90000
630000
-Closing inventory (2000*15) -30000
600000
GP 200000
-Variable selling cost 0
Contribution (16000*15) 240000
-Fixed costs 100000
-Fixed selling 0

expenses
Actual Net profit 140000
B. Budgeted Profit and Loss Statement of Beigel Bake
Absorption Costing
Particulars Amount in £
Sales (16000*50) 800000
Cost of sale:
Opening inventory 0
Material (19000*10) 190000
Labour (19000*20) 380000
Overhead - Fixed (19000*5) 95000
Overhead - Variable (19000*5) 95000
760000
-Closing inventory (3000*15) -45000
640000
Gross Profit 160000
-Fixed selling
expenses 0
-Variable selling cost 0
Actual Net profit 160000
MC
Cost per unit
(in £)
Direct Material 10
Direct Labour 20
Variable O/h 5
Marginal cost per
unit 35
SP 50
Marginal cost per
unit 35
Variable selling price 0
Contribution per
unit 15
Particulars Amount in £
Sales (16000*50) 800000
Cost of sales:
Opening inventory 0
Material (19000*10) 190000
Labour (19000*20) 380000

Variable O/h (19000*5) 95000
665000
-Closing inventory (3000*15) -45000
620000
GP 180000
-Variable selling cost 0
Contribution (16000*15) 240000
-Fixed costs 100000
-Fixed selling
expenses 0
Actual NP 140000
Interpretation – From calculations made it can be interpreted that contribution per unit is
£15 per unit. Under marginal costing method, NP has been determined for making comparison. The
amount of net profit calculated under marginal at 18000 units is £140000 and for 19000 units in it is
£140000. The net profit amount for 18000 & 190000 units is as calculated under absorption costing
technique is £180000 and £160000. Thus, it can be concluded that by using marginal costing
method, Beigel Bake is making a net profit of £140000 at both unit level viz. 18000 and 19000. It is
better to use absorption method for determining the amount of net profit for 18000 units as it is
yielding more profit of £4000 as compared to marginal one.
LO 3
1. Evaluating the advantages and the disadvantages of various types of planning tools related to
sbudgetary control.
Zero based budget- It refers to planning tool where all expenses for upcoming period are
been computed based on the actual expenses. And are justified for every new period. IT is the
process for creating the budget on the basis of the current activities and does not require previous
year budget (Papa and et.al., 2017). This method of the budgeting helps in preparing the budget
from the zero base or scratch that means every operation are been overlooked and each activity is
been analysed for determining the correct evaluation of the spending. Zero based budget facilitates
the information to the management regarding setting the new goals.
Advantages Disadvantages
This budgeting technique ensures the
justification of all the operating expenses. This
helps the Beigel Bake in justifying all the
operating expenses and also considers the
Zero based budgeting focuses only on the short
term benefits for the department within the
Beigel Bake and not focuses on the long term
goals.

assessment relating to areas that are generating
the revenue.
Zero based budgeting helps in keeping the
check over the legacy expenses so that cost
control can be attained by each of the
department which in increases the profitability.
It is considered as the flexible budget because
it prepared from at regular intervals in order to
respond the changes that are happened in the
business environment.
It helps the Beigel Bake in making the
optimum use of the resources so that wastage
could be eliminated and also enables in
identifying the redundancies within the firm.
Zero based budget provides a clear
understanding in relation to cost behaviour
patterns of Beigel Bake.
This method results in the involvement of the
increased staff at every level as more
information and the work is needed for
completing the budget.
Zero based budgeting facilitates the
comparison in between the old and the new
projects which in turn helps the Beigel Bake in
knowing the enhancement of their
performance.
Under this planning tool the budgeting process
becomes more complex & due to that Beigel
Bake might not react to the unforeseen
opportunities or the threats.
For effective preparation of the budget under
this tool requires high skilled staff which in
turn involve a huge cost relating to their
training and development.
The budgeting process under this tool requires
a lot of time and this in turn leads to
demotivation among the mangers of the Beigel
Bake.
Activity based budget- It is the budgeting method that under which the budgets are
formulated by using the technique called activity based costing after deducting all the overhead
costs. All the activities that realize the cost are been deeply assessed and researched. On the basis of
outcome, the resources are been allocated to each and every activity (Huang and et.al., 2015). In
other words it is counted as an approach that is applied to the process of budgeting that emphasize
on determining the cost attached to the activities which is been taken place within every area of
Beigel Bake. In this system there exist the clear understanding in between the resource
consumption and the output.

Advantages Disadvantages
This budgetary control technique provides the
evaluation of each cost driver. It considers all
steps that are included in the activity within the
enterprise. This helps the Beigel Bake in
eliminating the unnecessary activities from the
business.
Activity based budget facilitates a benefit of
cost savings in producing the product and the
services in comparison with the competitors.
This in turn enables the Beigel Bake in gaining
the competitive edge in the overall market.
This method of the budgetary control assist in
improving relationship in between the
customers and enterprise as it eliminates the
irrelevant activities and the opts for serving the
best to the customers with quality and at the
best prices.
Activity based budget is considered as the
complex planning tool as it requires research
and the analysis of the several factors.
This tool requires a high level of the
understanding of different functional areas
within the business (Mourtzis and et.al., 2016).
In case the manager is not capable of
evaluating and in understanding the key areas
in the Beigel Bake then this results in
inaccurate formulation of the budget.
Execution of this planning tool needs trained
employee which in turn incurs high additional
cost for the firm.
Rolling budget- It is referred as the revised or new set of the financial plans for coming
accounting period which is been used for replacing the previous budget in the system of continuous
budgeting. It is also called as the continuous budget or updated budget because it re;places the prior
period budget. It involves incremental extension of existing model of budget. By adopting this tool,
Beigel Bake has the budget which is been extended a year into the probable future (Donaghue and
et.al., 2018). Rolling budget reflect all the amendments that are resulted in the accounting period
and records for all the variances that occurs because of the changing condition within the Beigel
Bake.
Advantages Disadvantages
Rolling budget provides flexibility as it
incorporates the changes from prior period to
the coming period. Thus, it provides more
update information with consideration of the
Rolling budget needs robust system of the
information and requires the skilled personnel
for extracting the accurate information. This
consistent revision of budget distracts the

all the changes at regular interval in accordance
with the changing circumstances.
It facilitates responsiveness as it respond to the
unexpected changes and allows the Beigel
Bake for making the adjustments in the coming
periods.
employees in focusing towards the key sectors
of the business.
The time period in which the conditions are
changing constantly, rolling budget is not
considered as the justified tool or not advisable.
Rolling budget involves lot of time and the
focus of the employees. This increases the
pressure and the demotivation among the
employees which in turn affects the efficiency
in the performance of the Beigel Bake.
2. Explaining the uses and the application of the different types of planning tools
Planning tool Uses Application
Zero based budget Such tool is useful for the
Beigel Bake for evaluating
each and every item of the
cash flow so that appropriate
examination of each
department could be made.
Zero based budget is applied
by the Beigel Bake in order to
ascertain the expenses
involved in each activity for
every new period.
Activity based budget This act as the most useful tool
for the Beigel Bake as it uses
the cost drivers for
determining the cost associated
to the with each activity.
It is applied by those firms
where there are large number
of activities involved and
provides for the cost control on
each activity.
Rolling budget Rolling budget is helpful for
the Beigel Bake as it helps in
identifying the problem that
surrounds in respect of the
business. It helps in making
the regular review of the
activities and facilitates timely
changes in the budget.
Is applied by the Beigel Bake
for allocating the finances
optimally so that maximum
profitability can be generated
even in the adverse business
situations (Evers and et.al.,
2019).
It helps in making the correct
evaluation of the business
activities so that uncertainties

could be met effectively and
efficiently.
LO 4
1. Adaption of the management accounting system for resolving financial problems.
There are several types of management accounting system which can assist Beigel Bake in
solving their business financial problems such as:
Bench marking – It is defined as accounting system which helps the company in making
comparison of its own business practices, methods, concepts with those business firms which are
performing much better in the market (Gerrish and Spreen, 2017). It provides a comparative
analysis of Beigel Bake with standards of those business firm of same sector and which are
performing best therein. It helps in making of action plan which can help in bringing in
improvement in the overall business as well as employee performance level. It can help Beigel
Bake in identifying the best business opportunity for improving its productivity and profitability
margin. By formulation of plans, strategies and policies as per the standards of best firm, Beigel can
perform better in comparison with competitors. This will help Beigel in overcoming problem
related to poor employees performance, low demand of products in the market by developing
performance improvement plan which will solve quality related & less customer satisfaction issue.
Key performance indicator – A tool which provides quantifiable measure useful for
evaluating the success journey of business organization and its employee relevant in attaining
business goals and objectives (Toussaint and et.al., 2017). It helps in assessing the effectiveness of
Beigel in achieving the desired goals. By using such indicator, employees and business
performance level can be evaluated for determining whether the business is properly using its
business resources or not as per the plans and strategies formed. It helps the management in
analysing the success level towards strategic goals and targets and also focuses on strategic and
operational improvement. Also, assist Beigel in solving issue related to analysing of employee
satisfaction, turnover rates, timely project completion and thereby assist in decision making
process.
Balanced scorecard – It is considered as a strategic performance measurement system
which aims at translating of the overall business mission and vision into actual planning, actions as
per the strategic planning made. It is a tool which contains model of performance targets and
objectives depicting the performance level of Beigel for achieving desired goals. It provides
different perspectives for measuring overall business health viz. financial, customer, internal
processes, and capacity of organisation (Hansen and Schaltegger, 2016). Each perspective of

business lays emphasis thereby providing a balanced view of the business operation to Beigel.
Business efficiency can be solved by improving all the internal process like reducing wastage of
resources etc. Customer satisfaction can be improved by making market survey and delivery quality
products. It thus impacts the performance of business and helps in making more profit.
Financial Governance – It is defined as a manner and process in which the company can
manages all its financial information for a definite period of time. It is a tool which assist Beigel in
monitoring, collecting, analysing and dealing with the financial information of the business.
Formulation of sound and effective financial policies, plans can help in proper and relevant
allocation of business & financial resources. With the help of this tool, Beigel can make budget,
financial plans and models which can assist in proper control over the internal financial business
processes.
Beigel Bake uses the bench marking tool for comparing its products, processes, policies
with competitors which is performing better in the market for seeking competitive edge. Also, it
will makes quality of products and services of Beigel better. By setting quality standards and norms
overall performance can be improved & can increase its business efficiency and productivity.
Types of organisations Management accounting tool use
for resolving financial problem Its uses
Business organisation Business performance By using key performance
indicator, Beigel Bake can
achieve large customer base
who are loyal thereby
measuring the satisfaction
level of the customers.
Non-Profit making
organisations
With the help of Balance
scorecard, problem related to
financial aids can be resolved
(Otley, 2016). Lack of financial
assistance leading to decrease in
quality of product & service
Balance scorecard technique
helps in resolving the financial
problem relating to the cost of
production and setting up of
the reasonable prices.
Charities By using Benchmarking tool,
proper and effective allocation of
available business resources as per
It helps charity business firms
in attaining economies of scale
for seeking competitive edge

need. in respect of its competitors.
By formulating effective plans
and strategies allocation of
resources can be made
effective.
Government Departments Financial governance tool can be
used for increasing the overall
efficiency of business operations in
context of financial transactions of
government department.
By emphasising proper
management, planning and
control these departments can
over their problem (Chenhall
and Moers, 2015). It also helps
in keeping compliance with all
mandatory laws and
regulations.
2. Planning tools helps in resolving financial issues related to the business organisation.
The term Management accounting is related with the application of managing accounting
details which can be utilised for decision making. It assists in formulation of plans, budgets and
strategies thereby assigning cost and resource to each department respectively as per their
responsibility. It also ensures that effective and proper utilisation of resources has been made.
Different planning tools has been there which can assist Beigel in resolving financial problems viz.
as follows:
1. Bench marking
Advantage Disadvantage
 It enhances performance level by
improving it and foster
competitiveness.
 It focuses on real short term goal of
specific nature rather than historical
performance.
 It assists in laying emphasis on
making relevant changes along with
measures and direction for adoption
of change process.
 It only focuses on measuring of
performance of operational nature
and is not able to evaluate the
overall effectiveness.
 The main disadvantage is that
under this tool, the best standards
followed by competitor is assessed
irrespective of its implications.