Management Accounting Report: B.L. Holding Ltd, Unit 5, Semester 1

This report provides a comprehensive overview of management accounting principles, focusing on cost analysis, budgetary control, and financial reporting. It begins by defining management accounting and its essential requirements, differentiating it from financial accounting. The report then explores various management accounting reporting methods, including budget reports, accounts receivable aging reports, performance reports, and financial reports. A significant portion of the report is dedicated to cost analysis, where marginal and absorption costing techniques are explained and applied to prepare income statements. The report also discusses the advantages and disadvantages of different planning tools used for budgetary control. Finally, it examines how management accounting tools can be utilized to respond to financial problems, such as key performance indicators, balance scorecards, and benchmarking, using B.L. Holding Ltd as a case study.

UNIT 5- MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Explaining management accounting and essential requirements of different types of
management accounting systems................................................................................................3
P2 Explaining different methods applicable for management account reporting.......................5
LO2..................................................................................................................................................6
P3 Calculating cost with application of appropriate techniques of cost analysis for preparing
income statement as per marginal and absorption costs.............................................................6
LO3................................................................................................................................................13
P4 Explaining advantages and disadvantage of different types of planning tool used for
purpose of budgetary control....................................................................................................13
LO4................................................................................................................................................16
P5 Comparing how management accounting tools help in responding financial problems.....16
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is provision of financial data along with advice to organization
for purpose of business development. The present report would demonstrate understanding of
management accounting systems with its essential requirements and types. Simultaneously, it has
shown each aspect associated to B.L. Holding Limited which was incorporated in year 1856 and
based in London, United Kingdoms It will articulate about different methods for management
accounting reporting. Similarly, it will calculate cost with adoption of cost analysis techniques to
prepare income statement with use of marginal and absorption costing. This report would state
application of planning tools in management accounting with merits and demerits of various
types of planning used for budgetary control. Furthermore, it will reflect comparison that how
business is adopting management accounting system to respond financial problems such as key
performance indicators, balance score cards and benchmarking on basis of lancer Holding and
B.L. Holdings pvt Ltd in United Kingdom.
LO1
P1 Explaining management accounting and essential requirements of different types of
management accounting systems
Management accounting is referred as process to prepare management reports and
accounts which provide accurate and timely statistical and financial information required through
managers for undertaking regular and short term decisions. It is presentation of accounting
information for formulating policies must be adopted through management and for assisting
regular activities. It helps management for performing functions such as planning, organising,
directing and controlling. With context to planning, it formulates policies through forecasts
related to production, inflow and outflow of cash etc. in broad activity range (Cooper, Ezzamel
and Qu, 2017). While preparing budgets or to ascertain particular cost centre, this delivers
resources to every centre along with delegating the respective responsibilities for ensuring
appropriate utilisation. Moreover, the actual work performed could be compared through
standards for enabling management to control performance in effective format. This helps
management of B.L. Holdings Ltd to communicate financial information related to enterprise as
to undertake decisions and to evaluate performance of business, management requirement and
information. Lastly, this is highly essential for interpreting the financial statements.
3

Management and financial accounting both differs in various aspects which are stated as
financial accounting classifies, records, summarizes and analyses financial affairs of organization
whereas management accounting helps management for undertaking effective business
decisions. On basis of application, financial accounting is formed to reflect forth accuracy and
true picture of financial affairs and management accounting helps management to imply
meaningful strategize and steps. On basis of scope it is pervasive in financial and broad scope in
management accounting. There is presence of dependency on financial accounting whereas
financial accounting is independent. Generally, financial accounting is used for potential
stakeholders and investors and management accounting is used for management. With context to
rules and regulations, financial accounting must be prepared according to GAAP or IFRS and
management accounting does not have any specific format to follow any rules (Financial
Accounting vs Management Accounting, 2019). Lastly, financial accounting information is
verifiable and in management accounting information reflected is predictive but could be
verifiable on immediate aspect.
Difference between management and financial accounting is as follows:
Basis of difference Financial accounting Management accounting
Compulsions Necessary Not compulsory
Objective The aim of such accounting is
furnish monetary information
to outsiders.
It provides assistance to higher
management team in decision
making.
Time period Prepared and published at the
end of an accounting year
(usually one)
According to the needs and
requirements of managers
managerial reports are
prepared.
Users Both internal (management,
employees) and external
(shareholders, suppliers etc)
stakeholders
In this, reports are used and
evaluated by managers for the
purpose of decision making.
Format specification In this, specified format is
followed by accountant while
Managerial reports are
prepared for decision making.

preparing final accounts. So, no specific format is
followed by the internal
department.
From assessment, it has identified that information served through management
accounting must be relevant, reliable and up to date. Moreover, team of higher management
takes decision pertaining to internal operations and functions by taking into account managerial
reports.
The types of management accounting are stated below:
Cost accounting system: This is framework which is used through organization for
estimating cost of product with context of inventory valuation, profitability analysis along with
cost control. It is replicated as method of accounting with aim to capture production cost to
assess input cost at each step of production with fixed cost such as depreciation on capital
equipment. It is first measure and tracks each cost at individual aspect whereas input to actual
outcome to aid management with objective to measure financial performance and cost comprises
to assets and liabilities of business of B.L. Holdings Ltd. This is very essential tool on basis of
management in budgeting or for setting programs to cost control and increase net margins of
business in the future (Hiebl, 2018). It is categorised in two types which is job order and process
costing.
 Job order costing: Usually organization use this method to assign cost to specific unit or
product as every job would be assigned as per cost which should be used in appropriate
format.
 Process costing: It is referred as accumulation of cost via every process, operations and
departments. Further, work performance of every unit is uniform and standardised for
continual mass production with assembly operation and engagement as well.
Inventory management system:
This system tracks goods through wholesale supply chain with portion of business
operation. There is consideration of retail, warehouse till shipping of stock movement with their
parts. This is replicated as method to oversee and control the ordering, storage and application of
every component implied in corporation related to production of goods it sells. This is mix of
barcode scanner, barcode printers and mobile devices and desktop software to streamline
5

management of inventory such as consumable, suppliers, goods and stock. The business's
inventory is replicated as key assets and accounts with context of investment and tied through
product selling (Nitzl, 2018). It is set of process which is required for utilising to oversee and
organising materials or goods in facility. It could be performed by two methods:
 LIFO: This is last in first out which is applicable to place accounting value to inventory
and operates with assumption that purchase inventory as last item is placed at first to sell.
 FIFO: With context to this inventory management system, first and oldest stock is
implied first and inventory generated on recent basis is used until stock in warehouse is
shipped.
P2 Explaining different methods applicable for management account reporting
Managerial accounting reports are considered as tool to understand numbers behind that
what is going in business. It lays emphasis on inside information gained by financial accounting
and this reports are applicable to plan, regulate, decision making and for purpose of measuring
performance. In this context, they are generated on continuous basis throughout bookkeeping and
accounting period as per requirements. Due to multiple critical decisions along with dependency
on authenticity of reports must carefully designed through experts who adopts at bookkeeping.
Moreover, managers of B.L. Holdings Ltd analyse these particular reports for highlighting the
certain patterns and transformed in useful information for business. The explanation for these
reports are stated below:
Budget reports: These budget managerial accounting reports are highly critical to
measure performance of business and generated through department wise for large organization
and as whole for small business perspective. In order to this, every organization sets budget for
purpose to understand grand scheme of business as it is estimate on basis of experience although
great budget caters unforeseen circumstances which might arise (Saeidi and Othman, 2017).
Each source of earnings and expenditures are listed by company and it tries to attain its goals and
mission to stay within amount is budgeted. These managerial accounting reports are related to
budgeting which guide managers for offering better incentives to employees, cut cost and to
renegotiate terms with suppliers and vendors. Thus, budget report is highly critical to any
business.
Accounts receivable ageing reports: As if business is highly reliable to extend credit
then these reports are very important. Breaking down the left balances of client into specific

duration which allows managers to determine defaulters and to extract issues in process of
collection in organization. In case, there are many defaulters then company might be in need to
complete transformation for tighter credit policies where cash flow is highly critical to business
operation (Azudin and Mansor, 2018). There is always some bad debt which is required to
written off and on the contrary, one cannot make this as habit.
Performance reports: These reports are designed for reviewing performance of
organization as for every employee at end of term. In this aspect, departmental performance is
highly generated in large business. Managers imply these performance reports for undertaking
strategic key decisions related to future of business. The individuals are often awarded through
their organizational commitment and under performers are laid off or dealt as per requirement.
The performance related reports offer deep insight about operation of company.
Financial reports: These are reports which consist of financial information and business
transaction over certain duration. Generally, it is prepared for external users of financial
statements and mandatory for management to analyse current financial position of organization.
These reports would help for evaluating financial performance such as cash flow, balance sheet
and income statement to analyse profitability and liquidity of organization. It is crucial for
management to frame strategies for enhancing financial position of organization to accomplish
organizational growth and objectives.
LO2
P3 Calculating cost with application of appropriate techniques of cost analysis for preparing
income statement as per marginal and absorption costs
Marginal costing: Marginal costing is replicated as principle where variable cost is
charged to cost units and attributable to relevant period is written off which is against
contribution for that duration. It is ascertainment of marginal cost along with impact on profit of
alterations in volume or kind of output differentiating among fixed and variable cost. With
context to marginal costing it is based on cost behaviour which vary volume of output as it is
also known as variable costing in which variable costs are fully accumulated and cost per unit is
directly ascertained on basis of variable costs. Generally, this technique is used for calculating
manufacturing cost of product as this method in which variable cost is charged where fixed cost
remains constant. This is determination of marginal cost and effect on alteration is profit with
level of volume changes. Apart from this, it is not referred as appropriate method because there
7

is absence of consideration of fixed cost such as direct labour which is necessary to extract
production cost (Spraakman and et.al., 2018). It is not possible to identify profit in marginal cost
where fixed overhead is changed. It doesn't lead to give clear picture of total cost of
manufacturing expenses to manager.
Absorption costing: This is also replicated as full costing as it is conventional technique
to ascertain cost and it is practice of charging each cost fixed and variable to operations, products
and processes. This is oldest and widely used technique to ascertain cost as in this technique, cost
is combination of direct cost and overhead cost absorbed on suitable aspect. With this context, its
cost per unit remains similar when level of output remains same but when level of output
changes then this gives alterations due to presence of fixed cost. As fixed cost is constant and
change in cost per unit with alteration in output level in this technique poses issue to
management for considering managerial decisions. This is useful if there is presence of only one
product when there is absence of inventory and recovery rate of overhead is on basis of normal
capacity rather than actual level of activity. In simpler terms, cost of a finished inventory would
consider direct material, labour, fixed and variable manufacturing overhead.
It ensures the operation manager that all cost is recouped through selling price of product
as it is significant method comparatively to inventory valuing method whereas true value to
generate inventory. In case product does not consider full cost, then selling price of product
might be less and company would not be able to generate sufficient profit through its return.
Profitability statement of TSR Pvt. Ltd according to absorption costing technique (10000
units)
Income statement using absorption costing
Sales 250000
less: variable cost
Direct material 50000
Direct labour 30000
Variable O/h 20000
variable S and A 30000
total variable cost 130000

less fixed cost
Mfg o/h 40000
S and exp 30000
total fixed cost 70000
total cost 200000
Profit 50000
Interpretation: The above scenario is depicting income statement with application of
absorption costing of 10000 units. It has sales of 250000 and marginal cost is aggregated to
140000 which has extracted gross profit of 110000. Simultaneously, by excluding variable and
fixed overheads of 30000 each, the TSR Pvt Limited had incurred net profit margin of 50000.
Cost per unit
cost per unit using absorption costing
Variable cost 13
Fixed cost
Fixed production O/h 40000 10000 4
Fixed S and A exp 30000 10000 3
cost per unit 14
9

Income statement of TSR Pvt. Ltd as per marginal costing technique (10000 units)
Income statement using marginal costing
Sales 250000
less: variable cost
Direct material 50000
Direct labour 30000
Variable O/h 20000
variable S and A 30000
total variable cost 130000
Contribution per unit 120000
less fixed cost
Mfg o/h 40000
S and exp 30000
total fixed cost 70000
Profit 50000
Interpretation: The above table is articulating income statement of TSR Pvt Limited of 10000
units as per marginal costing technique. It has shown that it does not consider any overhead
whether it is fixed or variable. So, in this aspect, its contribution is 120000. Furthermore, with
consideration of selling and administrative overheads its net profit margin is 50000 which is
same as the net profit calculated in absorption costing. The reason behind the similarity of the net
profit is the same units which are produced and sold. The only situation when net profit
calculated using these two methods is same is the condition where units of goods which are sold
and purchased is same.
Calculation of cost per units
calculation of the cost of each unit of Radiator
Marginal costing
amount units per unit
Price per unit 25
Direct material 50000 10000 5

Direct labour 30000 10000 3
Variable mfg overhead 20000 10000 2
Variable Selling and adm o/h 30000 10000 3
Total variable cost 13
Contribution per unit 12
cost per unit 10
Profitability statement of TSR Pvt. Ltd. using absorption costing technique (5000 units)
Absorption costing method
Sales 250000
Cost of sales 140000
production Contribution margin 110000
less fixed cost
Mfg o/h 30000
variable S and A 30000
Profit 50000
Interpretation: In the above scenario, it has been represented about income statement as
per absorption costing with 5000 units. Similarly, it has sales of 250000 which considered each
manufacturing overhead so its gross profit margin is 160000. In the same series, there is
exclusion of selling and variable overheads so its net profit margin in 50000.
Marginal costing technique: Profitability statement with regards to 5000 units

Marginal costing method
Sales 250000
Cost of sales 100000
production Contribution margin 150000
variable S and A 30000
Contribution margin 120000
less fixed cost
Mfg o/h 40000
S and exp 30000
Profit 50000
Interpretation: The above statement is formed on basis of marginal costing with 5000
units as its sales is 250000. The contribution of 185000 is extracted by excluding marginal cost
of sales is aggregated as 65000. Thus, with consideration of overheads its net profit margin is
articulated as 140000.
Extracting variance of TSR Pvt Limited
Labour price variance
Budgeted price – actual prices ) * Actual hours
(5-5.20)*3400
-680
Unfavourable
Labour usage variance
Budgeted hours– actual hours) *budgeted price
(3000-3400)*5
-2000
Unfavourable