Management Accounting Report: Methods, Analysis, and Budgeting

This report provides a comprehensive overview of management accounting, exploring its importance for effective financial management within a firm. It delves into key aspects such as management accounting reports, essential requirements, and the crucial role it plays in decision-making. The report examines various costing methods, including marginal and absorption costing, and presents income statements for both. Budgeting for planning and control is discussed, highlighting its significance in managing operational activities and resource allocation. Furthermore, the report analyzes the balance scorecard approach to address financial problems, offering a holistic view of performance measurement. The document also covers topics like inventory management, job costing systems, and different types of management accounting reports, such as job cost reports, operating budget reports, and accounts receivable ageing reports. Overall, the report emphasizes the importance of management accounting in enhancing profitability, production, and achieving organizational goals through informed decision-making, effective planning, and strategic implementation.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its essential requirements........................................................1
P2 Management accounting reports.............................................................................................3
TASK 2............................................................................................................................................4
P3 Income statement using marginal and absorption costing method.........................................4
TASK 3............................................................................................................................................7
P4 Budget for planning and controlling purpose.........................................................................7
TASK 4..........................................................................................................................................10
P5 Balance scorecard approach to respond financial problems.................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is important for the firm in order to manage the effectiveness of
different departments and profitability. The report will cover the introduction of management
accounting and its essential requirements in the firm. Different methods used for management
accounting reporting and income statement using absorption and marginal costing method will
be discussed in this report. Budget management and its advantages and disadvantages for the
firm and the balance scorecard approach in order to respond financial problems will be discussed
in this report.
TASK 1
P1 Management accounting and its essential requirements
Management accounting is also known as managerial and cost accounting. It is very
important for the firm in order to make financial reports which will be internal, decision making
and accounting. This will be done by measuring the cost of operational activities in the firm. This
will also help to prepare financial and costing data and translate it into a important and useful
information. Thus, this will help organisation to achieve its desired goals and objectives and also
better planning over the business activities (Abdelhak, Grostick and Hanken, 2014). It will also
increase the shareholder and consumer value which will help managers to use the resources
effectively and efficiently.
Management accounting as a decision making tool: It can be said that information regarding
management accounting will help managers to develop and improve their decision making with
data driven inputs and also for long time of period effectively. For an example, information and
data utilisation, cost techniques based on the activities and cost analysis etc. This will help
managers in the firm by determining the performance metrics and also collect information to
report the present performance of firm as compared to the expectations effectively. Management
accounting reports will also help managers to evaluate the deviation reasons and provide proper
suggestion measures.
Management accounting and Financial accounting
BASIS MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
DEFINITION Management accounting is a process
which will help managers towards
Financial accounting will help to
generate financial information and

the effective decision making, plans
and policies by providing them
useful information and data.
also prepare financial statements for
the firm.
INFORMATION Monetary and Non-monetary
information.
Only monetary information.
TIME FRAME The management accounting reports
are made according to the
requirements and demands.
Financial statement prepared at the
end of the year and an accounting
period of time effectively.
REPORT The report considered detailed and
complete information (Amans,
Mazars-Chapelon and Villesèque-
Dubus, 2015).
Financial summary reports which
includes financial information of the
firm.
Cost accounting system: Cost accounting system includes actual, normal and standard costing.
This will also help managers to determine the cost of products and services delivered by them in
the market towards customers effectively. The cost data will help to control the business
available resources which can be done by making strategies and plans. This will also help to fill
the future needs of the firm. Actual, normal, direct labour and manufacturing overhead costs are
related to the cost of products used in cost of goods sold.
 This will help managers by providing them the actual selling price of products and
services.
 Managers are also able to evaluate profitability in order to meet the competition.
 Cost of the products and services will help to manage the resources and decision making.
Inventory management system: Inventory can be describe as the stock of resources and
products which will be in form of raw materials, finished goods and work in progress. Inventory
management will help managers to control the business available resources in order to reduce the
cost of expenses and will also determine the quality, quantity and availability of stock in the
firm. Management of inventory also create cost such as capital cost, insurance, tax, facility cost
etc.

 Inventory management will help managers by protecting them against the shortage of
materials, resources and uncertainties (Bandy, 2014).
 This will also help to take advantage of economy scale which also supports strategies and
plans.
Job casting system: It can be said that job casting is a method of accumulation and cost
recording in which managers are able to identify the cost of present work and control it easily
and effectively. The job casting system is used by organisations where the production of
products is 'One Off'. The system is used when the customer put a specific demand towards
making a product or service in a short and fixed period of time effectively.
 Establish the cost of controlling, planning and decision making.
 Calculate the selling cost of product and also determine managers the profits and losses
effectively.
P2 Management accounting reports
Job cost reports: Job cost reports will help managers to determine the cost of work or project
effectively. This will also help managers to evaluate the work done by employees in the firm and
usually combined with the revenues estimates. The report will also evaluate the cost of work
while it is in progress (Burns and Walker, 2015). Profitability is also determined by the job cost
reports.
Inventory management reports: Inventory management reports will help managers in the firm
to keep the record of inventory and also help to manage and control the various levels of
inventory effectively. Different levels of inventory should be managed by managers effectively
in order to manage the quality, quantity and availability of stock in the firm. This will help to the
process of production by providing resources.
Operating budget reports: Operating budget report will help managers in the firm to analyse
the performance of different departments in order to manage and control the operational
activities cost under the budget effectively. Operating budget reports will help to evaluate the
best performance given by employees from which the rewards and incentives are provided
accordingly and effectively.
Accounts receivable ageing reports: Accounts receivable ageing reports will help managers to
manage the cash flow and it is also known as a critical tool which break downs the customer
balance at the time they owned the firm effectively (Efferin and Hartono, 2015). The reports will

also help managers to look at the previous debts from which they are able to manage their
production and profitability.
Performance reports: Performance reports will help managers to identify the level of
performance within employees at the workplace. In addition to this, managers try to improve and
develop the performance of employees by increasing their skills and knowledge towards the
tasks. This will help business to achieve the desired goals and objectives which leads towards
profitability and production effectively and efficiently.
IMPORTANCE OF MANAGEMENT ACCOUTING
Management accounting reports are very useful and important for the firm and managers
in order to make effective decision making regarding business operational activities. Reports will
help managers by providing job, products and services cost, inventory management and
performance analysis which will help to take decision appropriately and effectively. This will
also help to increase the profitability and production which will help to accomplish the desired
goals and objectives. Information regarding financial and non-financial activities will also help
managers to control the cost of products and activities under the budget. Reports will also help to
make effective strategies and plans in order to improve and develop the performance of
employees. This will lead towards achieving the individual and organisation desired goals
(Hashim and Piatti, 2016).
Thus, it can be said that management accounting reports are important for managers in
order to make decisions with effective planning and strategies in order to gain the profitability
and production of firm in the market towards customers effectively.
TASK 2
P3 Income statement using marginal and absorption costing method
Quarter 1

Quarter 2
Marginal costing statement

Absorption costing
It can be said from the above analysis that in 1st Quarter marginal costing system is
showing -14400 net amount and in 2nd quarter 9600 while from the absorption costing method it
determines the values in 1st quarter as -22800 while in 2nd quarter as -22000. It can be concluded
that both methods are showing different net amount of profit efficiently. The process for
calculating the net profit amount is slightly different for each method that marginal costing
system include only variable expenses in order to calculate the net profit amount. The absorption
costing method involves variable and fixed expenses to calculate the cost of products and
services offered by the firm effectively. In respect to this, it is very important to discuss the
expenses first which are divided into three parts such as variable, fixed and semi-variable
expenses. Fixed expenses are the fixed for the firm that managers and employees salary is the
best example for fixed expenses. In addition to this, variable expenses are those which changes
consistently according to the requirement and demands such as machineries and raw material.
Semi-variable expenses are those in which some part remain changed and some unchanged. In
order to calculate the net profit amount, all expenses should be considered by the firm

effectively. It can be said that both methods are important and useful for the firm in different
conditions that it is necessary to select the appropriate and best between these two (Henri, Boiral
and Roy, 2016).
The fixed expenses in the marginal costing system is not even directly connected with the
production of product and services. Marginal cost-based method also helps to determine the
profit amount which considered only those expenses which contributes in the process of
production effectively. Thus, it can be said that both marginal and absorption costing method are
useful for the firm to maintain the appropriate evaluation of expenses and also to make effective
decision. This will help business to develop and improve the operational activities.
TASK 3
P4 Budget for planning and controlling purpose
Budget management is important for the firm in order to manage the cost of business
operational activities and products and services. This will help managers to ensure the
availability of resources in the firm by managing the cost of different departments and activities.
FINANCIAL BUDGET
Financial budget should be managed and controlled by the mangers in order to improve
the cash revenues and action plans to spent as a benefit for the firm.
Cash budget: Cash budget management is where the managers control the cash activities in
terms of incoming and outgoing which will be in a time period of daily or monthly. This will
also help managers to evaluate and determine the availability of cash in the firm in order to
manage the resources and taking advantage of opportunities.
Capital expenditure budget: The capital expenditure budget will help managers to focus on
major assets such as plant, machineries and land (Hyndman and Lapsley, 2016). It can be said
that this will be useful for the firm in the future and present as well. This can be acquired from
long term bond and securities effectively.
Balance sheet budget: The proper management of balance sheet refers to the enhancing balance
sheet which can be done by meeting and filling all the needs and requirement in order to manage
and control the budget mesh properly.
OPERATING BUDGET

Sales and revenue budget: Sales and revenue budget focus on the income which the
organisation receive from business operational activities in the market. In addition to this,
managers should determine the financial position of the firm.
Expense budget: Expense budget will help managers to underline the anticipated expenses in a
specific time. Management of expenses will also help to prepare for future expenses which will
affect the operational activities within the firm.
Project budget: The project budget is all dependent on the difference between profits and sales
and expenses. There are some necessary and important decisions and actions required by the
managers in case the anticipated profits are low (Johnston and Marshall, 2016). This will help to
increase the sales and profitability which will help to control and manage the expenses
effectively.
FIXED AND VARIABLE BUDGET
Fixed cost: Fixed cost are those expenses which are important as well as necessary for the firm
in order to manage and control the business activities effectively. For an example, salary of
employees and managers is fixed expense for the firm.
Variable cost: Variable cost is depended on the business activities and operations. It can be said
that scope and activities decide the cost of operations and products. For an example, raw material
production is a variable cost for the firm.
ADVANTAGES AND DISADVANTAGES OF BUDGET
ADVANTAGES DISADVANTAGES
Budget preparation will help managers to make
decisions, plans and strategies and convert
them into action.
Employees do not participate in business
activities which produce demotivation in the
firm.
Budget preparation will help to keep records of
operational and business activities.
It can be a reason for producing perception of
unfairness.
Budget will help employees to develop and
improve their level of communication in the
firm.
It is able to make competition for resources and
politics effectively.
Budget will justify for the managers to develop Budget can reduce the initiatives and

resources and their allocation within the firm. innovations at lower level if it is used rigidly or
mechanically effectively (Martin, 2016).
This will help managers to formulate plans and
strategies in order to manage the cost of
products and operational activities under the
budget efficiently.
Budget process can be time consuming and will
reduce the flexibility and improvements.
BUDGET PREPARATION
Obtaining estimates: In order to prepare a budget, it is very important to obtain the estimates
such as estimates of sales, department cost, production cost and availability of resources in the
firm. The main duty and responsibility of managers in the business is to provide future estimates
which has an impact on business activities. The communication and participation will be in terms
of formal and informal and will be reported to the department of budget for an approval.
coordinating estimates: The department of budget make strategies and plans which will be
given by different firms to find the better and best between them. This will help managers to
determine the availability of resources in the firm effectively.
Communication: The budget should be communicated with other members in the staff and
employees. This will help them to provide suggestion and feedbacks regarding any changes in
the budget plan (Mutiganda, Hassel and Grossi, 2015). Modifications and changes are made by
the managers in order to achieve the approval.
Implementing the plan: Finally, the budget is ready and managers of the firm will formulate as
strategies and plans in order to manage the resources and business operational activities
effectively. The budget should carry essential materials, labour, facilities and resources
efficiently.
IMPORTANCE OF BUDGET
Budget refers to a plan or strategy which will help managers to achieve the target of
managing resources under the cost and budget. The budget also controls the financial activities in
the firm in order to increase the profitability which will help to face financial problems and
issues within the firm effectively. The four process of controlling budget is provided below:
 Managers easily control the coordination of resources in the firm.

 Managers are able to determine the standard of control system (O’Grady and Akroyd,
2016).
 Create guidelines for the firm in terms of resources and expectations.
 Evaluate the performance level of employees and business effectively
Cost-based pricing: The cost-based pricing will help managers working in the firm to evaluate
and determine the cost of products and services offered in the market towards customers
effectively. Direct cost pricing and full cost pricing are the two basic form of cost-based pricing
which will help to manage the products price in order to enhance the profitability. This will help
to achieve the desired goals and objectives of production.
Cost-plus pricing: Cost plus pricing is where the managers evaluate the cost of manufacturing
overheads, direct labours and direct materials which will be aid in the price of products and
services in order to derive the price of products efficiently
Profit pricing: The strategy is used to make the profitability and money from the business
activities and production. Manufacturing cost will be aid in the price of products and profits are
made on each sale of products in the market effectively and efficiently.
Transfer price: Transfer price refers to the price divisions where a business transacts with each
other in terms of department and suppliers and labour. This will help to manage the cost of
products under the budget in order to increase the profitability and production for the firm. This
will also help to achieve the desired goals and objectives which increase the competition level of
the firm (Osadchy and Akhmetshin, 2015).
TASK 4
P5 Balance scorecard approach to respond financial problems
In order to respond financial problems and issues within Nero Ltd, it is important to have
a better controlling, planning and management of financial activities which will help business to
improve the cash revenues and will decrease the lower cost and wastages effectively and
efficiently. There are so many financial problems arise within a business which reduce the
effectiveness of operational activities which affect the profitability and production as well.
Customer relationship management is one of the key factors which helps to reduce the financial
issues that revenue increases with the purchasing and also decrease the return of goods
effectively. This will help to increase number of loyal customers for the firm. Staff turnover,
wastage, slacks and consumer anger management will also help to cope up with financial

activities. In addition to this, employees and staff learning and development will also improve
and develop the innovation, creativity and quality towards the products and services offered by
the firm which will be done by better procedures in order to reduce the financial expenses (Raj,
Walters and Rashid, 2017). These are some common elements which will help to respond
financial issues and problems within Nero Ltd.
BALANCE SOCRECARD APPROACH
Balance scorecard approach can be described as a strategic management which will help Nero
Ltd to develop the internal functional activities. Traditional method of balance scorecard
approach determines the initiatives with the help of perspectives such as process of firm,
financial growth and learning (Wiesel and Modell, 2014). Such activities are related with the
objectives, data, collection, analysation and targets. Management accounting and balance
scorecard approach will help Nero Ltd to solve and respond the financial issues and problems.
Profitability and production should be managed by the firm in order to respond financial
problems. Customers perspectives and feedbacks are most important for the firm in order to
improve and develop the operational activities. Financial objectives should be made by the firm.
Profitability and margins will reduce the financial problem that Nero Ltd should focus on
factors which increase the profitability and productivity such as employee’s performance etc. In
respect to this, financial objectives should be made by the manger to achieve them which will
help to reduce the financial problems from the firm.
Determination of vision: Vision of Nero Ltd should be placed in the centre of balance scorecard
approach effectively. The vision is to enhance profitability and production and sales as well in
order to respond financial problems and issues (Sperling and Ramaswami, 2018).
Add perspective, objectives and measures: The four perspectives such as customer, business
procedure, financial activities and learning and growth. These should be places in circle of
vision.
communicate and share: The method will help Nero Ltd to demonstrate short term plans and
actions with various initiatives and contribution towards objectives and long term strategies
effectively. Sharing and communicating the vision and strategies will help to measure short and
long term financial goals.
JUST-IN-TIME

Just-in-Time refers to a strategy towards the management of inventory which will help
Nero Ltd to decrease the wastage and return of goods by providing essential and useful goods
within the firm. This will reduce the cost of inventory and also forecast the demand effectively
and efficiently.
Apart from this, Balance scorecard is an approach which helps in strategic management
to evaluate and develop the Nero Ltd internal functions (Tucker and Parker, 2015). The
traditional method of balance scorecard evaluates the initiative with the help of different
perspectives such as financial, growth and learning and process of firm.
CONCLUSION
It can be said from the above report analysis that management accounting and essential
requirements will help business to manage and control different factors such as cost of products
and services, inventory and cash management. Income statement using marginal and absorption
costing method in order to calculate net profit for the firm. Budget management will also help
Nero Ltd to respond to the financial problems by managing financial activities within the firm.
The balance scorecard approach and Just-in-Time method are also useful for the firm in order to
manage the financial issues by controlling different cash and financial operations effectively.

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