ABC Ltd: Management Accounting Report and Analysis

This report provides a comprehensive analysis of management accounting principles and their application within a business context, specifically using ABC Limited as a case study. It explores the core principles of management accounting, emphasizing its role in internal decision-making and organizational improvement. The report delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their benefits and uses. Furthermore, it examines different types of management accounting reports, such as budget reports, performance reports, cost accounting reports, and accounts receivable reports, and their significance in planning, decision-making, and performance evaluation. The report also includes a practical application of costing methods, comparing and contrasting absorption and marginal costing through income statement preparation. Additionally, it analyzes planning tools, evaluating their advantages and disadvantages. Finally, it addresses how management accounting systems can respond to financial problems and offers recommendations for achieving sustainable business practices.

Management
Accounting

INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
LO1..................................................................................................................................................3
Explaining MA with its principles and role of it’s within the organization................................3
Stating different types of the MA reports....................................................................................5
Determining benefits and uses of MA systems...........................................................................7
Evaluating the way in which MA systems and reporting is integrated.......................................8
LO2..................................................................................................................................................8
Preparing income statement by making use of absorption and marginal costing methods.........8
TASK 2..........................................................................................................................................11
Compare and contrast planning tools with advantages and disadvantages of each planning tool.
...................................................................................................................................................11
Management accounting system to respond financial problems...............................................12
Conclusion and recommendation to company for applying method for achieve sustainable
business......................................................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is concerned with the process of providing financial information
and resources to the managers for the purpose of better decision making in the context of
business. The main objective of management accounting is to improve the internal working of
the firm so that it can earn more profitability and achieve its goals and objectives in an effective
and efficient manner. This tool has helped the company in taking better decisions with regards to
proper controlling of business activities and development. The current study will focus on ABC
limited and the role of management accounting in the smooth functioning of the company’s
operations. Furthermore, it will also include a brief study on the management accounting tool
and its role in the business growth and its sustainability.
TASK 1
LO1.
Explaining MA with its principles and role of it’s within the organization
Principles of MA
Management accounting involves the presentation of analysis of business activities to the
internal management to promote better decision making. It is different from financial accounting
because financial accounting is concerned with preparation of financial statements for the
external parties whereas management accounting is done for the sake of internal purpose and to
improve the working of the organization.
MA systems
The systems associated with management accounting are as follows:
Cost accounting system- Cost accounting system is a framework used by the companies
to predict the cost of their products and services so that the firm can assess its profitability, value
the inventory and cost control (Ghasemi and et.al., 2016). The main objective of cost accounting
is to identify the cost of manufacturing a single product or service so that later on the firm can
add profit margin systematically. The importance of cost accounting is that it has help businesses

in lowering their cost of operations by eliminating irrelevant items which has ultimately led
towards the profit maximization.
Inventory management system- Inventory management system is a tool used by the
companies to monitor and control the stocked products like company assets, raw materials, or
finished products ready to be delivered to the customers. It is imperative for every manufacturing
company to have an inventory management system to keep record of the company’s resources
like increased transparency, improved delivery services and efficiency. Also, the company can
increase its inventory turnover by optimizing the value of goods and services by keeping fewer
items in hand and earning profitability. The most important use of this system is that it provides
better consumer satisfaction by providing faster shipping and delivery which helps in building
strong relationship with them.
Job costing system- Job costing is a system designed for the purpose of ascertaining and
accumulating manufacturing costs of a single unit or output. The job costing system is mainly
used when there are various items produced that differ from each other and have a significant
cost. This system serves as the subsidiary ledger for the producer’s work in progress inventory
and the finished goods inventory (Shevelev, Sheveleva and Gvozdev, 2017). The major benefit
of this system is that it helps the business managers in calculating profits on single jobs and
whether these are profitable enough to pursue in the near future. It is mainly used by construction
companies, consultants and contractors.
Price optimization system- Price optimization system is a tool of management accounting
that is used by the companies to forecast demand of their products & services at different price
levels and then combine the data relating to costs and inventory levels which further helps in
suggesting certain prices that can improve the profits. The system works on three elements like
pricing strategy, value of product for both buyer and seller and managing the elements of
profitability (Taylor and Scapens, 2016). It is of great importance because it provides financial
benefits like opportunities to increase the sales and consumer base through adequate optimization
of price which further can help in the growth and profitability of an enterprise.

Stating different types of the MA reports
MA reports are mainly used for planning, decision making, regulating and in measuring
the performance. Such reports are been constantly generated throughout an accounting period
and helps in making crucial decisions depending on authenticity of such reports. Managers assess
such reports for highlighting certain patterns and thereafter converting it into the useful
information for the firm.
Budget report- It includes the budgeted or anticipated figures of the income and expenses
and is considered as critical for measuring performance of organization and is framed department
wise for analyzing overall performance of the firm. This report is made on the basis of previous
experiences and guides the managers in offering better incentives to employees, renegotiating the
terms with suppliers & vendors. For example-
Particula
rs
Budge
t (£ )
Actual
(£ )
Under/
Over %
Sales 150000 125000 -25000
-
16.67
%
Purchase
s 90000 90000 - -
Salaries 14000 15000 1000 7.14%
Expense 10000 12000 2000 20%
Performance report- This report is been created for reviewing performance of an
enterprise as the whole along with its employees (Different reports of MA, 2017). Managers
make use of such reports for making strategic decisions with regards o future prospects of the
company. It plays a vital role for the firm in keeping a adequate measures of their respective
strategy towards their goals and mission. For instance-
Particulars
Budget
(£ )
Actual
(£ )
Varianc
e
Revenues 59000 60000 1000
COGS 42000 43400 1400
Wages 6700 7000 300
General 1300 900 400
Fixed costs 5000 5000 0
Operating
income 4000 3700 300

Cost accounting report- This report computes cost of the article in manufacturing the
product. All types of the cost that is raw material, labor, overhead etc are taken into account
while computing the cost of the goods produced. It is the report that facilitates capacity in
realizing cost prices of the items against the selling prices. Thus, it facilitates an exact
understanding of all the expenses that is essential for optimization of the resources among the
departments. For example-
Particulars
Amoun
t (£ )
Amoun
t (£ )
Amoun
t (£ )
Direct material : 9000
Ope. Inventory 800
Purchases 10200
less: Closing stock -2000
Direct labor 60000
Overheads
Indirect material used: 100000
Ope. Inventory 1000
Purchases 200
less: Closing
inventory 1300
Indirect labor -500
rent paid 25000
Insurance 48000
Water & Electricity 12000
14000
plus: Opening WIP 3000
less: Closing WIP -2000
COGS 170000
Accounts receivable report- This report includes details in relation to remaining balances
of the clients which in turn helps managers in identifying defaulters and in finding the issues if
any present in the collection process of the firm. This report is counted as most useful in making
decisions with regards to tightening the credit policies of the business as cash flow is found as
most critical aspect of business operations. For ex-

Determining benefits and uses of MA systems
Systems Benefits and application
Cost accounting system  This system helps in disclosing the
profitable and the unprofitable activities
so that company could be able to
segregate the activities that are not
relevant and profitable.
 It enables in determining periodical
amount of the profit and loss
ascertained from the sale of product.
 It is the system that provides guidance
for the future related production
policies.
 It assists in ensuring control over the
supplies and the materials in
accordance to the process, production
unit, department and the services.
Job costing system  This MA system allows the firm in
assigning the cost separately to an
individual operations and computing
the margin that would be gained on

each of the job.
 It enables in assessing performance of
employees and also helps in identifying
employees who fails in meeting the
performance expectations.
 It is the system that provides an access
to expenses that incurred on job even at
the time of manufacturing or
production process.
Inventory management system  It helps in avoiding the problem of
stock outs and excess level of the stock
and tracks or manages the flow of
inventory optimally within the
business.
 This system provides for invaluable
sales information that allows for more
of the data-driven decisions of
business.
 This system saves greater amount of the
cost by eliminating an inventory cost
attached with the human error.
 Through this system, company can
trace its product in a better and could
access the valuable data that in turn
allows or leads to potential or improved
negotiations with the suppliers.
Price optimization system  It is the MA system that facilitates
consistency to the businesses in
providing a relevant and the optimized
data insights by reducing the possible
chances of errors.

 It helps the company in analyzing and
emphasizing on the key or important
areas like sales margin and no. of
conversions.
Evaluating the way in which MA systems and reporting is integrated
MA is been integrated in each level of an enterprise as all types of the information that
relates to the company are included in it. MA is counted as very useful tool for an entity because
it affects the decision making of an enterprise which results organization success. Thus, there
present a direct link between MA and success or growth of an entity as enables in increasing
efficiency in the functioning of management and allows to fix appropriate target and the prices of
products.
LO2.
Preparing income statement by making use of absorption and marginal costing methods
Absorption costing- It means the method that is used for valuing an inventory which
includes all types of cost incurred in manufacturing the product that is fixed and the variable
costs (Ciuhureanu, 2018). It provides a more comprehensive and the accurate view on the cost
incurred for producing an inventory or the product.
Marginal costing- It means the costing method where marginal cost that is the variable
cost is been charged towards unit of the cost however fixed cost for a period is been completely
written off over contribution.
Particulars
Cost per unit
(£)
Direct material 8
Direct labor 5
Variable production cost 2
Fixed production overhead 5
Fixed production overhead incurred actually £15000
Fixed selling & distribution expense
£10000 per
month
Variable selling & distribution expense
15% of sales
value

Selling price 35
Sales 2000 units
Income statement as per absorption costing
Particulars
Amount in
£
Sales (1500*35) 52500
less: Cost of goods sold (1500*20) 30000
Gross margin 22500
less: Variable selling & distribution expense
(15% of
52500) 7875
Fixed selling & distribution expense 10000
Net operating income 4625
Working note
Unit product cost
Particulars
Amount
in £
Direct material 8
Direct labor 5
Variable production cost 2
Total variable production
cost 15
Fixed production overhead 5
Unit product cost 20
Income statement as per marginal costing
method
Particulars
Amount in
£
Sales (1500*35) 52500
Less: Variable expenses
Variable production cost (1500*15) 22500
Variable selling and administrative expenses (52500*15%) 7875
Contribution 22125
Less: Fixed expenses
Fixed production overhead 15000
Fixed selling and administrative expenses 10000
Net operating income -2875

Working note
Unit product cost
Particulars
Amount
in £
Direct material 8
Direct labor 5
Variable production cost 2
Total variable production
cost 15
Interpretation- The above results shows that net profit as per the marginal costing
resulted as -2875 and in accordance to absorption costing, profits accounted as 4625. This means
that by applying the absorption costing, greater value of profits are earned as compared to the
marginal costing. This indicates that absorption costing technique provides an accurate and true
amount of profits in comparison to the marginal costing because it takes into account both
variable and fixed cost as the part of its production activity. Moreover, it also helps in
ascertaining the appropriate value of the profits over the marginal costing that do not considers
fixed cost as the production part.
TASK 2
Compare and contrast planning tools with advantages and disadvantages of each planning tool.
Planning in accounting is also called as budgeting; it is the process of setting performance
goals and organizing system in order to achieving future goals. This is the process of developing
business strategies and vision for the future (Collis and Hussey, 2017). Budget is help to
company for forecasting and planning future activity of organization. Here is explaining some of
planning tools are as follows:
Production budget:
Production budget is the financial plan which is used list the number units are
manufacture within the company in coming certain period of time. In order to produce
production budget, management use data of sales budget and forecasting needs of customers at
market place. Advantages and disadvantage of production budget are as follows:
Advantages:
 Production budget is providing effective guideline for achieving sales target of company
by production management (Production budget, 2019).

 With the help of this budget company is able to maintain balance between inventory and
sales production of company.
Disadvantages:
 Budget preparation is helpful for company it is take lots of time and efforts of
management.
 Each person of management have own style to complete task, in this it is possible that all
employees not able to accept production budget prepared by management.
In the case of small plastic parts Ltd. Company is manufacture plastic parts. Management is
preparing production budget for the next quarter. As per production budget company estimate
that can sell higher units in last quarter. With this, management estimate to produce more items
as compare with sale of last quarter.
Zero base budgeting:
Zero base budgeting is also method of budgeting in this includes all the expenses which
justified for the each new time. This budgeting is started with zero level because every company
have need to analyse their cost and needs (Fleischman and McLean, 2020). There are various
advantages and disadvantages of zero base budgeting are as follows:
Advantages:
 This budgeting is based on the decision making process as well as ignoring previous year
data for preparing budget.
 Zero base budgeting have aim for analysing benefit of cost that is not make focus on
studying changes in expenses.
Disadvantages:
 In this budget have a range of employee; take more time for making and turning delay in
result as well.
 In this having chances of some fraud entries in which personal expenses include in this
budgeting.
In respect of Small plastic parts Ltd. Company, is prepare budget by taking better decision in
order to lead provide better communication between departments, employees and managers.
Management accounting system to respond financial problems.
Management of company is managing accounts of company as well as financial problems
which are generating within the organization (Hopper and Bui, 2016). The small plastic parts

company is face problem such as increasing cost, poor accounting practices and lack of funds.
Here is mention some management accounting system which is as follows:
Balanced scorecard:
A balance score card is the performance matrix which is used for identifies, improve and
making positive control on business and its various functions. This is effective strategic tool
which is identifies and help to make better internal functions of business. Most of the times
companies are use this system for measuring feedbacks to manage in order to working in the
better ways. This helped to solve financial problem which is lack of funds. That is very major
perspective which is seeing within the business. This is used by companies to solve their
financial problem in effective manner. This method is applied within the small plastic part ltd
company to about the facts of finance and innovation where company having lacking of funds
and also able to find improvement aspects of this problem (Quattrone, 2016).
Key performance indicators:
A key performance indicator is the type of accounting system which is help to measure
performance of company. Companies are using this system in order to solve their problems and
issues within the organization and their current performance within the company. This help to
companies for solve problems related increasing cost. This indicates to companies about their
mistakes and fined defects of work process of company (Weetman, 2019). In the context of small
plastic part Ltd Company, is to use this method for analysing their supply chain management of
company in effective manner.
Conclusion and recommendation to company for applying method for achieve sustainable
business.
Balanced scorecard and key performance indicator both are the systematic management
accounting system. Those are help to small plastic part company for solve their financial
problems which are generated at market place in effective manner. Small plastic part
Manufacture Company is use balanced scorecard for manage their funds at company in effective
manner (Collis and Hussey, 2017). This process is help to analysing exactly where company is
facing real problem with their finance managing. With the help of this, method management of
company Small plastic parts manufacturing know that fact in respect of terms finance and
innovation where company face problem of lacking with funds in effective manner. This is
effective and measureable for improve all those aspects of finance.
On the other side, if company uses key performance indicators for analysing their
performance at the market place and also within the company. In respect of that company have
any defects in their product then manager is effectively able to solve this defective product in
proper manner by using key performance indicator (Fleischman and McLean, 2020). This help to
management in order to enhance their sales and manage their work in proper and correct manner.

This created various new opportunities for company by using both balanced scorecard and key
performance indicator in company and with their working process.
In respect of that, here is include recommendation for management of small plastic part
ltd company to make proper list of their expenses as well as take review from customers about
using products.. This help to ensure about their finance and changes required within the products
in effective manner.
CONCLUSION
From the above study it can be concluded that management accounting is an extremely
important that contribute towards the success and growth of an organization. It not only helps in
identifying the problems with the management of the firm but also provides collective measures
to improve the working of the business which further promotes job satisfaction amongst the
employees. Moreover, there is several type of management accounting tools that must be used
by ABC limited to ensure smooth and profitable working of the organization. Thus, at the end it
can be concluded that management accounting process helps the business in making better
decisions by incessantly evaluating the internal working of the company over a period of time.
REFERENCES
Books and journal
Ciuhureanu, A., 2018. Management Accounting–Managerial Obligation or Need. Land Forces
Academy Review. 23(4). pp.282-287.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Fleischman, R. and McLean, T., 2020. Management accounting: theory and practice. Routledge.
Ghasemi, R. and et.al., 2016. The mediating effect of management accounting system on the
relationship between competition and managerial performance. International Journal of
Accounting and Information Management.

Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Shevelev, A. E., Sheveleva, E. V. and Gvozdev, M. Y., 2017. Methods of internal control in
integrated management accounting system of the enterprise. In SHS Web of
Conferences (Vol. 35, p. 01115). EDP Sciences.
Taylor, L. C. and Scapens, R. W., 2016. The role of identity and image in shaping management
accounting change. Accounting, Auditing & Accountability Journal.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Online
Different reports of MA. 2017. [Online]. Available through :<
https://www.completecontroller.com/types-of-managerial-accounting-reports/>
Production budget. 2019. [Online]. Available through:
<https://www.myaccountingcourse.com/accounting-dictionary/production-budget>