Comprehensive Management Accounting Report: Balfour Beatty Case Study

This report provides a comprehensive analysis of management accounting practices within Balfour Beatty, a multinational company. It begins with an introduction to management accounting, its objectives, and its role in decision-making, planning, and performance management. The report then delves into the specific types of management accounting adopted by Balfour Beatty, including cost accounting, inventory control, job costing, and price optimization systems. It outlines various management accounting reports used by the company, such as budget reports, accounts receivable aging, inventory and production reports, and job cost reports, highlighting their benefits in controlling costs, aiding decision-making, and driving continuous improvement. The report also includes an analysis of marginal and absorption costing methods, comparing their impact on profit calculations across different periods. Furthermore, it explores the advantages and disadvantages of budgetary control and forecasting tools, such as financial and operating budgets, and their role in financial planning and performance evaluation. The report concludes by emphasizing the importance of management accounting systems in the company's overall financial strategy and operational efficiency.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...................................................................................................1
ACTIVITY 1............................................................................................................1
PART A Introduction of management accounting.......................................................................1
ACTIVITY 2............................................................................................................4
Part A...........................................................................................................................................4
Advantage and disadvantage of types of planning tools that use in budgetary control and
forecast budget.............................................................................................................................4
PART B........................................................................................................................................8
How company can achieve success by responding to the financial problems............................9
Planning tools of accounting helps in achieving success and solving problems.........................9
REFERENCES......................................................................................................14

INTRODUCTION
Management accounting is a profession that helps in decision making, planning and
management of performance and also provide expertise in make report of finance and then
control on management for formulation and implementation of organization strategy. It is a
accounting process related to prepare reports and accounts that helpful in making decision long
term and short term (Cooper, Ezzamel and Qu, 2017). It also provides all reports timely and
accurately and it is only useful for managerial work that helps in take decision about
organizational goal. So its main objective is making effective decision. It also helps in make
plan, control for organization. Balfour Beatty is a multinational public limited company of
United Kingdom. It was founded in 1909 by George Balfour. So its headquarter in London and
26000 employees are engaged in this organization. So its major work is engineering. This reports
will be covers that types and benefits of management accounting, planning tools of management
accounting. Budgetary control, and effectiveness as well.
ACTIVITY 1
PART A Introduction of management accounting
Management accounting
In Balfour Beatty, management accounting additionally known as cost accounting, is the
system of analysing business expenses and transactions to prepare intrinsic monetary record,
information, and account to help managers of the company in decision making technique for
accomplishing company's objective. However, in different phrases, it's far the act of creating
economic and costing records and translating that facts into beneficial data for management of
the company.
However in management accounting of the company, the financial data and non-financial
records is presented at normal durations say weekly or biweekly to the management. Thus, this
presentation will consists of prediction, budgets and evaluations. Hence it assists the
management of the company in making plans of the company's activities.
Further, based on the facts of the company provided in management accounting, the
administration department of the company can take decisions about persevering with a product
or enhancing the sale strategy. However, due to the fact that management accounting isn't always
regulated through any law, the control can decide the regions that require more evaluation,
research and as a result form different tactics.

Types of Management Accounting adopted by Balfour Beatty:
Cost accounting system: A cost accounting system of Balfour Beatty is a framework used
by company to estimate the value of their products for profitability evaluation, stock valuation
and cost management. Thus, in this system of the company, cost allocation is finished primarily
based on both conventional costing system and activity-based system.
Inventory control system: An inventory control system of the Balfour Beatty combines
the usage of computer software program, barcode image scanner, barcode peripheral device, and
mobile gadgets to form the management of stock for e.g. goods, elements, stock, etc. Thus, the
purpose of inventory control is to appropriately know inventory levels and mechanically
decrease undervalued and overvalued situations. However, through efficaciously monitoring
quantities across locations the company will be able to make optimum inventory choices.
Job Costing System: The job costing system of Balfour Beatty is the procedure of
gathering data approximately the expenses associated with a selected manufacturing or provider
job. Thus, this data will be required by the company to be able to put up the information to a
purchaser beneath a contract where charges are compensate.
Price optimization system: This management system can be used by Balfour Beatty as
these are numerical programs that compute how demand varies at exceptional fee levels, then
integrate that information with statistics on expenses and inventory tiers to advocate expenses
with the intention to improve income of the company.
Methods of management accounting reports
Budget reports: budget reports will the Balfour Beatty owners to examine their overall
performance and executives of the company can analyse their department's overall performance
and can manage expenses of the company. Further, the assumed budget for the duration is
primarily based on the real expenses from preceding years. Thus, owners and the executives of
the company also can use budgets reports to offer bonus to employees.
Accounts Receivable Aging: This method is a crucial tool of company for handling the
flow of money if they expand credit to their customers. However, this document breaks down the
purchaser balances by means of how for long period they have been due. Further, most of this
reports encompass detached columns for bills which might be 30 days late, 60 days overdue and
90 days overdue or extra. Thus, the manager of the company can use this to find issues with their
collections system.

Inventory and manufacturing: If the Balfour Beatty prepares an inventory or produces
products, they can use managerial accounting reviews to make the producing processes extra
economical. Thus, these reports of the company usually consist of objects which include
inventory waste, hourly worker wages or unit overhead prices, thus, the company can compare
extraordinary meeting lines within their business to spotlight areas for development or to offer
bonuses to the exceptional-appearing departments.
Job cost reports: This report of the company show charges for a particular plan financed
by means of their business. However, they are typically matched with an estimate of sales so that
they can compare the activity's profitability. Thus, this allows the company to pick out better-
incomes regions of the business so that they can concentrate on additional efforts as opposed to
losing money and time on jobs with low earnings margins. Further, job price reports are also
used to evaluate prices while the venture is in progress so that you can correct regions of waste
before costs goes out of control.
Benefits of Management Accounting
Controlling: The facts acquired from managerial accounting provides managers of the
Balfour Beatty a greater opportunity to control the company's achievement because the
information supplied in managerial accounting reports are only used for intrinsic purpose, they
do not ought to correspond to generally general accounting ideas, or GAAP. Therefore, managers
of the company can pick out what areas of the organisation require extra research and which
regions can be evaluated later.
Decision making: Management accounting of the company additionally considers how
decisions may additionally affect a supervisor's behaviour. Thus, the manager of the company
prepares long-term choices which have a long-lasting impact, so managerial accounting is used
to develop programme and bring statistics with the purpose of enhancing management decisions.
Therefore, managerial accounting has the advantage of supplying a more special evaluation.
Integration of management accounting system and management accounting reports
Managerial accounting system of the Balfour Beatty is a part of accounting in which use
of cash flow is formed and controlled. Thus, it allows proprietors, managers and employees of
the company to make selections via budgeting reports, then controls the price range through
evaluating the budget to real revenues and charges, monitoring any budget variances.

However, a fundamental manner that managerial accounting report of the company make
contributions to continuous improvement in the company is through the improvement and
integration of cost management system. However, the company measure the expenses of inputs
and reduce or do away with the ones charges that add little to no price.
PART B
Period 1(Marginal Cost)
Table Chair
Selling cost 2566500 1440000
Less Variable Cost -330 -55
Contribution 2566170 1439945
Less fixed cost 410000 410000
Profit 2156170 1029945
Combined profit 3186115
Period 2(Marginal cost)
Table Chair
Selling cost 1003000 1719000
Less Variable Cost -330 -55
Contribution 1002670 1718945

Less fixed cost 482000 482000
Profit 520670 1236945
Combined profit 757615
Period 1(Absorption cost)
Table Chair
Selling cost 2566500 1440000
Less cost of sales
(variable cost+fixed )
-410330 -410055
Gross profit 2156170 1029945
Combine profit 3186115
Period 2(Absorption cost)
Table Chair
Selling cost 1003000 1719000
Less cost of sales
(variable cost+fixed )
-482330 -482055
Gross profit 520670 1236945

Combine profit 1757615
From the above question, we have observed that the profit of marginal cost of period 1 is
3186115 and profit of absorption cost system of period 1 is same as marginal cost i.e. 3186115
because the Balfour Beatty have no fixed overhead expenses (Chua, Lowe,and Puxty. 2015) .
On the flip side, the profit of marginal cost of period 2 is 1757615 and the profit of
absorption cost system of period 2 is same as marginal cost i.e. 3186115 because as we have
mentioned earlier the company have no fixed overhead expenses and administration expenses.
ACTIVITY 2
Part A
Advantage and disadvantage of types of planning tools that use in budgetary control and forecast
budget.
In management accounting many tools is used by Balfour Beatty for making decision
effectively by it managers. Through this accounting managers get report accurate and on right
time. So its very important for making decision according to report and then take decision for
long and short term.
Budgetary control :-
Budgetary control technique is a tool that helps in make estimate and arrange finance for
future needs. So it is also helps in financial performance of Balfour Beatty. So organization make
budget for different unit, departments and whole organization. It is very important for each
operation of organization. Because without budget nothing is possible. Budget is make for fix
time period like one year and it is shows in financial terms. Its main purpose is that co-ordinate
resources of whole organization because whole organization's department has need of budget for
operate their work and achieve goal of organization. It also helps in evaluate available resources
and expectation as well (Ofosu, 2018). So through budget performance and finance easily
evaluate and also helps inn analyze that revenue and expenses of organization in year. Budgetary
control has three types of techniques :-

Financial budgets :- it means that organization expects that budget get in cash and plan
for spend it. Sources of cash like sale of assets and sales revenue and common uses of cash in
Balfour Beatty is purchase new assets, pay expenses and repay debts. It has also a following
types.
Cash budget – it is also type of budget that use for control inflow and outflow of cash
through organization. Through this budget it also shows that available cash in organization and
helps in make plan for profit.
Capital expenditure budget – through this budgets Balfour Beatty focus on purchase
new assets, plant and machinery. It is possible through long term borrowing and bonds and
security. So it is very major matter and for this organization gas to invest large capital.
Advantage :-
 Financial budget provide growth and liquidity for all department and organization.
 It also advantages that it control on outflow of excessive capital.
Disadvantage :-
 Managers demotivate through this because they haven't authority over the budgets.
 Budget is not accurate so it also creates problem because management has not idea about
expenditures.
Operating budgets :- it is also a type of budget control techniques and through this
Balfour Beatty make budget for complete operations of organization for a particular period. So
its helps in easily analyze about future forecast and through this making plan is also very easy
(Onyiah, 2016). It has also types:-
Sales and revenue budget – through this budget organization expect that future revenue
of organization because it evaluates present revenue through sales against cost and it also focuses
on revenue through normal operations. So it helps in analyze financial position of organization in
the future.
Project budget – this budget is use for making project. So organization make budget for
future budget for future. It also focuses on sales and revenue of organization so it gets that profit
is very less compare than expectation so it cut budget for project and minimize that.
Expense budget – it is also a part of operating budget and it makes by organization for
expenses occur in particular time like one year. Through this manager evaluate about upcoming
expenses so it can make effective budget (Van der Stede, 2017).

Advantage :-
 It is beneficial for make future expenses that useful for managers that evaluate upcoming
expenses so it can prepare in effective manner.
 It is also advantageous for manage current expenses because its helpful in evaluate all
type of expenses.
Disadvantage :-
 It consumes more time because in this budget organization has to also evaluate current
expenses for make future budget.
 After making budget in organization its changes create many problems it means that it is
inflexible after made.
Non-monetary budgets :- it is a also a tool of budgetary control but it is not expressed in
monetary term. But it is also used for evaluate and if profit is so much small compare than
expected so its helped in cut expenses (Budgetary Controlling Techniques, 2018). It has
following types:-
Fixed costs – it is a type of cost that Balfour Beatty has to incur that if operation is
complete or not. Because it is a fixed cost like salary of manager, rent, insurance etc.
Variable cost – it means that cost which influence according to operation or not. Like
raw material.
Advantage of this budgeting that It is a easy process of control budget because it is not
show in term of money. And its disadvantage that it may innovate very limited and changes also
very limited.
Budgets is very important for Balfour Beatty because it helps in make plan about spend
money in future so it is very useful tool for control inflow and outflow of cash for organization.
It is useful for future that organization evaluate through this that profit, expenses and other things
that it helps in effective operation in organization.
Project X Discounting factor
@12%
Present
value
Year 0 -5,000
1 2,500 0.893 2232.14
2 1,000 0.797 797.19

3 1,000 0.712 711.78
4 500 0.636 317.76
5 1,500 0.567 851.14
6 1,000 0.507 506.63
Total pv 5416.65
less: initial investment 5000
Net present value 416.65
Payback pv 0.92
initial investment
Project
Y
Discounting
factor
@12% Present value
Year 0 -8,000
1 1,500 0.893 1339.29
2 2,000 0.797 1594.39
3 2,500 0.712 1779.45
4 1,000 0.636 635.52
5 1,000 0.567 567.43
6 2,500 0.507 1266.58
Total
pv 7182.65
Less: initial
investment 8000
Net present value -817.35

Payback pv 1.11
initial investment
PART B
Comparison of different techniques of management accounting systems adapted by the
companies to resolve the financial problems
Management accounting systems are used by Balfour Beatty to analyze company’s
financial performance, in making financial decisions, minimizing & managing cost and for
managing risk. There different type of management accounting system such as cost Inventory
management system, job-costing system, price optimizing system and Cost accounting system.
Different type of management accounting systems are used by different companies. Balfour
Beatty company uses Price optimizing system whereas Ramboll company uses Cost Accounting.
Both the company uses different type management accounting system to resolve various
financial problems of the company.
Balfour Beatty Ramboll
 Balfour Beatty uses Price Optimizing
system through which company evaluate
price of its products & services
according to the different type of
customers which maximizes profits of
the company and also helps the
company in achieving its financial
objectives.
 Price optimization systems helps
Balfour Beatty company in resolving
various financial problems such as
management of inventory and issues
regarding operating cost because this
 Cost accounting system is used by
Ramboll company which helps the
company in deciding estimated cost of
its products & services which gives
maximum profits to the company. Thus,
it reduces various financial problems of
the company such as achieving higher
profits, estimating & controlling cost
and also helps in determining value of
inventory.
 Cost accounting system solves the
problem unnecessary expenses because
this system helps the company in