Management Accounting Report: Financial Analysis and Systems

This report delves into the realm of management accounting, exploring its significance and various systems within the context of Portfolio Payroll, a UK-based small and medium enterprise. It examines essential requirements of different management accounting systems, including cost accounting, job costing, inventory management, and budgetary control, highlighting their roles in financial planning and decision-making. The report further investigates methods used for management accounting reporting, such as budget reports, account receivable aging reports, payroll reports, job cost reports, and sales and revenue reports. Additionally, it presents an income statement analysis based on both marginal and absorption costing approaches, demonstrating their impact on profit calculation. The report also discusses the advantages and disadvantages of planning tools like budgetary control and evaluates how organizations adapt management accounting systems to address financial challenges. Overall, it provides a comprehensive overview of management accounting principles and their practical application in a business environment.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 : The essential requirement of different type of management accounting system.................1
P2 : Methods use for management accounting reporting............................................................3
TASK 2............................................................................................................................................4
P3 : Income statement on the basis of marginal and absorption cost..........................................4
TASK 3............................................................................................................................................7
P4 : Advantages and disadvantages of different type of planning tools of budgetary control....7
P5 : Evaluation of how organization adapt the management accounting system to deal with
financial problems.....................................................................................................................11
Conclusion.....................................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial data provide an overall scenario of performance within an organization. The
principals of accounting plays very essential role in developing the financial awareness of
owners and managers of an organization. The accounting, principal, techniques and tools can be
use by any organization which want to perform there financial activities more prudently. Institute
of management accounting gives a well definition for management accounting “ Management
accounting is a profession which is involve and integrated with management decision making,
planning and performance management system and by the use of that they provide a expertise in
financial control and reporting for the purpose of implementing and formulating the strategy of
the organization. In order to analyse the management accounting more clearly the UK based
small and medium enterprise “ Portfolio payroll” is selected. The present research will create an
understanding about the management accounting system and associated approaches use in it.
Other than this, appropriate cost analysis techniques also make in use by using marginal and
absorption costs.
TASK 1
P1 : The essential requirement of different type of management accounting system
As a small and medium enterprise portfolio payroll require to use combination of
management accounting system. The main purpose of managerial accounting is to prepare and
provide managers with information to plan for the purpose of handling and managing the
operations of a business. There are several type of management accounting system are use
mostly to making important decision of the small and medium enterprise such as Portfolio
payroll limited (Gibassier and Schaltegger, 2015).
Cost accounting : Cost accounting tool is a requirement of each and every type of
business. The cost accounting system is helpful in recording the actual cost incurred in order to
delivering a product or service, by the comparison of those incurred costs to the standard or
planned costs and figuring out the variance for the purpose of investigation and follow up. In
other word cost accounting analyse the cost structure of a business. It is helps to the organization
for analysis the financial condition where a company earns and loses money, and providing input
into decisions to generates profits in the future.
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Job costing:- Job costing tool is concerned with the finding of the cost particular job or
work order. This method is applied where the work is understood on receiving customer's
demand and each work is for short time period.
Batch costing:- It may represent a number of small orders passed through the plant in
batch. Particular batch has a separate tarted cost. Here cost per unit is determined by dividing the
cost of the batch by the number of unit produced in the batch.
Inventory management system:- this is the ongoing process of moving products or parts
into and out of a company location. Its gives specific information about the inventory, how much
stock available or required for the organization. Successfully managing inventory means hitting a
moving target because supply and demand are not constant.
Price optimisation system:- It is a mathematical programmes that calculate how demand
varies at different price levels, this is helps in improving the profit margin on the per product.
The models can be used to tailor pricing for customer segments by simulating how targeted
customers will response to price changes with data driven scenarios.
Lean accounting : The approach of lean accounting can be very useful for the Portfolio
payroll in order to examining the processes and related results to figure out that hoe to create
more value by using less cost. Lean account manage and eliminate the waste of the resources
(Fullerton, Kennedy and Widener, 2014). It can be considered as a best approach or system in
order to managing the accounting in the small and medium enterprises in order to developing the
firm on a level where they are more financially sound.
Inventory accounting : The inventory accounting system is well efficient for Portfolio
payroll in order to planning and tracking the inventory associated activities. Payment portfolio
limited is indulge with employment activities, so here they can use the bar code tracking too
tagged each and every application with bar code. Other than the bar code tracking there is
another is another type of inventory accounting system use by various SME's. RFID system is
more advanced compare to the bar code system (Watts, Yapa and Dellaportas, 2014).
Industry specific accounting : The organization can use the accounting system as per
according to need of their industry. For example retail, legal, advertisement industries are using
different type of accounting system to fulfil the need of their business. The portfolio payroll
limited must use the the accounting system which is useful in tracking and properly reporting of
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the applications markdown. By the use of industry specific accounting system organization can
be more effective and efficient.
Non for profit accounting : The approach of non for profit accounting system has its
own requirements for setting the proper reporting activity within the organization . The funds
and grants which these type of organization are generating need to be tracked carefully, so that
the spent of the fund will be more meaningful for the organization (Padovani, Orelli and Young,
2014).
Transfer pricing : The transfer pricing approach is require to adopt by the organization
by believing that the price of the services and goods are higher at the outside market and in the
subsidiary firm it is lower and because of these the cost of the finished product affect on a great
extent. The companies such as portfolio payroll need to use such kind of accounting system so it
will be easy for them to make changes in the level of cost in order to enhancing profit in the end
of the year.
Budgetary control : Budgetary control is one of the most important task which is
efficiently done by the use of management account tool and techniques. In the budgetary control
system is useful in controlling the cost and expenses as well as identifying that sales and income
increased or not. The enterprise Portfolio payroll limited are handling various services
simultaneously, in order to manage the different expenses to make the business process more
successful they can use the budgetary control management accounting system (Chenhall and
Moers, 2015).
P2 : Methods use for management accounting reporting
Management accounting system are generate various reports on the basis of requirement
of the companies managers and owners. Managerial accounting reports is useful for small
business owners and manager to look upon the performance of the company and on the basis of
that preparing frequently throughout accounting periods as per the requirement. The portfolio
payroll use various methods for managing accounting reporting which usually depends on the
time sensitivity and time of the project. The management accounting reporting may request by
the owners on the basis of quarterly, monthly, weekly or sometime daily (Fullerton, Kennedy
and Widener, 2013). Various type of management accounting method are describe below:
Report for budget : The budget report is useful for the portfolio payroll limited for the
purpose of analysing their department performance and control costs. The organizations
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estimated budget for each period is based on the actual expenses which are occurred in the
previous year. In an small and medium enterprise such as Portfolio payroll limited if the
particular department is over budget in a previous budget and are not able to find any feasible
way to reduce the cost. For the small and medium enterprises it is important in the future
perspective that budget can take to a more higher and accurate level (Quattrone, 2016).
Report for account receivable aging : The account receivable aging report is a useful
tool for the enterprises in accordance to managing the cash flow for the companies. The report is
work in a way where it breaks down the customer balances as per how long they have been
owed. The account receivable aging report consist separate columns for different invoices that
are usually 30, 60 and 90 days late or in some cases more. A manager of portfolio payroll limited
can use the aging report in a way where they use it to find a problem with the overall process of
the company (Murphy, 2016).
Report of payroll : Moreover. The payroll report is concerns with the report which
consist the expenses related to the managers and employees. The payroll report included various
different type of cost and disposals such as: labour rate, salary, allowances, compensation,
monetary hikes, wages, voluntary work and rewards etc. The human resource department is
usually taken care about the people and personnel who are working in Portfolio payroll limited.
In the payroll report the recording of the total sum of money done in profit and the loss account
in the expense side. Higher sum of the report leads to minimizing the net profit in the ending of
the financial year (Youssef and Moustafa, 2014).
Job cost report : Job cost reports are concerned with showing the expenses for a
particular project. By the use of the job cost report Portfolio payroll limited can easily evaluate
the job profitability by doing the matching work with an estimate of revenue. The stated report
will help the firm in evaluating the areas of higher earning of the business so company can be
focus on their efforts other then waste the money and time on the job which are having low profit
margin. The job cost reports are also help enterprises in analysing the expenses at the time of
particular project is in the process where managers are able to rectify the error before the cost
escalate (Järvinen, 2016).
Sales and revenue report : The portfolio payroll limited is used to keep different avenue
records from where the firm is generating the revenue. The sales of the organization is
considered as turnover for the organization which can be use as the base for calculating the
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income statement of the organization. So the sales and revenue report will be very useful for the
Portfolio payroll limited in order to evaluating revenue along with the net yield at the end of year
(Efferin, Efferinand Hartanto, 2016).
TASK 2
P3 : Income statement on the basis of marginal and absorption cost
The income statement is refer to direct result of the data and information which is
collected and recorded in the ledgers and journals, and then make the record information in a
way where it will look more compiled, concise. The income statement is usually prepared on the
basis of monthly closing of the books, where it provides adequate picture of the expenses and
revenue of the business for a particular period of time. The income statement tool can be use by
the management of Portfolio payroll limited and also the investors and creditors of the company
can also evaluate the profitability of the organization (Lavia López and Hiebl, 2014). For the
preparation of income statement there are various methods used by the finance managers,
absorption and marginal are two most important method among them. On the basis of absorption
and marginal costing, income statement is prepared as below:
Statement of profit and loss as per the marginal or variable costing:
Statement of profit and loss as per the absorption costing:
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From both of the above table, it can be understand that use of different type of profit and loss
statement provide different amount of the net profit in the end. Absorption and marginal
approaches indulge with different time of expenses incurred in the operation and production. The
tables are clearly indicating that marginal method is using all the direct expenses and the variable
overhead cost of production. On the contrary of these the other statement is showing that direct,
variable and fixed expenses are using to determine the net profit. So , it can be clearly understand
that the amount of net income differ as per using the different system or approaches. According
to the marginal and absorption approaches net yield of the enterprise is £12600 and £9300.
Mostly entrepreneurs prefer the absorption method of costing to achieve the net profit because it
relies that all the expenses which incurred in the process needed to covered in the same period
from the sales. The above tables are clearly indicating that the net profit differ and the reason is
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the total amount of expenses are lower in the absorption method, whereas it is higher in the
marginal method.
Difference between the absorption and marginal method:
Marginal costing Absorption costing
The marginal costing is consider as a decision
making tool and technique for determining the
total cost of production for the organization
The absorption costing method is considered as
allocation of total cost to the cost center for the
purpose of determining the total cost of the
production in the organization
The cost recognition procedure in marginal
costing technique done in two different
manner, the variable cost is refers as product
and on the other hand the fixed cost is refers as
period cost
The cost recognition process in absorption
costing done in a single manner which is, both
the cost fixed and variable are refer as product
cost.
In the marginal costing approach the
classification of the overheads is done in two
different ways as like: Fixed and Variable
In the absorption costing technique the
classification of overheads is done by:
Production, selling and distribution and
administration
In the the marginal costing approach the
variances in the opening and closing stock has
no impact on the cost per unit of output
In the absorption costing technique the
variances of the opening stock and closing
stock has impact on the cost per unit of output
The marginal costing approach is useful in
highlighting the contribution per unit
The absorption costing approach is useful in
highlighting the net profit per unit
In the marginal costing approach the cost data
is presented in outlining the total contribution
of each unit
In the absorption costing the cost data is
presented in very conventional way
By the use of marginal costing method entity
will be able to analyse whole internal system
By the use of absorption costing approach
entity will be able to analyse overall external
system
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TASK 3
P4 : Advantages and disadvantages of different type of planning tools of budgetary control
The budget is play very significant role in itemized the summary of overall income and
expenses for a particular period of time. The budget in itself a valuable tool which is useful for
an organization to prioritize the expenses and managing the money. For the preparation of
budget various enterprises use different type of budgetary control tool in order to implementing
the budget (Hopper and Bui, 2016). There are different techniques and tools used by the
Portfolio payroll limited which are discussed as below:
Financial ratio analysis : Financial ratios are concerned with numerical representations
of the performance of business. The financial ratios refers as tool and techniques to measurement
of the business performance by analysing and interpreting the financial statement of the
enterprise. Portfolio payroll limited can use various different type of ratios in order to
determining the profit and revenue (Passarini, Pereira and Santana, 2014). Financial ratio
analysis use various different financial accounts such as: Profit and loss, cash flow statement,
balance sheet and so on. Below table is describing example of the profitability ratio :
Advantages
 Financial ratios can be useful for the managers of Portfolio payroll limited in order to
figure out the performance of the business and in which direction business is heading and
generating revenue for the enterprises
 Financial ratios make company able to assess the liquidity position which means
understanding that how much assets and liabilities of the enterprise is able to convert in
cash
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 Financial ratios provide the information to the organization so that they can be able to
provide maximum returns to their shareholders on the basis of their investment
 By the use of financial ratios Portfolio payroll will be able to make comparison their
previous financial years as well as condition of the competitors
Disadvantages
 Financial ratio can only generate fair result when all the financial statement and
information are available but in various cases it is not necessary that all the required data
is available and therefore the problem may arises in the use of the financial ratios
 Financial ratio not use any kind of qualitative data so the reliability of the collected data
is not fully reliable
Investment appraisal tools : Investment appraisal tool is also very frequent use tool in
the process of budgetary planning process. It concerned with measure whether the benefits of a
particular project exceeded the investment cost. Discounted and non-discounted are some
investment appraisal tools which can be use by an enterprise (Hall, 2016). Other than these
various other type of tools and techniques can be use such as: NPV, rate of return, profitability
index etc. Below table describe the example of the tools:
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