Activity 1: Management Accounting and Reporting Systems

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Management Accounting - Activity 1
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Table of Contents
Part A...............................................................................................................................................3
Part B...............................................................................................................................................5
Bibliography....................................................................................................................................8
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Activity 1
Part A
Introduction
The Chloride Group, which is a wholly owned subsidiary engineering entity of Vertiv, is the
manufacturer of secured power systems for hospitals along with other public facilities and
buildings. This report will be analysing the contribution of management accounting, reporting
and systems of management accounting and their effectualness in the Chloride Group.
An explanation of management accounting, explaining the essential requirements of
different types of management accounting systems
Explanation of management accounting can be made as a division of the accountancy field that
contributes to organisational planning, while aiding managers so that they can be supervising
operations, control them, manage activities and improve largely on decision-making (Horngren,
2015). Management accounting can be seen to be comprising of a number of systems, which are
individually essential requirements of business entities in the below ways -
 Cost accounting system - One can describe this system as a framework by means of
which business entities can be computing their costs and spending (Drury, 2015). It is
Chloride Group’s essential requirement for decreasing excessively spent costs.
 Job costing system - One can describe this system as the tool by means of which business
entities can be examining and elucidating costs linked to jobs (Guenther et al., 2015). It is
Chloride Group’s essential requirement for enhancing profit earning by the use of
optimised jobs.
 Inventory management system - One can describe this system as a means by which
business entities can be keeping a track on the number of stock in it and their incoming
and outgoing (Latosiiiski and Bartoszewicz, 2017). It is Chloride Group’s essential
requirement for dropping stock obsolescence and costs associated with their holding.
 Price optimisation system - One can describe this system as the strategy or frameworks
facilitating entities so that they can be deciding on their product prices with efficacy
(Ceraolo et al., 2016). It is Chloride Group’s essential requirement for client withholding.
An explanation of the different methods used for management accounting reporting
Report preparation is one of the chief contributions of managerial accounting to business entities.
Below are three differing sorts of methods largely utilised in business entities so that
management accounting reporting can be done -
 Accounts receivable aging reports - Inside this report method, companies keep records
of their unclear client invoices as well as summarise the differing credit memos that it has
that are still unused (Nickerson and Hall, 2017).
 Variance reports - Inside this report method, companies compare their budgets and
contrast them against the budgets, which assist in derivation of budgetary discrepancies,
which are both unfavourable and positive (Chiu et al., 2018).
 Departmental reports - Inside this report method, companies keep records of the
production details, goals, accomplishments, targets, cost allocations, resource utilisation
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and such other details regarding its varied divisions and departments (Davis and Bisman,
2015).
All these reports are used in the Chloride Group. The accounts receivable aging report method is
utilised for the proper collection of debts while eradicating bad debts, variance report method is
utilised for removing unfavourable budgetary discrepancies while departmental report method is
utilised for enhancing performance of its varied divisions.
An evaluation of the benefits of management accounting systems and their application
within an organisational context
Benefits or merits of application of varied kinds of systems existent within managerial
accounting to organisations can be evaluated from the example of the Chloride Group itself.
Below is a discussion on how management accounting systems benefit to organisational contexts
as can be noticed to be enjoyed within the Chloride Group -
 Cost accounting systems contribute as benefits to business entities when it is applied
through keeping a strong control over entities’ costs while conducting profit analysis
significantly (Brewer et al., 2015).
 Inventory management systems contribute as benefits to business entities when it is
applied through ensuring that stocks are replenished in time, clients’ demands are
addressed and stock costs are lowered (Mountz et al., 2015).
 Job costing systems contribute as benefits to business entities when it is applied via
analysing the profits and revenues that are generated via jobs while stressing on removing
unnecessary jobs (Guenther et al., 2015).
 Price optimising systems also contribute as benefits to business entities when they are
applied through contributing in accomplishment of client satisfaction (Ceraolo et al.,
2016).
Critical evaluation of how management accounting systems and management accounting
reporting is integrated within organisational processes.
Almost each organisational process in business entities are integrated with management
accounting through reports in addition to systems so that they can be facilitated and improved
(Booth, 2018). A common example of management accounting being integrated into an entity’s
processes is the manufacturing and decision-making procedures of Chloride Group. Chloride
Group’s manufacturing procedure is seen to be integrated with variance reports, cost accounting,
and inventory management system. While variance reports give information on excess
manufacturing expenses, inventory management systems provides information on how many
units needs being manufactured while cost accounting systems helps in lowering manufacturing
expenses.
Similarly, Chloride Group’s decision-making procedure is integrated via accounts receivable
aging reports since this report helps it in deciding its debt collections and credit policy and job
costing system since this system leads to effectual decisions relating to decreasing excessively
incurred job costs. In this manner, integration of management accounting via all its reports and
systems can be noticed within organisational processes.
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Conclusion
Thus, a deep knowledge has been gathered on management accounting from this report. It helped
in analysing how management accounting is implementable in entities.
Part B
Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
Question 2
A. Marginal costing principles
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B. Absorption costing principles
Applying a range of management accounting techniques and produce appropriate financial
reporting documents. Interpret the financial data for the problem in Annex B
Question 6
For the acquirement and the selling of component BK 200, there are two options that can be
selected, which are buying or manufacturing. However, it can be seen that the limitation of
manufacturing the component is limited to 50000 units while the costs needed being incurred on
its manufacturing are 9.0 pound for every unit. Contrastingly, when the component would be
purchased, the costs will lower down by 1.25 pound for every unit to 7.75 pound for every unit
while there will be no limitations regarding the units manufactured.
In case if it is considered that the component would be bought in, the below will be the financial
reporting document that will be used -
Particulars Amt
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Net revenue £750000
(-) Purchase costs (50000 * £7.75) £387500
Net earnings (profit) £362500
On the other hand, for manufacture of the component, the below will be the financial reporting
document to be used -
Particulars Amt
Net revenue £750000
(-) Manufacturing expenditure
Fixed overhead expenditure (50000 * £3.50) £175000
Labour relating expenditure (50000 * £1.25) £62500
Materials relating expenditure (50000 * £2.50) £125000
Variable overhead expenditure (50000 * £1.75) £87500
Net earnings (profit) £300000
Therefore, with the contrasts made of the two above prepared financial reporting documents one
can be finding out that the net profit that would be accomplished from the manufacture of BK
200 would be £62500 lesser than what the profit would be if the component is bought in
considering that there does not exist any sort of overriding technical considerations. As a result,
BK 200 must not be manufactured. It should be bought in.
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Bibliography
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Vertiv.com., 2019. Chloride Industrial UPS Systems | Vertiv Power Protection. [online]
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