Detailed Management Accounting Report: Clarke Chapman Case Study

This report provides a comprehensive analysis of management accounting principles and their application within the context of Clarke Chapman, a British engineering company. It begins by defining management accounting and exploring various systems like price optimization, inventory management, and cost accounting. The report then details management accounting reporting methods, including performance, budget, and accounts receivable aging reports. It evaluates the benefits of an effective management accounting system, particularly in mitigating business risks. Furthermore, the report assesses the integration of management accounting systems and reporting within an organization's processes. It includes calculations of costs using marginal and absorption costing techniques, and analyzes the profitability of different production scenarios. The report also explores the advantages and disadvantages of planning tools and their application in resolving financial problems. The report concludes with recommendations for improving Clarke Chapman's financial performance through the strategic use of management accounting.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
ACTIVITY 1....................................................................................................................................3
Part A......................................................................................................................................3
Defining management accounting along with types of its systems.................................................3
Explaining management accounting reporting and its methods,............................................5
Evaluating benefits of management accounting system.........................................................6
Critically assessing integration of management accounting system and reporting in an
organization process...............................................................................................................7
Part 2.......................................................................................................................................7
Calculation of cost by using various techniques....................................................................7
ANNEXURE A .....................................................................................................................8
ANNEXURE B....................................................................................................................12
ACTIVITY 2..................................................................................................................................13
Part A....................................................................................................................................13
Defining advantages and disadvantages of planning tools...................................................13
Analysing uses and application of planning tools................................................................16
ANNEXURE C....................................................................................................................18
Part B....................................................................................................................................18
Use of management accounting system to resolve financial problems................................18
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................22

INTRODUCTION
Management accounting is a business word which is associated with process of preparing
internal report of different types such as managerial, performance or budget depicting detailed
information of the company's business operation and employee’s performance as well. Such
report prepared thereby contributions the administration of the corporation in making crucial and
relevant business decision. present report will be related to Clarke Chapman, which is a British
engineering company established in 1864 & engaged in the business of manuacturing function of
cranes, mechanical handling equipment etc. Report herein will provide deep insight about
different management accounting system which can help in formulation of better plans,
strategies and polices by considering all the material and relevant accounting information.
Further, preparation of managerial report with the help of relevant accounting system thereby
aiding in decision-making process of the company. An Income Statement will also be prepared
on the basis of Marginal and Absorption costing techniques for evaluating profitability level.
This report will further streamline several benefits and limitations as associated with the use of
budgetary planning tools. At last, emphasis will be made on resolving issues which are being
faced by company by making effective use of management accounting system in attaining
organizational success.
ACTIVITY 1
Part A
Defining management accounting along with types of its systems
Management accounting is defined as business provision which makes use of available
business, statistical, monetary as well as accounting material at the time of formulation of
commercial plans and strategies for the betterment of business goals and objectives. It thus helps
the management of the company in making effective choice making. Management accounting
system is associated with the process of handling, regulatory, evaluating and assessing the
overall performance of company from the perspective of improvement. Thus, by using following
management accounting system, Clarke Chapman company can seek several benefits:
1. Price optimization system – It is a administration system with help of which company
can easily determine the behaviour and response of different customers against different
price levels as set by the company for its own products and services being offered via

different channels. This system is a mathematical tool which assist and calculates the
percentage or ratio of variation that will come in demand factor at the different levels of
prices. It is a method which discovers pricing structures to optimize the business goal of
maximizing profits or revenue amount, customer acquisition and retention (Chenhall and
Moers, 2015). By using this system Clarke Company can evalaute what pricing strategy
can be used for its products and services which can provide customer satisfaction as well
as profit maximization simultaneously.
2. Inventory management system – This scheme of supervision accounting is considered
as the best suitable tool for companies in making proper and accurate valuation of
inventory or stock level as present with the company at a specific time period. By making
use of inventory management system, Clarke Company can determine when it has to
reorder its stock level for minimizing or justifying danger of standard out state which can
result in occurrence of business loss. It comprises 2 types:
1. LIFO - This method is based on a process in which all properties purchased at last time are
obtainable for sale at the first place. LIFO stands for Last In First Out.
2. FIFO – It stands for First In First Out which is related with the process of selling stock on first
priority which is purchase in first place.
3. Cost accounting system – A scheme which is used by business firms for making proper
estimate of the cost amount associated with their business products and services. By
identifying such price, Clarke company can evaluate its profitability margin which is
going to be received in the near future from carrying on any business operations.
Furthermore, such system can support at the time making inventory valaution and in
determining whether the company is performing in a cost effective manner for the
betterment of business and employees as a whole (Maas, Schaltegger and Crutzen, 2016).
By framing sound business polices and standards, Clarke company can assess most cost
incurring business area and can control such expense by implementing effective business
plan. It consists of two sub types:
1. Job order costing system –This is estimating the amount of cost that would be experienced
by Clarke after taking up production and manufacturing operation of company for one specified
product or service.

2. Process costing system - It is related with process of gathering and assigning cost value to all
units or goods produced during a specific time period. This method is best suited for Clarke
company when identical units are produced.
Explaining management accounting reporting and its methods,
Managerial report is a statement or type of report which helps in making strong and
effective business plans, regulation and business strategies by considering all the information
received from internal business sources and financial accounting means. This report delivers a
more vision around the current employed of the company's business processes, employee’s
performance which are working to the accomplishment of set defined occupational objectives
and aims. This report provides a base for making crucial business decisions for the coming
business operations. Following are the different management accounting reports which can be
used by Clarke Company:
1. Performance Report – Is a report type which provides a review and detailed analysis of
the overall business and employee performance level for a specific time period. It
provides the facility of reviewing and monitoring of growth and success journey of the
company towards the working of company and employees for attaining set defined
business goals. On monitoring regularly, Charke can assess business area which is
performing weak i.e. Which requires to be improved for increasing profitability and
productivity aspects. By formulating sound business polices, plans and strategies in line
with aims and goals can help Clarke company in seeking competitive advantages.
2. Budget Report – These are management reports which works on the basis of budget or
financial plans formed and implemented. By developing strong budget, every business
organisation can brand contrast of the real business consequence with the prediction
complete and can determine variance and changes required if any (Craig and et.al., 2018).
It helps Clarke company in achieving its set defined business goals and objectives by
making optimal use of the available and budgeted amount in effective manner. It further
assists the management in distribution of limited commercial as well as monetary capitals
as per the need of commercial departments for eradicating unnecessary cost expenses and
focusing on increasing of business profit and performance level.

3. Accounts Receivable Aging Report – Such type of management accounting reporting is
best suited for those business organisation which is having its base on the credit extension
facility on the large extent. By using this report, Clarke Company can easily identify its
business amount due from its clienteles to whom the credit deals has remained made.
Also, it defines the time period in which such due amount will be collected from its
customers or other business vendors. It helps in determining all the subjects which the
Clarke company has been fronting in its cash gathering process along with details of
defaulters contributing in creation of issue in collection process. For overcoming such
collection as well as defaulter situation, it is essential for Clarke to formulate strict credit
policy and standards in relation of conducting of credit business.
Evaluating benefits of MA system
Having effective management accounting system can assist Clarke in mitigating its
business risk by minimizing cost of capital and focusing on maximizing firm value in such a
manner:
Management Accounting
System
Benefits
Price Optimization system  It helps in assessing customer response
and demand at different price level as
set by company.
 Clarke can use this system for fixing its
product and service prices profitable to
it.
Inventory Management System  Can help in managing inventory in
proper manner to improve performance
level by timely delivery of products and
services as required by its customer.
 Also, supports in mitigating stock out
situation by reordering on time for
minimizing business loss.
Cost Accounting System  It helps in assessing highly cost

incurring business area & minimizes
unnecessary cost expenses associated
with unproductive business operations
(Novas, Alves and Sousa, 2017).
Critically assessing integration of management accounting system and reporting in an
organisation process.
Management accounting system is associated with the process of managing, controlling,
evaluating and assessing the overall business as well as employees performance for an
accounting time period thereby identifying any change or modification if any required to be
made from the perspective of improvement. This system and reporting is business concept
assisting in preparation of managerial report for relevant accounting period are integrated to each
other as in preparation of management dissimilar methods of MA system are used.
Such report act as improper of management accounting systems absence of any can result
in inaccurate preparation of financials or report for such period (King and Clarkson, 2015). Job
cost report which is important for taking decision regarding cost. Thus, by using management
system in proper manner, Clarke can maximizes its profitability and performance aspects as well.
Part 2
Calculation of cost by using various techniques
Marginal costing: Marginal costing will be taking total and additional cost of unit that is
been produced with change of total cost. Under this method all consideration will be kept in
mind that is incurring at the time of production. The variable costing is charged to units and fixed
cost is written off in respect of contribution made (Collis and Hussey, 2017). It helps managers
in decision making process such as machine replacement, product or service discontinuation etc.
Absorption costing: This includes both variable and fixed cost which is for analysing
total and exact cost that is related with production of the product with use of labour raw material
and other cost. Thus absorption cost would undertake estimated cost for the manufacturing good
and considering variable or direct cost.
ANNEXURE A
Assessment of profit under marginal and absorption costing pertaining to ‘Table’

Under Absorption Costing
Period 1

Period 2
Assessment of profit under marginal and absorption costing pertaining to ‘Chair’
Under marginal costing (Chair): Cost per unit

Under Absorption Costing (Chair)