Management Accounting Systems and Profit Analysis: Conrad Hotel

This report provides a comprehensive analysis of management accounting principles and their application within Conrad London St. James. It details various management accounting systems, including managerial, inventory, and industry-related accounting, highlighting their requirements and benefits. The report includes a practical calculation of net profit using both absorption and marginal costing methods, emphasizing the differences between these approaches. Furthermore, it examines different budgetary planning tools, discussing their advantages and limitations in the context of budget control. The study concludes by exploring how management accounting systems can be leveraged to resolve financial challenges faced by the organization, offering valuable insights into strategic decision-making and financial management within the hospitality sector. Desklib provides a platform for students to access similar solved assignments and past papers.

MANAGEMENT ACCOUNTING
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Executive Summary
Management accounting suggests the procedure of preparing management reports along with
accounts. It provides the organisation, fiscal and statistical information regarding the
organisational performance and operation. It provides complete different information
comparing with the financial accounting. Instead of looking towards backward, management
accounting reports aim towards the future. This report is meant for the organisational
practice, as it is an internal factor of the organisation. This is an important factor for the
organisation regarding the determination of strategies and objectives. This study is based on
Conrad London St. James. This study has presented a detailed discussion about management
accounting including several systems of management accounting. This also presents the
requirements of those systems. There are several methods regarding the application of
management accounting. Net profit can be calculated through the application of marginal cost
as well as absorption cost. This study has presented an illustration of calculating net profits. It
also presents the difference between the marginal costs and absorption costs. There are
certain tool and techniques to determine the budgetary planning. This study has exhibited
advantages and limitations of those tools and techniques.
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Table of Contents
Introduction................................................................................................................................4
Task 1.........................................................................................................................................4
Detailed explanation of management accounting along with their requirements......................4
Different method of management accounting............................................................................6
Task2..........................................................................................................................................8
Calculation of net profit applying absorption and marginal costs Difference between those
costs............................................................................................................................................8
Task 3.......................................................................................................................................10
Benefits and limitations of different planning tools applied for budget control......................10
Application of management accounting systems to resolve financial challenges...................12
Conclusion................................................................................................................................13
Reference List..........................................................................................................................15
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From: Management Accounting Officer
To: GM, Conrad London St. James
Subject: Management Accounting
Introduction
Management accounting suggests the procedure of preparing management reports along with
accounts. It provides the organisation, fiscal and statistical information regarding the
organisational performance and operation. It provides complete different information
comparing with the financial accounting. Instead of looking towards backward, management
accounting reports aim towards the future. This report is meant for the organisational
practice, as it is an internal factor of the organisation. This is an important factor for the
organisation regarding the determination of strategies and objectives. This study is based on
Conrad London St. James in order to discuss about management accounting. This study is
intending to present a detail discussion on management accounting along with its implication
on organisational context. Conrad London St. James could apply several methods for
management accounting and the learner will present significant description about such
methods. There is certain difference between marginal costs and absorption cost. This study
will exhibit the calculation of net profit applying those costs along with the differences
between them.
Task 1
LO1
P1
Detailed explanation of management accounting along with their
requirements
Management accounting system provides data regarding the organisational performance and
achievement. It is an internal factor of the organisation as this presents report consisting
information about sales, revenue and profit of the Conrad London St. James. As stated by
Ward (2012, p.57), management accounting is helpful for the managers to determine the
organizational strategies regarding the operation, objectives and strategies. There are several
types of accounting systems. These include managerial accounting, inventory accounting,
non-profit accounting and industry related accounting. Such reports are also related with
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certain expenses including manufacturing, opportunity and sunk. Managerial accounting
report can also be of different types such as budget report, report about cost of job,
manufacturing and inventory report.
The prime purpose of a managerial accounting is to deliver information to managers of
Conrad London St. James about plan, operation and control of the business. As stated by
Drury, (2013, p. 59), this is an important factor regarding the organisational decisions. One of
the important system of managerial accounting is the cost accounting that provides data about
actual costs appeared while delivering any service, comparison between such expenses and
planned or standard expenses and highlight the variance while investigate and follow. Lean
accounting is another type of managerial accounting system. It includes evaluation of the
procedure and results in order to determine the process of creating additional values for less
waste elimination of resources and cost for betterment of Conrad London St. James. As
opined by Weygandt et al. (2015, p.79), cost accounting system has certain requirements.
Profitability analysis of individual product is the primary requirements in this context. In
order to apply cost accounting system in the organisation, it is important to provide
information about management and their requirements along with other factors. These factors
include frequency of information, process of production, organisational structure and
information about different expenses.
Another accounting system is the inventory accounting that helps to design the planning
about the tracking of inventory and its related factors. This is applied to manage the activities
of inventories of the organisation. Application of new inventory or modification of available
one is prime factors regarding this accounting system. There are certain factors related with
the industry that influences the organisational performance. Industry based accounting
provides information related with the organisational performance in the context of the
industry. According to Edmonds et al. (2016, p.89), different industries have different
requirements. Based on that, organisations determine their objectives and policies. One more
type of accounting is the non-profit accounting. This suggests the management of funds
especially for those organisations, which are dependable of donations in order to manage the
operations of the Conrad London St. James.
These types of accounting are responsible for the organisational performance considering
different factors. Each of the accounting system provides certain information regarding the
organisational performance and based on that the organisation could develop their strategies
and objectives of Conrad London St. James. While managerial accounting provides
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information about the regulation and control over the organisational process, inventory
accounting offers information about managing inventory and industry-based account provides
data related to the market. Hence, these accounting systems are enabling to provide certain
information to the Conrad London St. James.
Figure 1: Types of Accounting System
(Source: In the perspect of Braun et al.2014, p.61)
P2
Different method of management accounting
In order to prepare management accounting report, organisations are required to apply certain
methods. These include financial planning, budgetary control, financial statement analysis,
marginal costing, historical cost accounting, statements of funds flow and cash flow and
others. These methods have certain features that influence the Conrad London St. James
performance.
Financial planning provides fiscal data related to the operation of the organisation. This helps
to provide early information to the organisation about the required fiscal activities in order to
meet the objectives of the objectives of the company. As this method provides information
regarding short term and long-term goals of the organisation, Conrad London St. James could
determine their fiscal policies aiming towards its goals. It is not restricted to achieve highest
return on the investment. Financial planning offered information related with the requirement
of funds, its sources, distribution and determination of income and determining the optimum
level of capital regarding different assets.
Financial statement is another important method regarding the management accounting.
Analysis of fiscal statement suggests the attempt to design the meaning band significance of
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Types of Accounting System
Managerial
Accounting
Inventory
Accounting
Industry-
based
Accounting

the data of fiscal statement. It helps to determine the forecast regarding the prospects of
earnings in future, capability to pay the interest back and maturities of debt along with
profitability of significant policy regarding dividend. This method provides an analysis
regarding the financial statement, trends, statements of cash funds flow and ration.
Another important and effective method of management accounting is historical cost
accounting. This method provides data based on the historical evidences regarding each job,
department and process. As opined by Demski (2013, p.79), a comparison can be drawn
based on the standard cost. This could the organisation to determine the future policies for the
Conrad London St. James and to control the cost. Standard costing suggests the development
of standard costs under such effective condition of operation, analysis and calculation of
variances comparison between standard and actual cost. This could help to comprehend the
reason along with certain responsibilities to determine remedial activities to stop the
repetition of adverse things. This method of management accounting could help the
organisation regarding the control over cost. In order to regulate the activities of the venture
along with determination of planning for such activities, management accounting applies the
method of budgetary control within Conrad London St. James. It is important to determine
the direction of the operation of business including its achievement of successful return from
such investment. Marginal costing is also an important method regarding the management
accounting. These include break-even analysis to regulate cost, differential costing and
increment of profit and determination of strategies.
Statements of flow of funds are also an important method regarding the analysis of changes
faced by the organisation regarding the fiscal position of the Conrad London St. James. It
presents an analysis regarding the source of the funds, its application and impact of the funds
on the business. Hence, this method assists the organization regarding the regulation of costs,
further guidance along with comparative studies. Certain methods are also responsible
regarding the decision making of the organisation, analysis of the flow of cash and graphs
and statistics regarding the organisational performance. Hence, application of these methods
could help Conrad London St. James to determine organisational strategies in order to meet
the objectives of the organisation. This analysis could also assist the organisation control its
fiscal activities.
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Figure2: Different methods of management accounting
(Source: From the view point of Weil et al. 2013, p.91)
Task2
LO2
P3
Calculation of net profit applying absorption and marginal costs Difference
between those costs
Calculation of Net profit (Absorption costing)
Particulars ($) ($)
Sales [600 * 35]
Less: Cost of Goods sold
- Opening Inventory
- Direct materials [700 * 6]
- Direct labour [700 * 5]
- Variable production overhead [700 * 2]
Less: Closing Inventory [100 * 6]
Gross Profit
Less: Costs
- Selling cost
- Administration cost
-
4200
3500
1400
600
700
600
21000
9100
11900
600
11300
1900
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Financial
planning
Financial
statement
analysis
Budgetary
control
Marginal
costing
Statements of
funds flow
Cash flow

- Variable sales overhead [600 * 1]
Net Profit
9400
Calculation of Net profit (Marginal Costing)
Particulars ($) ($)
Sales [600 * 35]
Less: Variable cost of sales
- Opening Inventory
- Cost of Production
Materials [700 * 6]
Labour [700 * 5]
- Closing Inventory [(13300/600) *
100]
Less: Variable costs
- Sales overhead [600 * 1]
- Production overhead [600 * 2]
Contribution
Less: Fixed costs
- Selling costs
- Administration costs
- Production overhead
Net Profit
-
4200
3500
(2217)
600
1200
600
700
2000
21000
5483
15517
1800
13717
3300
10417
There are certain differences regarding the concepts, application and impact of marginal costs
and absorption cost. Conrad London St. James is able to determine the profit of the
organisation applying these costs individually. Marginal costs help the organisation regarding
the process of decision making in the context of the organisation. On the other hand,
absorption costing helps the organisation regarding the external reporting. Marginal costs put
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importance on the value of inventories regarding the production cost. Absorption cost put the
value of inventory while determining the cost for the total production. According to Maher et
al. (2012, p.81), the values of the inventory are higher in absorption cost comparing to the
marginal cost. Accounting standard does not allow marginal cost to value the inventory. On
the other hand, absorption cost is allowed to value the inventory according to the standards of
accounting at Conrad London St. James. Fixed production is not considered as overhead of
the costing of product under marginal costing. Hence, there is no chance to raise any
challenge regarding the arbitrary apportionment over the production overhead. While
comparing the scenario with absorption cost, determined factory overheads are considered as
part of the cost centres. This results in under the overheads of absorption cost. Based on the
relevance of the profit of the year, marginal costing is allowed to change the fixed cost.
Absorption cost valued the inventories regarding the cost of total production. Hence, cost of
sales could include the expenses of sales for a certain period and determined the overheads
appeared in earlier periods.
Task 3
LO3
P4
Benefits and limitations of different planning tools applied for budget
control
In order to control the budget, there are different techniques and tool. Budgetary control has
certain advantages regarding the Conrad London St. James performance. Application of those
tools is also subjected to certain advantages and limitations in the context of budgetary
control. There are three prime tools including financial budget, non-monetary budget and
operating budget. These tools also include certain factors regarding the budgetary control.
Financial budget could present the financial statement for the organisation and determine the
strategies of the organisation regarding the application of its funds. Such funds include sales
revenue and assets along with loans and stock issuance. Financial budget consists of three
factors. These include cash budget, budget of capital expenditure and balance sheet budget.
Cash budget suggests the forecasting of disbursements and cash receipts comparing with the
actual cost. It helps to measure these factors. Application of cash budget is also helpful to
regulate an enterprise as presents the outgoing and incoming cash as small periods including
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daily, weekly and monthly periods. Thus, the application of this tool is helpful for the
organisation regarding the managing of certain obligations. The Conrad London St. James
could also generate statements and strategies through the application of this technique
regarding the availability of additional cash, Based on that statements, the organisations are
also allowed to determine their strategies regarding investment for profit. Capital cost budget
is another technique that assists the organisation to determine the strategies regarding major
assets including machinery, plant or land. Based on this analysis, organisation could
determine financial activities to borrow additional loans in respect of those assets. Hence, this
technique is influential for the Conrad London St. James regarding the financial statement
and activities. The prime advantage of this technique is the analysis about the assets of the
organisation as this presents the investment of the organisation regarding its assets. Balance
sheet budget is also an important technique regarding the financial activities of the
organisation. This suggests the forecast regarding the balance sheet of the Conrad London St.
James based on the success of other budgets. The prime limitation of this technique is the
dependency on other budgets. Hence, the advantages of financial budget include the fiscal
situations and analysis of expectation regarding its status. As this tool provides all the data as
an expectation and probability and related with other factors. Hence, this is prime challenge
for this tool.
Another tool for budget control is operating budget that include certain techniques such as
revenue budget or sales budget, expense budget and project budget. Operating budgets put
emphasis on the operation of the organisation. Revenue budget put emphasis on the earning
of the organisation based on the general operations of the company. As this suggests the
organisation of regarding its future fiscal status, the Conrad London St. James could
determine future planning regarding its operation. Expense budget determines the probable
expenses of the organization regarding its activities. According to Warren et al.(2013, p.83),
this technique allows the organisation to comprehend the possible expenditure of the
organisation. Prime advantage of this technique is that the organisation could determine
strategies based on that anticipated expenses. There always remain a certain gap between the
expense and revenue of the organisation. Project budget put emphasis on that gap. Based on
this technique, the organisation could comprehend the range of the anticipate gap. The
organisation could determine certain strategies regarding this analysis and could earn
significant profit. Hence, the application-operating budget could help the organisation
regarding the determination of organisational strategies to earn profit. As this suggests the
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organisation about the forthcoming challenges, hence the organisation could determine
certain policies to handle those challenges. This tool is too much rigid to apply in the context
of the Conrad London St. James. It also restricts the flexibility in the organisational
operations.
Another important tool is non-monetary budget. This allows the Conrad London St. James to
comprehend organisational activities, which are non-financial. This includes certain abstract
concepts regarding the organisational strategies, operations and activities. This allows the
organisation to determine its strategies that has indirect yet major impact on the
organisational process. These tools are subjected to certain limitations, as these are unable to
ensure the accuracy, managed by management along with costly affair.
LO4
P5
Application of management accounting systems to resolve financial
challenges
Management accounting has certain roles regarding the organisational performance. It is the
storehouse of data that provides information about the organization regarding its financial
statement, operating activities and challenges for the Conrad London St. James. There are
certain financial issues for the organisation including probable expenses, profit, management
and control of cost. Management accounting could help Conrad London St. James regarding
the financial strategies. This could help the organisation to manage and regulate the cost.
Management accounting provides data related with the sectors of expenses. Hence, the
organisation based on that analysis could determine the strategies to increase their profit by
regulating its expenses. Management accounting also prepares the budget for the organisation
and presents a comparison considering the earlier expenses, standard expenses and actual
expense. As a storehouse of information, management accounting presents certain data
regarding the earlier expenses and this data suggests the organisation to determine their
strategies. Conrad London St. James could also determine their strategies to manage expenses
and earn significant profit.
Another aspect of management accounting is the presentation of certain data regarding the
organisational processes. This includes financial statements and organisational operation.
Organisations are subjected to certain challenges regarding fiscal management and cost
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