Management Accounting: Cost Analysis, Budgeting, and Problem Adaption

This report delves into management accounting, exploring its types and reporting methods within Synergy Manufacturing Co. LTD. It discusses management accounting's role in providing financial information for decision-making, covering cost accounting, job costing, and price optimization systems. Various management accounting reporting methods, such as job costing reports, inventory reports, accounts receivable aging reports, budget reports, and performance reports, are examined. The report includes calculations of costs using absorption and marginal costing, highlighting their impact on income statements. Furthermore, it analyzes the merits and demerits of different planning tools for budgetary control, including activity-based budgeting and zero-based budgeting. Finally, the report touches upon how management accounting systems can be adapted to respond to financial problems, offering a comprehensive overview of management accounting practices and their applications.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
P 1: Management accounting and types of management accounting systems.......................1
P 2: various methods used for management accounting reporting.........................................2
P 3: calculating costs to make income statements using absorption and marginal costing....3
P4: merits and demerits of various kinds of planning tools used for budgetary control........7
P5: adaption of management accounting systems to respond financial problems...............10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting provides financial information to the leaders or the
managers of the company which is used by them in taking various decisions so that goals can
be achieved. It helps internal users of the company in order to make effective decisions.
Synergy manufacturing co. LTD is the medium sized company and manufacture products for
sale. This report will discuss concept of management accounting and its types and also
management accounting reporting. Further will calculate costs and planning tool used for
budgetary control. It will also discuss about how management accounting systems is helpful
in solving financial problems.
MAIN BODY
P 1: Management accounting and types of management accounting systems.
Management accounting-
the procedure of making goals for the organisation by finding, measuring, evaluating and
communicating information to the leaders or managers is known as managerial accounting. This
accounting concentrate on all other accounting so that can provide knowledge to the
management regarding business metrics. In order to record transactions it uses data which is
related to costs of items and services bought by the organisation (Honggowati and et.al., 2017).
Performance reports are used by management accountants to see variance within actual results
from the budgets.
Types of management accounting systems-
Cost accounting:
It is the kind of managerial accounting which review the total cost of production of the company
through assessing variable costs and fixed costs as well like lease expense etc. this accounting is
mostly used by the management of the company so that to make business decisions. It is not like
financial accounting because it provide information to the company's external users in the form
of financial statements whereas cost accounting is flexible and fulfils business needs. While
making cost accounting reports it takes into consideration of input costs related with production.
Cost accounting involves marginal costing, standard costing, lean accounting etc.
job costing system:

it is the costing method which is used to find out the cost of particular jobs which are done as per
the customer's specifications. It is the normal costing method which is used where there are
separate projects or contract jobs. Cost of particular job can be find out separately with the help
of this costing method and which is further helpful in calculating profit and loss of every job. It
is also helpful in future planning because it determine same jobs which has to be done in the
future. It further helps in managing jobs (Alvarez and et.al., 2021). This method is generally
used in industries like auto mobile garage, foundry, printing, shipbuilding etc. this method gives
detail of the cost analysis of labour, materials and overheads of every jobs. It is also helpful in
making estimation of certain costs.
Price optimization system-
this system uses mathematical data of the company in order to find out the responses of the
customers over the prices of various products and services via separate channels. Complexity of
pricing are given within dynamic market conditions. Mainly this system helps in forecasting
demand, enhance customer satisfaction, make promotional strategies etc. It is also utilised in
calculating the prices which will be helpful to the company in meeting the objectives like profit
maximization etc. information which is used in this system are historic prices, survey data,
inventories, operating costs etc. this system is used in industries like airlines, car rental, retail,
insurance etc.
P 2: various methods used for management accounting reporting
There are many methods of management accounting reporting which are as follows:
job costing (JC) report-
it is the report which is made so that costs of the construction project can be tracked. There are
JC reports which add the costs when the job is been done and it is helpful in knowing the issues
so that problems can be eliminated on future jobs. In order to identify problems as soon as
possible report must be tracked on weekly basis so that problems can get corrected before it
reaches out of control (Soderstrom, Soderstrom and Stewart, 2017). JC report gives idea
regarding the utilization of workers, raw materials etc so that to come up with the conclusion
that the costs which is associated with particular projects is different from one another and why
it is so.
Inventory report-

Inventory report can be called as the stock summary which every retailer must have. It consists
of information like how much stock company is having, category performance, which products
is getting sold out fast and other information related to stock. Inventory report is of many types
and every report is having there own purpose. Mainly retail business rely on this report in order
to generate profits and revenue. This report will help company to identify the number stock
which they are actually holding because if there will be shortage of stocks then what company
will sell.
Accounts receivable ageing report-
it s the report which provide lists of the unpaid customer services and credit memos. It is the
primary tool which is used for collections to find out that which are the invoices which is unpaid
and left for payment (Nørreklit, 2017). It is declared as the collection tool which consists the
contact data for each customers. Management of the company also uses this report to determine
the effectiveness of collection functions.
Budget report-
it is the report which compares actual results with the established budget of the company. It can
be issued to any person who is responsible for the item within income statement. This report
further helps to find out that the level of which expenditure is high so that suitable actions can be
taken in order to reduce that expenditure to the budgeted amount (Englund and Gerdin, 2018).
Businesses uses this report so that financial results of the organisation can be controlled.
Modified income statement can be called as the budget report.
Performance report-
this report is created by the company in order to measure the success and growth. this report
shows the results of business activities or the work which is done by employees within business.
This report does comparison within actual outcomes with the budget. This report is the base and
variance is calculated within that.
P 3: calculating costs to make income statements using absorption and marginal costing
Costs-
costs is the money value which is utilised so that to produce goods and items and is the monitory
evaluation which is associated with resources, time, utilities etc.
Marginal costing-

It is one the costing technique where the marginal cost is charged to the costs units and under
this the fixed cost is write off. In simple language marginal costing is the extra costs which is
incurred when producing extra unit. This technique helps in solving various managerial
problems and also helps managers in the decision making process. Within marginal costing
profit is divided into two which is fixed costs and variable costs. Marginal costing is also called
as variable costing. As under this only variable costs are accumulated and cost per unit is
calculated only on variable costs basis.
Absorption costing-
Absorption costing which is also called as full costing comes under management accounting as it
considers all the costs which is related with manufacturing of specific product. His method
includes both direct and indirect costs like direct labour, rent, direct material etc. this costing
method is different from variable costing (Alabdullah, 2019). Absorption costing assign fixed
overhead costs to every item whether it is sold out or not in that time period. The main benefit of
this costing is that it relies with GAAP which is accounting principle.
Marginal costing
Particulars
2020
Amount
(in £)
2021
Amount
(in £)
Direct
labour
costs 36 24
Direct
material
costs 30 24
Variable
expenses 24 16
total 90 64
Fixed costs:
Particulars Amount
Fixed indirect production cost 210000
Administrative overheads 54000
Total fixed cost 264000

2020 2021
Particulars Units
Per
unit
cost
Amount
(in £) Units
Per
unit
cost
Amount
(in £)
Op stock 0 0 0 0 0 0
purchase 5000 90 450000 3500 64 224000
cl stock 400 90 36000 300 64 19200
COGS 414000 204800
Income statements as per Marginal costing
2020 2021
Particulars Amount (in £) Amount (in £)
Sales 828000 480000
Less: Variable expenses 414000 204800
Contribution 786600 275200
Less: Fixed expenses
Total fixed indirect production cost 210000 210000
Administrative (fixed) overheads 54000 54000
Net profit 522600 11200
Absorption costing
Particulars
2020
Amount
(in £)
2021
Amount
(in £)
Direct
labour
costs 36 24
Direct
material
costs 30 24
Variable
expenses 24 16

Total fixed
indirect
production
cost 60 40
Total cost
per unit 150 104

2020 2021
Particulars Units
Per
unit
cost
Amount
(in £) Units
Per
unit
cost
Amount
(in £)
Op stock 0 0 0 0 0 0
purchase 5000 150 750000 3500 104 364000
cl stock 400 150 60000 300 104 31200
COGS 690000 332800
Income statements as per Absorption costing
2020 2021
Particulars Amount
(in £)
Amount
(in £)
Sales 276000 368000
Less: COGS 690000 332800
Contribution 414000 35200
Less: Fixed
expenses
Administrative
(fixed)
overheads 54000 54000
Net profit 360000 -18800
P4: merits and demerits of various kinds of planning tools used for budgetary control.
Budgetary control-
It refers to the financial jargon which helps business in managing income and expenses.
In the business it is very important to have comparison between actual income and expenses
with the expected income and expenses so that company can decide that measures has to be

taken or not (Cools, Stouthuysen and Van den Abbeele, 2017). So budgetary control is helpful to
the business to know the actual results as budgets are made first and then actual results are
ascertained.
Different types of planning tools are as follows:
Activity based budgeting-
It is the tool which helps business in making blueprint of the financial plan. This budget is made
on the basis of various business activities. In this budget, cost is made as the base over activity
level. The activity which is used for making the budget are properly evaluated by the company
so that business cost can be predicted. Every cost which has took place in this budget are closely
checked by business so that if possible costs can be reduced and efficiency can be enhanced.
Advantages-
This budget considers future activities and not the past activities whereas in traditional budgets
managers considers old activities and also thinks about past where improvement can be done
rather than focusing on cost allocation (Kunnathuvalappil Hariharan, 2020). Its biggest
advantage is that it make budget on the basis of activity and because of that managers get better
insight so that areas of improvement can be find out.
Disadvantage-
This budgeting is the time consuming and complex process which consume so much time of
management and resources also. For this budgeting company require team of experts candidates
who can easily find gaps and can use required software which are compulsory to use in this
complex process.
Zero based budgeting-
This is the technique which is used to control the costs. It is the budgeting process in which
manager have to make budget from the starting or scratch. In the technique every activity must
be analysed in the decision processes. In simple language it means that budget for every new
period must be made from zero base only.
Advantage-
This budgeting technique is majorly used by non profit organisation as it helps in saving various
costs. It uses resources in an efficient manner because resources are assigned on cost benefit
terms. It make sure that planning is taking place carefully.
Disadvantage-

It is difficult to use in large organisation because in such organisation decision packages have to
be made and that include expenses. It takes lot of time. This tool involves more paper work.
There are possibility that managers can oppose to new ideas (Meric and Gersil, 2018). Bias can
be seen in the decision packages.
Cash budget-
It refers to estimation of cash flows of the company within specified time period. It can be made
on weekly, monthly or annual basis. Majorly this budget is made in order to check that the
business have sufficient funds in order to carry operations with the provided time period. It
consists of the inflow and outflow of cash of the company.
Advantages-
With this tool debt can be avoided. If company have cash then they will spend in cash only and
this will be helpful in avoiding debt. Under this technique managers are forced to make the
budget better. As this budget require special attention of managers. It also tracks spending habits
of the managers and produce proactive management. Potential deficits can be easily gets
identified.
Disadvantage-
Possibility of theft increases, as cash is that asset which can be easily steal by anyone and to
trace that is very difficult. It puts limits over spending power. There are companies which have
stopped using cash for many business activities.
Investment appraisal-
Investment appraisal is the process so that business can come to know the chances of possible
investment and know about several financing techniques. It is used for identifying long term
trends and knowing profitability of the company.
Advantages-
It is easy to understand and can be easily gets calculated. Those businesses which have cash-
flow problems can use this technique. It easily cope with changing markets (Wang and et.al.,
2019).
Disadvantage-
It does not consider that money which is received after payback. Target payback period is
complex to be made. It ignores future value of money.

P5: adaption of management accounting systems to respond financial problems
Benchmarking-
It is the procedure through which business practices are measured and can also compare it. It
gives insight so that organisation can compare with similar organisation. Synergy manufacturing
ltd. Uses this technique to solve their various financial problems whether it can be related to
technical or procedure etc.
Pros-
It helps company to know that how good they are performing as compared with other
companies. It is also helpful in knowing areas where improvement is needed. Establish standard
set of metrics. Setting performance expectations.
Cons-
It cannot measure effectiveness. So with this tool company cannot measure the effectiveness of
their process. This tool is important but business cannot do only this thing to bring changes.
There are possibility that business can use wrong type of benchmarking.
Key performance indicators-
This is the tool which is used by the company to determine progress of the business in regards
with the objectives (Alrashed, 2020). The aim of KPI is to check the progress so that strategic
objectives can be achieved. Synergy manufacturing company uses this tool to check any failure
if company is facing.
Pros-
KPI helps company in closing learning gaps. If company is not able to achieve its goals than that
means that their employees should given training. It is helpful in empowering employees so that
necessary actions can be taken in order to bring improvement. It is also helpful in measuring
results.
Cons-
It is the time-consuming process and also does not provide immediate results. It is only used to
attain short term goals and ignores long term objectives.
Balance scorecard-
This technique involves financial, learning and internal perspectives of the organisation. It builds
relationship between collected metrics and organisation's objectives. It is helpful in identifying
problems related to internal operations. It is also helpful in effective decision-making.