Management Accounting Report: Unit 5 - Creams Ltd Financial Analysis

This report examines management accounting principles and their practical application within the context of Creams Ltd, a business operating in Greater London. The report delves into essential aspects of management accounting, including cost accounting, inventory management, and price optimization systems. It explores various management accounting reports, such as inventory management, cost accounting, and budgetary reports, and discusses their benefits and applications. The report then proceeds to analyze cost calculation methods, specifically marginal and absorption costing, along with variance analysis. Furthermore, it investigates different planning tools used in budgetary control, such as the master budget, and outlines their advantages and disadvantages. Finally, the report addresses how organizations adopt management accounting systems to respond to financial problems, emphasizing the role of managerial bookkeeping in sustaining success. Overall, the report provides a comprehensive overview of management accounting practices and their significance in achieving organizational goals and financial stability.

Unit 5 – Management
Accounting

Table of Contents
Table of Contents.............................................................................................................................1
INTRODUCTION...........................................................................................................................2
Task 1...............................................................................................................................................2
P1 Management accounting and its essential requirement in organisation.................................2
P2 Different methods that uses in management accounting report.............................................3
M1 Benefits of management accounting system and their application.......................................4
Task 2...............................................................................................................................................5
P3 Calculation of cost by using appropriate cost analysis...........................................................5
M2 Techniques of management accounting for preparing financial accounting reports..........11
Task 3.............................................................................................................................................12
P4 Advantages and disadvantages of different planning tools uses in budgetary control.........12
M3 Application of planning tools by preparing budgets and forecast.......................................13
Task 4.............................................................................................................................................14
P5 How organisations are adopting management accounting system to respond the financial
problems....................................................................................................................................14
M4. Responding of financial problems leads to sustain success through managerial book-
keeping.......................................................................................................................................16
CONCLUSION..............................................................................................................................16
REFERENCE................................................................................................................................17
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INTRODUCTION
A business can be operated by person who has knowledge about accounting principles and
practices by maintaining good performance. To run a business accounting concept and principles
are used by accountants who make right business decision. Management accounting is the study
of financial information by involving and preparing income statement, trial balance and balance
sheet that states how much an organisation is earning profits. In other words, financial
accounting is the presentation and recording of information for the betterment of organisation
and shareholders by increasing profits (Aini, Alwiyah and Putri, 2019) . To understand about this
Creams Ltd has been chosen that is an active company situated in Greater London. This
organisation offers different types of desserts and drinks as per customers demand. The present
report cover understand about type of management accounting system, report and management
accounting tools which are used to maintain a business appropriately. Furthermore, this report
covers system of managerial accounting that respond towards financial problems.
Task 1
P1 Management accounting and its essential requirement in organisation
Management accounting – This is the application of knowledge and skills which is
required to prepare the financial information and maintaining business activities properly. To run
a business and making right business decision management accounting is playing an important
role as it helps to understand the needs of organisation and fill the requirement by filling all
needs. Every organisation is required to focus on management accounting and its application that
can helps to manage a business and control the business activities. In other words, management
accounting is important for management that consider planning, organising, directing and
controlling the business activities for improving organisational performance. Cream Ltd is small
size organisation that is operating business by managing proper accounting system that are as
followed:
Cost accounting system – This is a system that covers all information about cost of
products and services which are going to provide by company. A cost accounting system is uses
to keep record of production activities that helps to maintain the good functions. For all
companies it is important that to use cost accounting system that can help to know the cost and
maintaining the activities effectively. Cream Ltd is using cost accounting system to track the cost
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which have incurred in organisation and go through the production stage. This is essential
required in Cream Ltd to managing the cost and running a business by organising activities
effectively (Mahajan and Deobagkar, 2020).
Inventory management system – The system of management accounting is related to
inventory management where raw material and finished goods are managed properly. This
system mainly used to track the inventory level and placing order accordingly. In organisation
inventory management is important that helps to continue business and attracting customers by
offering variety of products. This has essential requirement in Cream Ltd to track inventory
which they are dealing and store them appropriately so a business can be maintain effectively
(Hilorme and et. al., 2019).
Price optimisation system – Such system is important for business firms to optimise the
organisational effectiveness by setting the prices of their products and services. This is consider
as mathematical software that determine the fluctuation of demand in prices of products. With
the help of price optimisation system managers of Cream Ltd are setting the prices of their
product in which they are dealing that helps to improve the organisational effectiveness. It is
essential for managers to use price optimisation system for dealing or setting the prices of their
products so customers can attracted and encourage to buy the products.
P2 Different methods that uses in management accounting report
Accounting reports are the document of business which is prepared by management in
order to run business and maintaining proper records. If a person is going to run a business
whether small and large it should prepare management accounting reports that contains all
records and information to run a business and increase the organisational profitability.
Managerial accounting reports – Reports are the written document which is prepared by
managers in order to run business by managing planning, organise activities and maintaining
good performance. This mainly used to inform the managers about organisation situation and
profitability that helps to run a business and increase performance. Cream Ltd, is a company that
is preparing different types of management accounting reports that are as defined:
Inventory management report – A report which contains all records about raw material
ordering, storing and other goods that are used to increase the organisational performance is
considered as inventory management report. This states the ability and capacity of organisation
to use the raw material and convert it finished good so customers get attracted in high number
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and maintain the good productivity. This report mainly used to tracking the inventory and
placing the order in case of unavailability. In Cream Ltd. Inventory report is prepared by
management who helps to keep record of good and services and influence customers effectively.
Cost accounting report – This is costing report which is prepared by managers in order
to maintain the proper re cords of cost and increasing the organisational productivity. This is
important for organisation to pre[are the cost accounting report so all expenses can be analysed
in certain period of time that helps to maintain the good performance. . In Cream Ltd, manager
are preparing cost accounting report in order to get accurate cost and profitability of business by
focusing on overall cost. This helps to examine the cost structure of their business by collecting
information in relation to cost (Spanicciati, 2019).
Account receivable report – As all knows a business depends on credits which help to
continue and maintain the organisation effectively. This provide a detailed discussion to
organisation which helps to maintain the good performance. Organisation should follow the rules
and regulation that can help to get information about credits. This tool is used to know the collect
the unpaid amount which is given by a organisation to others. Thus helps to keep proper data of
unpaid customers and maintain organisational performance. Cream Ltd, is selling its products
and services to its regular customers and other by using this report that provide a proper records
of customers who are in charge of payment. According to this report credit should be given to
people on the basis of 30 days, 60 days and 90 days which can help to make payment on certain
period of time.
Budgetary reports – This is another report which should be prepared by organisation in
order to maintain and control the budgets properly and increase the organisational effectiveness.
It helps to compare the actual budgets with budgeted budgets for the purpose of maintaining the
high profitability. Herein, accountant is playing an important role who states duty and
responsibility of managers to forecast the budgets and profits that has incurred in organisation. In
cream Ltd, budgetary report is prepared by managers by making plans and competing with other
business which has impacted on business. It has suggested to managers to make budgetary
reports so organisational performance and profitability can be maintain effectively by comparing
with others (Urkayev, and et. al.,. 2019).
M1 Benefits of management accounting system and their application
The benefits of management accounting system are as defined by applying appropriately:
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Accounting system Benefits and application within Cream Lts.
Inventory management system This method is useful in keeping and handling inventory
data properly. With the aid of this device, Cream Ltd will
reduce waste and increase output. In fact, using this method,
the client can put next order raw material that allows to
maintain the enterprise in the longterm. (DRURY, 2013).
Cost accounting system This is helpful for reducing corporate expenses and
minimizing overproduction within Cream Ltd. Managers
can estimate the cost of all expenses and decide on the cost
of all materials, along with expenses (Covaleski, 2019).
Price optimisation system It is important to assess the quality of goods and services.
Cream Ltd will gain benefit by implementing this program
in such a manner as to fix the quality of manufactured
goods that will help to improve efficiency and profitability.
Entity should therefore use this system to set realistic prices
for goods and to gain a profit margin.
Job order costing system This system gives Cream Ltd the advantage of assigning
work to staff members and managing work according to
objectives. The administrator of Cream Ltd divides the roles
and responsibilities of the organization and increases
productivity.
In context to Cream Ltd managers are applying management accounting system in order to
improve the organisational productivity. For instance by using inventory system it can get proper
track record of inventory and place order to bring raw material. The management are taking
benefits of set the cost of products which they manufactured and attracts customers. Moreover,
by using price optimisation system management of Cream Ltd can set the prices of their products
appropriately and maintain the good performance.
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Task 2
P3 Calculation of cost by using appropriate cost analysis
Marginal costing – This is costing method that uses to maintain the profits by focusing
on material cost, fixed cost and labour cost. By using this method organisation can evaluate their
profit level.
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Absorption costing – This is costing method which is used by organisation to get the
profits by absorbing all cost and expenses which have incurred in organisation. This helps to
provide the accurate profits and cost by focusing on income and expenses.
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Calculation of variances:
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M2 Techniques of management accounting for preparing financial accounting reports
From the above discussion it has defined that organisation should use different management
accounting techniques that can help to prepare the financial reports and get the profitability. This
is important for organisation to keep proper records of their income and expenses so they prepare
a financial statement such as income statement and cash flows that ststes how much profits are
getting by organisation. This also tell which method best to use to get the higher profits.
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