BTEC HND Unit 5: Management Accounting Report - Creams Ltd.

This report provides a comprehensive overview of management accounting principles and their practical application within a business context. The report begins by exploring various management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems, and their essential requirements. It then delves into different methods for management accounting reporting, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports. The report further examines cost calculation techniques, specifically marginal costing and absorption costing, along with their advantages and disadvantages. It also covers the advantages and disadvantages of planning tools. Finally, the report compares how organizations adapt management accounting systems to address financial challenges, using Creams Ltd. as a case study. This assignment demonstrates an understanding of management accounting systems, techniques, and their role in business decision-making. The assignment is available on Desklib, a platform offering AI-based study tools.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
P1: Management accounting systems and their essential requirements................................................3
P2: Methods for management accounting reporting..............................................................................4
TASK 2..........................................................................................................................................................6
P3: Calculation of costs using appropriate techniques............................................................................6
TASK 3........................................................................................................................................................12
P4: Advantages and disadvantages of planning tools............................................................................12
TASK 4........................................................................................................................................................14
P5: Comparison of organizations in adapting to management accounting systems to solve financial
problems...............................................................................................................................................14
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................16

INTRODUCTION
The provision of accounting data, facts, figures and information which can be used by the
managers of an organization for the purpose of decision-making, organization and development
of the business is known as management accounting (Cooper, Ezzamel and Qu, 2017). The
people who have this role in a company are known as management accountants. It is helpful for
the firms in taking the decisions required for different purposes. This assignment is based on
Creams Ltd., a company which makes varied products such as ice-creams, doughnuts and
waffles. In this project, specific analysis will be made on the demonstration of understanding of
management accounting systems, applying a range of management accounting techniques.
Additionally, focus will be made on use of planning tools and comparison of ways in which
organizations can use the data of management accounting systems to resolve their financial
problems.
TASK 1
P1: Management accounting systems and their essential requirements
There are four systems broadly used in management accounting by the managers for
decision-making. The explanation of these systems in the context of Creams Ltd. is as follows-
Cost accounting system- A cost accounting system is a framework used the firms in
which techniques are used to find out different costs incurring in an organization
(Cuzdriorean, 2017). This is done to find out any problems and issues persisting with the
firm and also to find its excessive cost which needs to be reduced to increase the profits.
Thus is it is an effective tool for the management to control and monitor the overall costs.
Creams Ltd. can use it to find and reduce its excessive cost.
Essential requirements-
 There must be cooperation and coordination from various departments in the firm such as
production, marketing, finance, HR etc. for the successful implementation of cost
accounting system.
 The cost of installing this system should be justified in the results which are obtained in
the company as there should be significant improvements achieved.
 This system should allow for reduction in the overall costs related with the enterprise so
that profits can be maximized effectively and efficiently.
 This system should allow for reduction in overheads so that unnecessary expenditure
related to the overheads can be avoided.

Inventory management system- An inventory management system can be manual or a
computerized system which monitors and controls the flow of inventory in an
organization (Carlsson-Wall, Kraus and Karlsson, 2017). The managers of Creams Ltd.
must use it so as to track the flow of their inventory level and to ensure its proper
management. This will facilitate availability of stock items whenever required while also
ensuring that there is no mismanagement of stock items in the organization. This will
increase the efficiency and effectiveness in the organization.
Essential requirements-
 In an inventory management system there should be management of suppliers of goods in
the organization. This facilitates the tracking of inward movement of goods so as to
ensure their proper management.
 An inventory management system should also facilitate stock management which will
ensure that stock is available whenever required.
 It should facilitate for tracking of level of inventory within an organization so that there is
no loss of the items in the inventory of the organization.
 It should allow for effective use of methods for inventory control like LIFO, FIFO, and
Weighted Average Cost Method Etc.
Job costing system- It is a process of accumulation of information regarding costs
associated with a specific production or service job (da Silva Laureano, Cardoso Vieira
Machado and da Silva Laureano, 2016). It is highly useful for manufacturing companies
which take orders from their clients for producing specific products according to their
needs and requirements. As Creams Ltd. is a company which deals in ice-creams,
doughnuts and waffles it is a highly useful system for it because it can help it in tracking
and managing its various job orders and ensure that clients get their orders fulfilled on
time.
Essential requirements-
 Job costing system should be able to track the orders given by customers to the
organization and ensure their sound management so that they are completed within the
given time frame.
 Job costing system should be able to provide the clients a rough estimate of cost to be
incurred in their contract and must be able to find out profits of the company.
 It must facilitate reduction in costs of completion of order so that profits can be
maximized.
 It must be able to reduce the costs being incurred in completion of orders in the
organization.
Price optimization system- This system makes use of models which track how price
varies at different demand levels. Managers of Creams Ltd. can use it to set price
according to demands so that higher profits can be ensured.
Essential requirements-

 Price optimization system should include three pricing elements which are pricing
strategy, value to buyer and seller and tactics.
 Price optimization system should be able to forecast change in demand levels so that
mangers can change pricing strategies accordingly.
 It must be able to facilitate change in price according to change in demand levels.
 It must be able to adjust prices according to prices charged by the competitors.
Thus, management accounting is all about using its various types of systems, tools and
techniques in order to take best advantage of it and take the right decision. Taking a right
decision will benefit a firm in the long-run against its competitors.
P2: Methods for management accounting reporting
Management accounting reports are used in order to get better insights and details of the
performance of a business enterprise so that controlling and monitoring measures can be taken if
required to regulate performance (Hall, 2016). Managers of Creams Ltd. can use it so that
performance can be measured and improved. The different types of reports which can be used by
them are as follows-
Budget reports- Budget reports are prepared on the basis of various budgets prepared in
an organization such as cash budget, operating budget, master budget etc. It summaries the
findings and forecasts of all of them to give thorough conclusions and recommendations as and
when required. They also help the managers in taking the right steps by forecasting their future
incomes and expenses. The managers of Creams Ltd. can use these reports so that they can bring
more efficiency, effectiveness and productivity in the organization’s functions. This will help the
enterprise to work according to its budgeted expenses to earn steady profits. Also it will lead to a
surplus in operations of company so that deficit can be avoided. For example- Creams Ltd.
makes use of these reports to prepare an annual plan showing the revenues and expenditures of
the organization.
Accounts Receivable Aging Reports- These reports can be prepared by the managers to
manage the debtors of an enterprise. They can then be segregated according to their credit limit
and the time period given to them for paying off their debts. The managers of Creams Ltd.
should use these reports as they are highly helpful in finding out those debts which haven’t been
paid since a long time and also to list some debts as potentially bad which have no scope of
repayment. Thus it helps in identifying aging debtors so that a strategy can be framed for
recovering debts from them. For example- Creams Ltd. makes use of these reports so that it can
maintain a track record of its debtors and identify the potential bad debts so that a provision can
be made.
Cost Managerial Accounting Reports- These reports can be prepared on the basis of
cost accounting facts, figures and information of a particular company (Hopper and Bui, 2016).
The managers of Creams Ltd. can use them for getting deep insights about their business
operations and functions and the costs that are being incurred in them. They can also help in

finding out extra costs associated with various functions in the company and the ways to reduce
them so that the long-term objective of profit maximization can be achieved. Cost accountants
can benefit the most from the preparation of these reports. They help in optimizing the use of
financial resources by all the departments of the company such as production, finance,
marketing, HR etc. In these reports technique of standard costing can be used for comparison
purposes and finding out favorable or adverse variances. For example- These reports are used by
Creams Ltd. to find out the techniques it can use to reduce its costs effectively.
Performance reports- These reports can be prepared to have an overview of the
operations and functioning of the entire business (Maas, Schaltegger and Crutzen, 2016). They
help in analyzing the overall performance and optimizing it so that efficiency, effectiveness and
productivity can be achieved in the organization. The managers of Creams Ltd. can use these
reports so that monitoring can be done for the entire enterprise and controlling actions can be
taken. Overall, management can easily find out certain errors and mistakes which are made
during the functioning of the business so that quick rectifying actions can be taken for the benefit
of the firm. These reports can allow for optimization of performance at a maximum level so that
long-term objective of maximization of profits can be achieved. For example- Creams Ltd.
makes use of this report so that it can optimize the overall performance of its employees.

TASK 2
P3: Calculation of costs using appropriate techniques

From the above examples, it can be seen that Creams Ltd. has used the following techniques for
calculation of its costs- marginal costing and absorption costing. The explanation about these
techniques in the company’s context is given as follows-

Marginal costing-
This technique charges variable cost to the units of production and fixed cost is adjusted
against the contribution (Malina, 2017). Thus it is a very good approach to find out the overall
costs being incurred in the organization. It helps in calculation of costs as well as also finds out
the break-even point which is a point where a firm makes no profit and neither does it incur a
loss. Thus this technique is highly useful from the point of view of the management of the
enterprise. The managers of Creams Ltd. have used this technique for calculation of the costs.
Advantages-
 Marginal costing is very useful for comparison purposes in a company as its break-even
point can be easily compared to that of the competitor. This helps management in
comparison so that effective strategies can be made to get ahead of the competition and to
earn higher level of profits in the future.
 The impact profit fluctuations can create on the sales of organization is clearly shown in
marginal costing approach. It shows their impact on the sales of the company and how
the change at different levels affects the production of goods in the firm.
Disadvantages-
 Marginal costing technique makes it very difficult to determine the degree of variability
in semi-variable costs of the enterprise. The change brought in them is not reflected in the
marginal cost statement.
 The valuation of stock is not accepted by the tax authorities since stock does not show the
true value. Thus it creates a disadvantage for the organization.
Absorption costing-
Absorption costing is a technique which takes into account all the costs associated with
the production of goods be it direct, indirect or the overheads (Nørreklit, 2017). Thus the
costs are classified into these three categories. Creams Ltd. has used this technique for the
calculation of its costs. It is highly useful for managers in various aspects of managing an
organization.
Advantages-
 It recognizes the importance of fixed manufacturing costs in determination of costs
associated with a product. Thus it takes them into consideration while calculating the
costs of the enterprise. Thus more accuracy, efficiency and effectiveness are ensured in
cost calculation.
 It helps in disclosing of information related with inefficient utilization of resources in
production because of under-absorption or over-absorption of the factory overheads. This