Unit 5: Management Accounting Report: Decision Making

This report, prepared by a student, delves into the core concepts of management accounting within the context of Cream Ltd. It explores various types of management accounting systems, including inventory, cost, job costing, and price optimization, highlighting their benefits for business efficiency. The report also examines different methods of management reporting, such as budgets, variance analysis, and cost estimation, and their roles in financial planning and control. A significant portion of the report focuses on analyzing price techniques for statement of income, comparing marginal and absorption costing methods with detailed calculations and variance analysis. Furthermore, the report discusses the application of management accounting for financial reporting and outlines the steps involved in producing appropriate financial documents. The report concludes by addressing how management accounting tools can aid in responding to financial problems and contribute to an organization's sustainable success. The document is a valuable resource for students studying management accounting, providing insights into practical applications and theoretical frameworks.

Higher Nationals
Higher National Diploma in Business
Student Name Georgiana Aura Pavel ID HE0799
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Unit Number and Title Unit 5 – Management Accounting
Academic Year 2019/2020 Cohort Sept 19 Term Block 3
Unit Leader Alfred Agyeman Assess
or
Joseph Olaniyan
Assignment Title Management Accounting Concepts and Techniques
in Decision Making
Issue Date 09/03/2020
Submission Start Date
(Formative)
27/04/2020
Submission Summative 08/05/2020
IV Name Seethalakshmy Nagarajan
IV Date 25/02/2020
Learners Declaration: I certify that the work submitted for this unit is my own
and the research sources are fully acknowledged.
Learners Name: Georgiana Aura Pavel
Date:23.05.2020
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UNIT 5
MANAGEMENT ACCOUNTING
STUDENT NAME: GERGIANA AURA PAVEL
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Table of Contents
Introduction......................................................................................................................................3
LO1: Discuss the MAS....................................................................................................................3
P1: Types of management accounting......................................................................................3
P2: Methods of management reporting...................................................................................4
Benefits ofmanagementaccounting for the business...............................................................5
Evaluation of management reportingand accounting............................................................5
LO2: Steps of management accounting...........................................................................................5
P3: Analysis of price techniques for statement of income......................................................5
Statementof income under costing marginal and costing of absorption when there is production
but no sales of Cream Ltd. The data are given below:-...............................................................5
Application of management accounting for reporting for financial.....................................9
Discuss the finance report of business activities....................................................................10
LO3: Tools for management accounting.......................................................................................10
P4: Advantages and disadvantages of planning tools...........................................................10
Analysis of tools and application on budgets.........................................................................11
LO4: Respond to financial problems.............................................................................................12
P5: Management responding to financial problems.............................................................12
Organisation sustainable success............................................................................................13
Conclusion.....................................................................................................................................14
Reference list.................................................................................................................................16
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Introduction
In this study on accounting management of Cream ltd. the process of accounting management is
being elaborated. The requirement of different types of management accounting systems in
Cream ltd. is going to be explained. The discussion explains the management accounting system
and their application in the organisation. It also focuses on the accounting management system
and management accounting reporting. The study is based on understanding the integration with
the organisational processes. The study is on the understanding of management accounting
technique, calculation of the cost to prepare statement of income using absorption and cost of
marginal. The comparison will be done on organisation adaption to the management accounting
system to revert to issues of finance.
Discuss the MAS
Types of management accounting
The accounting process of Cream Ltd consists of management accounting and accounting of
cost which means analysing the cost of business and the operations to draw up reports of
finance internally, the account which the managers used, records which assists making of
decision process in attaining the organisational goals (van Helden et al. 2016). Different
types of MAS are:
1. Inventory system of accounting which facilitates stock placement in the company. This
system is vital to track the stocks in different locations and managing the supply network
effectively. It is present in all location to plan the production process and stock related
issues.
2. The cost accounting system is utilized to check stock manufacturing activities and for
recording inventories. This system is used by the top-level positions to track the stages of
inventory from manufacturing to finished product.
3. Job system costing is used to analyse the amount incurred in a product manufactured
with involvement in the business. This system is vital for industry construction and
mention to assigning a cost to the individual project of construction at the company.
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4. Price system for optimisation is used to change the price in accordance with customer
willingness to pay. The company focuses on price optimizing critically as the need to sell
where the product can be easily purchased at given prices whether it is B2B or B2C.
Price optimizing system facilitates selling of a product in such price that company profits
goals are maintained and customer experience is also enhanced.
Methods of management reporting
Different types of methods used in management reporting like
Budgets are related to financial documents in cost allocations are mentioned for future
goals. The financial documents represent income and expenses of Cream ltd. The budget
is basically associated with forecasting the costs in present. Budgets consist of all
expenses like Direct overhead, labour expenses, and purchase of materials.
Variance analysis is used by the company to accumulate the cost involved and what was
estimated and look out for the difference and taking corrective measures for improving
the difference (Ittner et al. 2017). Cost estimation is done by the company for allocating
cost as per the requirement. Sometimes cost estimated exceeds the cost in that case
managers’ needs to check the reason and correct that accordingly.
Cost reports state that the determination of price in accordance with management
accounting. Labour cost, overhead cost, product cost all is taken into contemplation.
Total items are divided by the product cost for the calculation of the entire cost. This cost
report helps the manager to check the cost of the product and selling product price
(Owusu et al. 2016). This cost report assists in managing the plans of manager and limit
of incomes.
Execution reports are used to analyse the data of disbursing the plans with estimated
sums. After making the plan analysis is being done on the whole data. The performance
report is analysed each year, or some company does that quarterly. This data is utilized to
get prepared for the forthcoming call on production and changes (Ioppolo et al. 2019).
These reports are summarized by the accountants of the company and utilized
accordingly. Order place reports are made to place an order and to check whether the
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order placed is enough or not. The business reports are made for making an alternative to
present and upcoming situation of the business in a company.
Benefits of management accounting for the business
The management accounting system in Cream Ltd is beneficial in terms of increasing efficiency
of the company. Inventory system of accounting helps the company to manage the supply chain
of the product from manufacturing to the finished product (Lugli et al. 2017). The cost
accounting systems assist the business in tracking the product amount in each level of
production. The job costing systems helps in allocating the cost to a project which is involved in
the business. The price optimization system assists the business in optimizing the product price.
The customer willingness to pay needs to match with the product price. This system helps in
optimizing the cost in the way in which company profits are not hampered.
Evaluation of management reporting and accounting
The management accounting systems and management reporting accounting is integrated within
or business processes as management accounting provides information regarding quantitative
and qualitative on financial and operational production (Ferdous et al. 2019).The management
accounting is associated with the creditors and assets of the business while management
accounting system is enclosed with operational planning and controlling for successful support.
Management accounting facilitates the planning of money and controlling it. Management
accounting system helps the business to use the internal factors like price and quality of product
efficiently to deploy the best customer service.
Steps of management accounting
Analysis of price techniques for statement of income
Statement of income under costing marginal and costing of absorption when there is production
but no sales of Cream Ltd. The data are given below: -
Here in the table cost as per marginal accounting is taken.
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Unit cost as per marginal
costing
Januar
y
Februar
y
Direct Material £5.00 £5.00
Direct Labour £3.00 £3.00
Variable Manufacturing
Overhead £2.00 £2.00
Total unit cost £10.00 £ 10.00
Figure 1: marginal costing
(Source: created by author)
Unit cost as per Absorption costing January February
Direct Material £5.00 £5.00
Direct Labor £3.00 £3.00
Variable Manufacturing Overhead £2.00 £2.00
Fixed Manufacturing Overhead £4.00 £4.00
Total unit cost £14.00 £14.00
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Figure 2: Absorption costing
(Source: created by author)
Income statement as per Marginal costing January February
Sales 250000 125000
Less: cost of goods sold
opening stock 0 0
Add: production 100000 100000
Less: closing stock 0 50000
Contribution margin
£
120,000.00
£
45,000.00
less: Operating expenses
Variable Selling Overhead
£
30,000.00
£
30,000.00
Fixed Selling and Administrative Overhead
£
30,000.00
£
30,000.00
Fixed Manufacturing Overhead
£
40,000.00
£
40,000.00
Net Loss
£
50,000.00
-£
25,000.00
Figure 3: statement of income: costing for marginal
(Source: created by author)
Income statement as per Absorption
costing
Januar
y
Februar
y
Sales 250000 125000
Less: cost of goods sold
opening stock 0 0
Add: production 140000 140000
Less: closing stock 0 70000
Gross profit 110000 55000
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less: Operating expenses
Variable Selling Overhead 30000 30000
Fixed Selling and Administrative
Overhead 30000 30000
Net Loss 50000 -5000
Figure 4: statement of income: costing for absorption
(Source: created by author)
Material variance Budgeted Actual Variance
Favourable/
Unfavourable
Material cost variance 40000 42900 2900 Unfavourable
Material usage variance 20000 22000 2000 Unfavourable
Material price variance 10000 20900 10900 Unfavourable
Labour variance Budgeted Actual Variance
Favourable/
Unfavourable
Labour cost variance 15000 17,680 -2,680 Unfavourable
Labour rate variance 15 16.07 400 Unfavourable
Laboureffeciency variance 1000 1100 100 Favourable
Figure 5: variance of material &variance of labour
(Source: generated by author)
Material cost variance shows unfavourable result due to increase of 2900 in actual in comparison
to budget. The material usage variance shows unfavourable result due to increase of 2000 in
actual in comparison to budget. The material price variance shows unfavourable result due to
decrease in price by 900. The labour cost variance shows the unfavourable result actual is in
negative by -2680. The labour rate variance shows the unfavourable result as the actual rate is
negative by -1180. The labour efficiency variance shows favourable results actual efficiency
exceeds the budgeted one.
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Application of management accounting for reporting for financial
The steps used by management accounting to produce appropriate financial reporting documents
are:-
Financial planning assists in making powerful financial planning which helps in meeting
organisation objectives (Sepasi et al. 2019). This tool technique is stated as the best
technique to achieve organisational objectives.
Statement of financial analysis helps in analysing the two important report of the
organisation that is the profit and loss and profit and balance sheet (Sepasi et al. 2019).
Henceforth this technique assistance can be known as growth of Creams Ltd. This
examination is done through ratio survey, common size statement and financial statements.
Cost accounting states the information related to product-wise, process-wise, department
wise and branch wise. The information of cost is compared with the pre-agreed one.
Fund flow analysis helps n tracking the fund flow from one period to another. The difference
between both the periods is ascertained while tracking. This analysis helps in checking
thoroughly funds are utilized properly or not in the given period.
Standard costing is termed as a predetermined cost. It provides a standard to compute the
performance. It is used to discover diversions if there is any.
Marginal costing steps are used to ascertain the price of selling, choosing the better sales
mix, using the scanty resources, and assisting in buying decision. This technique is built on a
variable cost, fixed cost, and contribution.
The budgetary control technique is associated with meeting future financial demands. It
helps in managing the financial perform in the business concern.
Revaluation accounting technique helps to revalue the assets of the company according to
requirement. It assists the company in ascertaining the capital employed.
Discuss the finance report of business activities
The financial reports like income statement, balance sheet, statement of stock holder’s equity,
cash flow statement and statement of comprehensive reports which play an vital step in making
decision, strategy making, success accomplishment and failure estimation in Cream Ltd. The
financial report helps in interpreting the range of the data by applying accuracy in financial
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transparency by showing the correct amount in the report of finance of the business. The tax
liability of the company should be correct in accordance with financial report no flaws should
exist (Cooper et al. 2017). The balance sheet of the business contains the assets and liability of
the organisation which help the business activities to work effectively using the assets of the
company properly. The statement of income of the business is a yardstick to measure the success
of the business workings for a specific period of time. The report of cash flow of the
businessstates the flow of fund inside the company and outside the company. It also states the
cash flows of the business activities outside and the speculations in a given period of time. The
statement cash flow is the most important financial report as it shows the flow of cash by which
the investors ascertain the state of the company.
Tools for management accounting
Advantages and disadvantages of planning tools
The positives and negatives of different types of tools of planning used for control of budgets are
Budget is a report which is prepared in each period which is presented by top position in
which allocation of funds is mentioned. The Advantages of the budget are it helps in the
bond building between all the departments of the Cream Ltd. It converts the strategy into
activity. It sates the revenue and expenses requirement for carrying out a plan. It provides
documentation of the activities which are going on in the organisation (Rikhardsson et al.
2018). The disadvantages of the budget are budget is followed rigidly which affects the
motivation of employees and which results in ineffective production. The rigid budget
structure will mitigate the innovation of ideas in the company.
Operational budgets: They are termed to be the plan of finances which is equipped with the
ability for meeting the obligations of debts along with sustainability over longer terms for the
company. In front of Creams Ltd., it can be sated advantageous through letting it know how
they are spending their money along with the area of cash management. However, use of
such tools can be disadvantages for the company also. Creams Ltd. is likely to face
inaccuracies within the financial budget which is likely to change on a frequent basis (Ittner
et al. 2017). In another direction, it can also be disadvantageous to Creams Ltd. through
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