Unit 5 Management Accounting Report: Cost Analysis and Budgeting

This report provides a comprehensive overview of management accounting, focusing on its application within the context of Connect Catering Services. It begins with an introduction to management accounting, differentiating it from financial accounting, and highlighting the essential requirements of various management accounting systems, including cost accounting and inventory management. The report then explores different methods used for management accounting reporting, such as budget reports and job cost reports. A significant portion of the report is dedicated to cost analysis, where income statements are prepared using both marginal and absorption costing techniques. Furthermore, the advantages and disadvantages of different planning tools used for budgetary control are examined. Finally, the report compares how companies adapt their management accounting systems to respond to financial issues, providing a holistic view of the subject matter.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
P1 Explanation of management accounting and providing the essential requirements of
various forms of management accounting system..................................................................4
P2 Explanation of different methods used for management accounting reporting................6
TASK 2............................................................................................................................................8
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs......................................................................8
TASK 3............................................................................................................................................8
P4 Explanation of the advantages and disadvantages of various forms of planning tools used
for budgetary..........................................................................................................................8
TASK 4............................................................................................................................................9
P5 compare how companies are adapting management accounting system for responding to
financial issues........................................................................................................................9
Conclusion.....................................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is defined as the procedure of preparing reports about business
operations that assist higher authorities to make long term and short term decision. In addition to
this, management accounting is basically branch of accounting which refers to the execution of
professional understanding, tools, techniques, concepts and skills for the preparation of
accounting information in a manner which facilitate the development of plans as well as policies
by the management, utilization of resources optimally, control on the operations, satisfying
stakeholders, and taking effective decision. It is state that the users of accounting statements are
mainly the internal management committee of the company. Both the non-financial and financial
factors are involved in this type of information. Management accounting facilitates in identifying
the areas which health management committee do develop corrective measures in order to
overcome the issues and improve operational efficiency (Chaudhry and Amir, 2020). It is related
to the preparation of accounting in formation in relation to professional skills and knowledge do
too which the availability of funds is easily being provided. According to the American
Accounting Association, management accounting is the process as well as concept that is needed
for the successful procedure of planning which help a company in selecting the best alternative
among different available options, then controlling as well as interpreting its results.
The present report is based on the case study of connect catering services. It is a catering
business unit that is founded by John Herring in the year 1989 and its head office is located in
Oxfordshire, UK. The report will cover about the concept of management accounting and the
various type of accounting systems will stop in addition to this, there is description of various
methods used for management accounting reporting. Moreover, the cost is calculated by using
appropriate techniques of cost analysis in order to prepare income statement using absorption
cost and marginal cost. Furthermore, the advantages as well as disadvantages of different forms
of planning tools used for budgetary control is elaborated. In the last, there is comparison of how
companies are adapting management accounting system in order to respond financial issues or
problems.

TASK 1
P1 Explanation of management accounting and providing the essential requirements of various
forms of management accounting system
It is the process of creating organizational objectives and goals by quantifying,
interpreting, inspecting as well as communicating instruction to the managers is known as
management accounting. It also facilitates the decision-making for the higher authorities’ by
giving them the financial information and resources. It helps the management in efficiently and
effectively perform all the operations and monitored them in a proper manner. Management
accounting includes timely preparation and providing of financial statements of an organization
to the stakeholders (Englund and Gerdin, 2018). Moreover, this reports are generally developed
for the internal stakeholders of the organization that are not highly concerned towards report.
The management accounting report includes sales revenue generation, availability of cash,
present status of account receivable and payable and many more.
The origin of management accounting is in the form of financial accounting, also there is
high difference among these two. The management accounting is more advantages, therefore is
used widely. The difference among financial accounting and management accounting is given
below:
Basis Managerial Accounting Financial Accounting
Content It is associated to the both
forms of data that is financial
as well as non-financial.
Financial accounting is only
associated with the data that
consist of financial information.
Uses and Purposes Managerial accounting is
mainly used by the internal
stakeholders in order to take
appropriate decisions.
It gives information that are
essential for stakeholders of
organisation which facilitates
decision making associated to
interests.
Rules, Regulations and Laws It does not consist of any form
of law compliance as these are
developed only for the internal
management committee of the
The different rules as well as
regulations are to be monitored
and followed by the company
accountant at the time of

organisation. preparing these form of
financial accounts.
Auditing It is the tool used in order to
evaluate the performance of
organisation, taking corrective
measures and finding
deviations in order to overcome
with the issues (Horton and de
Araujo Wanderley, 2018). It
does not any form of
independent audit or external
interferences.
It includes the interference of
independent audits and external
parties such as revenue audits,
corporate audits and many
more. these are done in order to
comply rules as well as
regulations related with the
organisation.
The various accounting systems is mentioned below:
Cost accounting system: It is the procedure of analysing, reporting as well as recording
all the costs such as fixed, variable and semi variable which are occurred within the course of
business. In addition to this, it helped the management in gaining knowledge about the areas
which is required improvement and needs corrective measures. Cost accounting system is also
known as costing system and product costing system. It is determined that it facilitates the
organization to evaluate the cost of product, inventor evaluation and the profitability analysis.
The main reason behind using this cost accounting system is to enhance the net profit margin of
the organizations product.
Inventory management system: It is considered as a systematic approach of storing,
ordering as well as managing the inventory of raw material, other components and finished
goods within an organization (Johnstone, 2018). The inventory management system ensures right
stock on time, availability of right quantity, right stock and at right place. It also declined the risk
of inventory shortage due to which the proper procedure of supply chain as well as
manufacturing process is implemented in a smooth manner.
Job costing system: It is the procedure of assembling data associated to cost occurred
within a particular Along with this, it developed a specific order cost which is related to the
requirements of the customer. Moreover, it complies of particular product appliances, quantity

and other connected expenses arrived within the production process. The main objective here is
to calculate as well as an ascertain the losses and profit made on the particular product or job.
Price optimizing system: It is considered as mathematical procedure to determine the
price of a particular product. In addition to this, it assists in predicting the alterations within the
price and also find out the desired price that a customer is willing to pay in order to gain product
as well as services. Moreover, price optimizing system facilitates the company for using the price
as a powerful profit lever.
P2 Explanation of different methods used for management accounting reporting
Accounting plays an important role in providing the complete picture of organization
performance in comparison to the other industry trends. It is determined that an extensive
accounting report are based on the particular period of time which gives an aggregate view of
business finances. Accounting report involves financial information from the accounting
transaction giving information about profitability, operational cost, sales revenue and many more
(Kastberg and Siverbo, 2016). It also assists higher authorities’ in taking the right decision and
instruct them towards the path for attaining objectives as well as goals of an organization. Some
of the reports developed by the higher authorities for management accounting reporting are given
below:
Budget report: It is one of the fundamental form of report that assist business owners in
controlling an acknowledging the cost occurred within the workplace. It is significant to measure
the performance of an organization and develop of budget report help in analysing it in an
effective manner. A budget is mainly prepared on the basis of past experiences and the
instruction of managers in order to offer employees incentive, negotiation with vendors and
suppliers, cost cutting and so on. Moreover, a budget gives an estimation of the company
earnings as well as expenditure and also prepare the connect catering service is to deal with the
unforeseen circumstances that can arise at any point of time.
Job cost report: This report gives a basic view of the overall cost arise on a specific task
or project and also compare it with the expected revenue yield for that particular project. Along
with this, it assists in analysing the profitability of the particular project and optimizing the
operational procedure in order to develop it more profitable. Moreover, it facilitated in
evaluating the highest earning business areas and providing less emphasize on the business
earning low returns. Job cost report also help in investigating the expenses that take place within

a project in order to decline waste and control it for making it profitable and productive for the
company.
Inventory & manufacturing budget: It is the report that summarizes the quality of
inventory used by the organization in a given period of time. In addition to this, it assists in
centralization of information associated to inventory cost, overheads included within the
production procedure and the cost of Labour related with optimally assembling of raw materials
and transforming them into the finished product (Kostyukova, 2018). The aim is to make the
prediction procedure more effective and efficient that involved labour cost, inventory wastage,
overhead costs arise per unit on other similar cost.
Order information report: It assist management committee to evaluate the business
trends that impact on the efficiency as well as effectiveness in a positive manner. The order in
formation report includes the information about multiple orders gained by the organization. It
also helps in integrating different management operations for attaining cost leadership on the
received and placed orders.
Accounts receivable aging report: It give data I thought she did to the credit balance of
customers and also involved different category items like 15 days, 60 days, 30 days and 90 days.
Along with this, it also facilitated the aligning of organizations credit policy with the customer
paying capacity. The account receivable aging report breakdown the customer balance and the
period they are owned with. It is mainly used by the higher authorities’ in order to find the issues
associated the organization credit collection procedure.
Performance report: This form of report addresses the end result of the task or the
performance of individuals in relation to the work performed by him. It also acts as a baseline for
the performance standard, analysing the variances and also take corrective measures in order to
overcome with such variances. It also involves performing indicators such as task accomplished,
goals achieved, achievements made by the organization.
TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs

Preparation of income statements:
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Fixed Manufacturing Overhead per unit 6 5
10 9
Income statement under absorption costing
Particulars April may
Sales 16000 16000
Less: Cost of sales (2000*10) (2000*9) 20000 18000
Fixed Manufacturing Overhead 15000 15000
Variable Manufacturing cost (2500*4) (3000*4) 10000 12000
Closing stock (500*10) (1500*9) 5000 13500
Opening stock (500*9) 0 5000
Gross loss -4000 -2000
Less: Fixed Non-Manufacturing Cost -4000 -4000
Net loss -8000 -6000
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Particulars April May
Sales 16000 16000
Less: Marginal cost of sales 8000 8000
Variable Manufacturing cost (2500*4) (3000*4) 10000 12000
Closing stock (500*4) (1500*4) 2000 6000
Opening stock 0 2000
Contribution 8000 8000
Less: Fixed Manufacturing Overhead 15000 15000
Less: Fixed Non-Manufacturing Cost 4000 4000

Net loss -11000 -13500
Reconciliation statement:
Particulars April May
Net loss under absorption costing -8000 -6000
Less: Closing stock -3000 -7500
Net loss under marginal costing -11000 -13500
Working Notes
Marginal Cost of sales
Particulars April may
Opening Inventory 0 500
Add: Cost of production 10000 12000
Less: Closing inventory 2000 6000
8000 8000
2 a)
1. Fixed and variable costs
Fixed costs:
Activity Amount
Manager’s Salary 5000
Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000
£12000
Variable cost:
Activity Amount
Direct material costs per Pizza 3.50
Direct labour costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£5.50

2. Break-even point in units and in sales value
BEP (In units): Fixed cost/contribution per unit
Contribution per unit: Selling Price-Variable cost per unit
= 9.50-5.50
= 4.00
BEP: 12000/4
= 3000 Units
BEP (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/selling price*100
= 4/9.50*100
= 42.10%
BEP (In revenues) = 12000/42.10%
= £ 28503
4. Margin of Safety at sales of 3500 Pizzas
Margin of safety= Sales units - BEP in Units
= 3500-3000
= 500 Units
5. Effect on BEP in units and in sales value, in case of increase in manager's salary to
£6,000
If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New BEP (In units): 13000/4
3250 Units
New BEP (In revenues): 13000/42.10%
= £30878
2 b Preparation of graph:
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed CostCompanies prepare cost 12000

budget which is used to find variance in
actual cost incurred and budgeted target. Cost
budgets shall be flexible enough to
incorporate changes in targets as and when
they arise.
BEP point 28503
TASK 3
P4 Explanation of the advantages and disadvantages of various forms of planning tools used for
budgetary
The management accounting tools involved the procedure as well as techniques which
assist organizations managing committee to take effective and appropriate decisions. The Main
objective here is to enhance an improved performance, attaining strategic aims and objectives,
adding value within the organizational procedure and many more. there are different functions
executed by the management committee such as controlling, price fixing, planning and many
more that required different form of tools.
Firstly, planning of business activities is taking place on the basis of supervision and
observing functions. The tool which is used by the management is budgeting for the same.
Budget is basically an approximately forecasting of expenses occurred & revenue earned
through the organization within stipulated time period (Maas, Schaltegger and Crutzen, 2016). It
is a form of financial plan that defines the period, and also involved the money given or a sign in
order to attain particular object. The budget is mainly categorized into two forms that is
operational budget as well as capital budget. The few different budgets developed by the higher
authorities’ of connect catering services artist follows:
Cash budget: It is the estimated amount which involves the cash inflow as well as
outflow within a given time frame. In addition to this, it helps manage are in analyzing the nature
and source of flows. It also determines the cash availability and the allocation of it over a
particular time period.
 Advantages: It assist in avoiding the situation that is under or over liquidity which
impact on the flow of business operations.

 Disadvantages: It is determined that cash budget is prepared on the estimation and is not
accurate at every time. Along with this, it is rigid in nature and did not undertaken
uncertainty of the changing business environment.
Sales Budget: This form of Buzzard assists in forecasting the sales of organizations good
and services within a financial year or within a specified time period. In addition to this, it
assists in formulation of strategies that help in improving sales and enhancing profitability.
 Advantages: It is important to prepared sales budget as it helps in formulation and
execution of master budget within an organization. It also assists management in
estimating revenue earned by the sales of its goods as well as services.
 Disadvantages: It is stated that the business environment is uncertain and dynamic,
also the demand as well as supply of product and services is unpredictable, therefore
there is high probability of inaccurate sales forecast that results in over and under
production that may arise high loss to the organization (Messner, 2016).
TASK 4
P5 compare how companies are adapting management accounting system for responding to
financial issues
Financial problems are mainly the circumstances in which the company is not able to fulfil
its financial obligations because of insufficient funds or money is available to them. In addition
to this, it can happen because of high fixed operational cost, revenue sensitive the cause of
economic downfall, high level of non-liquid funds, poor busting and many more. Financial
problem is also an indicator of company's bankruptcy and causing a damage on its brand image
and credibility. The financial management involves effective capital structure development,
budget formulation and so on. If the higher authorities fail in managing any of the financial
management factors, then it may develop financial problems within an organization. Some of the
financial problems that arise are given below:
 Unwanted high cost: This issue is associated with the alteration in the cost occurred, that
results in decline in profit margin of organization. In addition to this, increase in cost can
be arise due to employee execution of activities not as per the requirements, uninterrupted
use of technology, non-execution of business operations and many more. All such
conditions can be hazardous and negative for the survival of company at marketplace. In

context to the prime furniture, it is a major threat as there is high competition within the
industry and to retain in market, they have to highly spin on marketing plan and action as
well.
 Decline sales revenue: In this financial issue, companies face high decline in sales
revenue because of decremented business operations which make them incapable to gain
profits and therefore results in decline of growth and success of company (Quattrone,
2016). In addition to this, the decline in sales will be continued in the coming years. The
main reason behind the decline in sales may be inappropriate pricing scheme, weak
marketing policies, weak commodity, high competition and so on. With reference to
prime furniture, the main reason behind decline in sales is inappropriate and inefficient
strategies of marketing.
Accounting techniques used for solving financial issues:
 Key performance indicators: It is the factor that is used in order to express the objective
an organization wants to attain. In addition to this, these are quantifiable values that
describes efficiency of an organization. The main emphasize here is on operational and
strategic planning, improving business processes and to enhance the efficiency.
Moreover, these are important standards which indicates the success and progress
towards the positive results. It also declines the complexities associated to the evaluation
of performance and give direction in order to gain awareness and taking appropriate
decision.
 Benchmarking: This accounting practices measures the procedure, product or services
of the company in comparison to the other similar organizations. It helps in identifying
and improving the performance gap in an effective manner (Shields and Shelleman, 2016).
It also gives an understanding about where the company lacks and what are the areas they
are required to improve. The main objective here is to ensure the improvement within the
performance of organization. Moreover, its aim is to analyze superior performance as
well as recognize procedure that is important in order to enhance the performance.
Benchmarking compared the business operations procedure as well as performance
metrics with the other similar company trends. The comparison is mainly done on the
basis of time, quality, cost and many more.

 Financial governance: It is another accounting technique that defines the way for
gathering, monitoring, managing as well as controlling the financial data of a company. It
is associated to the monitoring and tracking of all the financial transactions, data
controlling and performance management. Moreover, it is also related to the procedures,
policies and decision which influence on the health and life of company within the
financial terms.
Basis of Comparisons Connect Catering Services Floral Catering Services
Financial Issues The respective organisation
face issues as it does not earn
continuous revenue & have
high fluctuation over the years
which decline the level of
profitability.
On the other hand, Floral
catering service is enhancing
its operational capacity on
continuous basis but its market
share is not growing in the
same way, this develop issues
for the company.
Techniques for issue
recognition
By the assistance of budgetary
control techniques, the
organisation has a raised
operational cost which as a
result decline profit margin of
company which is a matter of
concern.
With using benchmarking as a
technique for the respective
organisation, it is determined
that the reason of lag in market
share covering is inappropriate
as well as ineffective
marketing tools & policies
developed by business entity.
Management Accounting
systems used
It is analysed that the cost
accounting system is the most
feasible and effective tool
which can be adopted by this
organisation in order to resolve
problem associated to the
increased cost. It helps in
In order to raise the market,
share of company, it is
important to offer unique and
different product as well as
service in market as it assist in
achieving competitive
advantage in comparison to its

facilitating cost estimation &
analyse the reason for raising
in cost. Moreover, o resolve
such problems corrective
measures is to be implement
by the higher authorities of
organisation.
rivals. Moreover, this can also
be resolve by declining the
price because of which
customers are able to buy its
services.
From the above all discussion, it has been determined that connect catering services is more
capable in resolving the financial issues with the help of management accounting tool and
systems. The internal management is abler to understand the concepts and working of MAS and
they have applied the application of these system in a defined systematic manner which support
to overcome the ongoing issues and also remove the reason which can lead to some major
financial problems.
Management accountants solving financial issues:
Management accountants have the combination of both leadership and management skills. It
exists company in developing financial statements, budget control, set pricing, management of
accounting tools as well as techniques and many more. All the above reports are developed for
the use of higher authorities (Soderstrom, Soderstrom and Stewart, 2017). Moreover, it assists
the management committee in formulation of policy and strategic planning which in turn help in
enhancing the financial health of a company.
Conclusion
From the above study, it has been concluded that management accounting plays an
important role in maintaining the financial health of an organization. In addition to this, it
integrates accounting techniques which facilitate the higher management committee of company
in attaining objectives and goals. Moreover, it aims to enhance the productivity and increasing
efficiency of the business operations in an effective manner. It is determined that the
environment in which the company operates an uncertain, competitive, dynamic and complex
and in order to deal with this it is important for an organization to make use of management
accounting tools in an appropriate manner. Furthermore, it is determined that there are various

accounting techniques that is used in order to resolve financial issues such as key performance
indicators, benchmarking, financial governance and many more.

REFERENCES
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