Management Accounting System Application at Brightstar Financial

This report provides an analysis of Brightstar Financial's management accounting practices, focusing on the essential requirements of management accounting systems and the different reporting methods used by the organization. It includes an examination of inventory management, cost accounting, and price optimization systems, as well as budget, cost managerial, accounts receivable aging, and performance reports. The report also prepares income statements using marginal and absorption costing techniques and discusses the advantages and disadvantages of budgetary control planning tools. Furthermore, it compares organizations that adopt management accounting systems to solve financial problems, highlighting how these systems contribute to sustainable success. The analysis demonstrates how management accounting systems and reports are linked within organizational processes to achieve business goals and objectives. Desklib offers a range of solved assignments and past papers for students.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirement of management accounting system......1
P2 Different methods of management accounting reporting......................................................3
M1 Identify the benefits of management accounting system and it's application in the
organisational context.................................................................................................................4
D1 Critically evaluate that how management accounting system or management accounting
report linked within organisational process................................................................................5
TASK 2............................................................................................................................................5
P3 Prepare income statement by using marginal & absorption costing techniques....................5
M2 Management accounting techniques and financial reporting documents.............................9
D2 Financial reports which applies to interpret business activities............................................9
TASK 3..........................................................................................................................................10
P4 Advantages and disadvantages of different type of planning tools of budgetary control....10
M3 Use of planning tools for preparation and forecasting the budgets....................................12
TASK 4..........................................................................................................................................12
P5 Comparison of organisations in which they are adopting management accounting systems
to solve financial problems.......................................................................................................12
M4 Management accounting in response to solve financial issue that can lead to the
sustainable success....................................................................................................................14
D3 Planning tools to resolve the financial problems................................................................14
CONCLUSION..............................................................................................................................14
REFERENCE.................................................................................................................................16

INTRODUCTION
Management accounting also called managerial accounting where manager use the past
financial information to perform better in the future through developing various strategies. It is a
management tool which is used for the internal purpose and it will help the manager to identify
their day to day operational activities (Alsharari, Dixon and Youssef, 2015). With the help of
financial information manger develop a various strategies that further helps in decision making
process and make them capable to achieve their business goals & objectives. To be understand
better, this report chose the BRIGHTSTAR company it provide the financial solutions to their
clients in the UK market for direct consumer proposition. It provide lending solutions for
mortgage, finance for residential mortgage short term lending, loan lending market etc. It's
headquarter in Essex and also have three offices in across the UK's nation. This report include
the, management accounting & essential requirement of the management accounting system and
different methods used by the organisation for preparing accounting report. Along with this,
report include the calculation of income by use of absorption & marginal costing method and
advantage & disadvantage of planning tools. In addition, it included that how organisations face
the financial problem by using management accounting system or report.
TASK 1
P1 Management accounting and essential requirement of management accounting system
Management accounting is the managerial process which help the manager to handle the
information regarding their company's finance. In the management accounting, manager use the
financial information to develop various strategies that helps in decision making process. It is
used for the internal purpose that further profitable for the organisation to achieve their business
goals & objectives. In the BRIGHTSTAR company, manager use their past information of their
client which help them to develop further effective lending solutions to their customers (Arroyo,
2012).
Management accounting system help the organisation to perform their operational
activities in effective way. Where manager of the BRIGHTSTAR company adopt some of the
system that helps in achieving business goals & objectives. There are some different types of
manageable accounting system which help the company to manage their operational functions.
These are discussed below:
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Inventory management system: It is an inventory management process where
companies adopt this process or software to keep record of their inventory. In the
BRIGHTSTAR, manager adopt this system to generate their database of client information
which help then to identify their total client on regular basis. Because in the manufacturing
business company record their inventory level such as raw material but in the service sector
manager keep their customers record where they serve their services (Baars and et.al., 2015). It is
required for BRIGHTSTAR company because it provide the various solutions regarding lending
so they categories their lending options and maintain records according to different facilities
provided by the company to their clients.
Cost accounting system: This system help the company to identify their product cost of
each unite. With the help of this method manager can analyse that which variable cost is high
and low. It will provide the exact each unit cost of product so company identify their profit and
with the help of this manager develop further strategies which helps in achieving business goals
& objectives. Manager of BRIGHTSTAR company use this method or identify the cost of their
services which they provided to their clients. For example: - cost of proving mortgage loan to
individual so it important to know that what cost company have to bear to provide them loan and
are the benefit company get through this service. If it is beneficial then manager take decision
according to it and develop further strategies which helps the organisation to fulfil their business
objectives & goals. This costing system required for the organisation to identify their service
cost.
Price optimisation system: It is the mathematical program, where manager identify that
how different price range will change according to demand . After this, it will include with the
informations regarding cost and their inventory level which help them to measure their profit
through their product & service provided to consumers. With the help of this model, manager set
a range of price to the consumers and segmented by stimulation and then analyse how they
response to price change (Boons and et.al., 2013). In the BRIGHTSTAR company, manger
prepare different policies where they provide mortgage loan and differ them on the basis of
tenure, lending rate or amount. They provide various traditional or non-tradition lending
solution with the wide range of variation in their policies according to customer require. This
model required by the manager to achieve their goals & objectives through satisfying each
customer with the help of their cost effective financial solutions.
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P2 Different methods of management accounting reporting
Management accounting report include the various information regarding company's
finance through financial accounting. This report prepare for the further planning and it include
the performances of employees as well as organisation. It further help the manager of
BRIGHTSTAR in decision making process which helps in achieving business goals
& objectives (Management Accounting Report, 2017).
Budget Report: This report generate by the manager of the company to identify the
performance of their employees as well as organisation. It is critically measure the performance
through department wise and this report mostly prepare by the every organisation from large to
small size company. Such as BRIGHTSTAR is small finance provider company which prepare
this report on the basis of their past record. In this, manager include the source of earning as well
as expenses on the basis of each variable and try to complete their task within budgeted amount.
Manager try to follow budget which help the organisation to achieve their mission or goals. It
will also help the manager to provide better incentives through cutting of cost or increase the
profit margin.
Cost Managerial Accounting Report: This report include all factors related to the cost
of product & services. It will provide the overview of product cost to the manger or if it is more
then budgeted then they try to reduce the cost to increase the profit margin. This report include
the variable, semi variable or fixed cost which is used at the time of providing services to their
customers. In the BRIGHTSTAR, they offer various services to their clients so firstly they need
to identify the cost of their services. In this organisation, salaries of their agents, rent of building
etc are fixed cost and other expenses such as travelling, telephone, stationary etc are the variable
cost which is changed according to their work (Brennan and Merkl-Davies, 2013).
Account Receivable Aging Report: This report prepare by those organisation which
deals in the credit mode where they have creditors so they have to prepare this report. It will help
in the future at the time of collecting money. With the help this report manager of
BRIGHTSTAR can identify the defaulter who not done their payment. Very small organisation
not prepare this report because they don't need to prepare but other this company prepare this
because they provide financial services . Where monthly instalments of mortgage loan required
to pay by the client so they can't recognise individual due date for the payment of their EMI. So
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basically this report is beneficial for the financial service organisation to maintain their clients
information in the database.
Performance Report: This report help the organisation to identify the performance of
company as well as their each employee after completion of any task. Manager of the
BRIGHTSTAR use this report to take effective or strategic decision for the future purpose. With
the help of this performance report manager can easily measure the potential and able to identify
that who get the reward on the basis of their remarkable performance (Cooper, Ezzamel and Qu,
2017). It also help the organisation to know about their workers capabilities and their potential
area where they work well and help the business to achieve their objectives & goals.
M1 Identify the benefits of management accounting system and it's application in the
organisational context
Management Accounting
System
Benefits
Inventory management
system
 Effective inventory management system help the
BRIGHTSTAR to maintain their client database with
the full of accuracy.
 Updated database of customer will help the manager to
build strong strategies that further help the company to
achieve their business goals & objectives.
Cost accounting system  It help the manager to save their cost through this
method.
 With the help of this method, manager reduce the cost
which increase the profit margin of the company.
Price optimisation system  Help the manager to develop different strategies
according to demand of customer.
 It will help the company to identify the behaviour of
their clients.
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D1 Critically evaluate that how management accounting system or management accounting
report linked within organisational process
Every business required to adopt some management accounting system it will help the
organisation to perform well in their operational activities. BRIGHTSTAR company include
various activities such as they required client information so inventory management system help
through managing client database. So manager prepare various report to analyse the their
performances and take decision according to it (Hasniza Haron, Kamal Abdul Rahman and
Smith, 2013). In the organisation, manager use the budget or performance report which help in
measuring employees performance in the business process. As well as follow the budget report
to maintain their spending on each variables which help to increase their productivity as well as
profitability. That further helps in BRIGHTSTAR to achieve their business goals & objectives.
TASK 2
P3 Prepare income statement by using marginal & absorption costing techniques
Absorption Costing: Absorption costing method is used to identify the cost which
associated with the production process and calculate for each unit product. It is not only include
the cost of goods sold but it also include the manufacturing overheads either it is fixed or
variable. Both cost included in this costing method because of that it is called full costing
method. This costing method include the various cost which required at the time of product such
as direct material, direct labour, variable production overheads and fixed overhead. In addition it
include the fixed & variable selling and administrative cost (Absorption Costing Method, 2019).
Marginal Costing: It is the method where variable cost considered as product cost and
fixed cost consider as period cost. It is costing technique where variable cost per unit change
according to the change in production but fixed cost is still the same. In this costing method, cost
are divided into two parts first one is variable cost and second one is fixed cost (Hopper and Bui,
2016).
By use of different costing method such as absorption & marginal costing method
accountant prepare it's income statement and the calculation is written below:
Income statement by Absorption Costing:
Particular Amount
Sale(10000*25) 250000
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Less: - Cost of goods sold
Material Cost 50000
Labour Cost 30000
Variable Cost 20000
Fixed manufacturing overheads 40000 140000
110000
Less: - Selling & Administration Expenses 60000
Income from Absorption costing 50000
*Working Notes: -
Price per unit = 25
Sold units = 10000
Selling & Administration Expenses = Variable Selling & Administration Expenses + Fixed
Selling & Administration Expenses
= 30000+30000
= 60000
Income statement by marginal Costing:
Particular Amount
Sale 250000
Less: - Marginal cost
Direct material 50000
Direct labour 30000
Manufacturing overheads 20000
Variable Selling & Administration overheads 30000 130000
Contribution 120000
Less: - Fixed Cost
Fixed manufacturing overheads 40000
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Fixed selling & administrative Expenses 30000 70000
Income from Marginal costing 50000
*Workings Note: -
Price per units = 25
Sold units = 10,000
Sale = Sold unit * per unit cost
= 10000* 25
= 250000.
Income from absorption costing is 50000 and from marginal costing is also
50000. Cost of goods sold (COGS) is 140000 on the basis of absorption costing which include
the direct material, labour, variable or fixed overheads and fixed manufacturing expenses of the
product is 60000. Similarly in the marginal costing method, marginal cost of the product is
130000 and fixed cost is 70000. Net income is same on both cases by using different methods of
costing (Marginal Costing Method, 2019).
Income statement through absorption costing method (When 5000 unit Sold):
*Working notes: -
Price per units = 25
Sold units = 5000
Sales = (5000*25)
= 125000
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Cost of goods sold (COGS) = 50000+30000+20000+40000
= 140000
Selling and Administrative Expenses = Variable selling and administrative expenses+ Fixed
selling and administrative expenses
= 30000+30000
= 60000
Income statement through marginal costing method (When 5000 unit Sold): -
*Working notes: -
Price per units = 25
Sold units = 5000
Sales = 5000* 25
= 125000
Marginal cost of sales = 50000+ 30000+ 20000+ 30000
= 130000
Calculation of fixed cost = 40000+30000
= 70000
Interpretation: - It has been interpreted that from the above calculation is when
company sold the 5000 units they bear the loss 75000 through marginal costing method and
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145000 by using absorption costing method. Because fixed and variable cost are more the sale of
good. Sold units are less but there is no change in the cost which company have to bear at the
time of production.
M2 Management accounting techniques and financial reporting documents.
Management accounting techniques are important in preparation of financial reporting
documents. With the help of these accounting techniques different financial reporting documents
like income statement, ratio analysis becomes possible. This is why because these accounting
techniques have all the financial informations which becomes basis of preparation of financial
statements (Klychova, Faskhutdinova and Sadrieva, 2014). The Bright star financial limited
company use a variety of management accounting applications and techniques that consists
required information in the preparation of financial reports. Company produce income statements
with the help of offered information by accounting techniques.
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D2 Financial reports which applies to interpret business activities.
Financial reports shows the all kind of business activities in the financial form. In
addition these reports reflects the financial position of the companies. In the absence of financial
reports an organisation can't judge the actual condition of their activities. Apart from these
features, financial reports have a link to show the business activities including financial and non
financial activities in conclusion way. Financial statements includes income statement, profit and
loss accounts etc. Herein, the Bright star financial limited company prepares a range of financial
reports and statements to check their business activities efficiency and profitability.
TASK 3
P4 Advantages and disadvantages of different type of planning tools of budgetary control.
Budgetary control- Budgetary control is a kind of system which is related to the
analysing the actual result by comparing with budgeted targets. In this technique different types
of budgets are prepared to control the various kind of costs. The main objective of this method is
to control and manage the business in most efficient and effective manner as well as better
utilisation of all kind of resources including human, financial and many available resources
(Maskell, Baggaley and Grasso, 2016). Bright star financial limited company implements this
technique to manage and control their business in best ways. For this purpose they prepares
many kind of planning tools which are mentioned below:
Budgets- Budgets are the estimation of future income and expenses for a particular time
period. Basically, these are prepared on the basis of past budgets or financial activities. This tool
is very beneficial for measuring the actual performance of companies for a particular time
period. In addition, budgets are important for not only organisations but also for governments,
families etc. Mostly budgets are made for time duration of one year. The selected company
Bright star financial limited company use this tool in measuring their financial performance as
well as for making future plans and policies to achieve the estimated goals. This technique has
some advantages and disadvantages which are following:
Advantages-
 Budgets are helpful in planning of future activities like fund planning, different strategies
etc. The above company makes the financial plan on the basis of budget.
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