Management Accounting Report: Financial Problems and Solutions

This report provides a comprehensive analysis of management accounting principles and their application within Unicorn Limited, a small-scale retail business. It explores the essential requirements of different management accounting systems, including throughput accounting, cost accounting, job costing, and inventory management systems. The report delves into various methods of management accounting reporting, such as financial planning, operating budgetary reports, job cost reports, financial statement analysis, performance reports, inventory management reports, cost accounting, and sales reports. It highlights the benefits of management accounting, such as expense reduction, improved cash flow, effective decision-making, and increased financial returns. The report also addresses financial problems faced by the company and suggests solutions, emphasizing the importance of key performance indicators and budgetary tools. The conclusion stresses the significance of management accounting in organizational development and decision-making, ultimately enhancing the firm's performance in the market.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting system........................................................................................................................1
P2 Different methods used for management accounting reporting.............................................3
M1 benefit of management accounting system...........................................................................6
P3 Calculate cost using appropriate techniques of cost analysis to prepare income statement
and also explain difference among management accounting......................................................6
M2) Management accounting techniques and financial reporting documents..........................11
P4 Advantages and disadvantages of different types planning tools used for budgetary control
....................................................................................................................................................11
M3: Use of different planning tools...........................................................................................13
P5 Uses of management accounting system to respond financial problems.............................13
M4: Responding to financial problems......................................................................................16
CONCLUSION..............................................................................................................................17

Financial Report
To
General Manager
Unicorn limited
Date: 5 April 2017
Subject: reporting on management accounting tools and financial problems
According to the report it has been found that cost of the company is too high, it is because
managers are not taking support of tools and techniques effectively. Managers have to take
support of absorption costing method this can give accurate results to them. Furthermore, to
resolve financial problems of the organization, it is required to take support of key performance
indicators and budgetary tools. These are effective techniques and can help in improving
performance of the Unicorn.

INTRODUCTION
Management accounting is the supply of data and advices that helps in organisational
development of company and decision making and thus enhance the working of firm in market.
Thus, it provides managers with information regarding procedures of non financial and financial
decision making (Saladrigues and Tena, 2017). American Institute of Certified Public
Accountants (AICPA) considers management accounting as a practice that provides financial
and statistical informations to mangers which aids them in taking short term or important
decisions so that best practice could be carried out. Management accountant within firm plays a
significant role in undertaking different rules and regulations and follow appropriate accounting
standards to maintain financial information (Weygandt, Kimmel and Kieso, 2015).
Here, Unicorn Limited has been selected which is a small scale retail business. It
comprises of a workforce of 50 employees. Also, the company’s annual net turnover is within
Pound 500,000. In the current era, a significant contribution is made by management accounting
in the business functions. As a result of this, decision making could be made in an effective and
efficient way. However, business also focuses upon keeping track of their performance and take
effective decision related to cost that has been led through traditional financial accounts
(Horngren. and et.al, 2010). .
TASK 1
P1 Requirements of different management accounting systems
As per the Institute of Management Accountants its is considered as the profession which
involves partnering within management decision making and thus carrying out planning and
performance management systems so that financial information could be maintained within firm.
It also helps managers to formulate and implement business strategy (Kaplan. and Atkinson,
2015). It also helps them in interpreting and analysing the accounting information that aids in
effective decision making process. The objectives of management accounting are as follows: Strategic management- This process includes blending strategic business objectives with
management accounting that helps manger and its team to make effective business
decision. (Deegan, 2013).
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 Performance management- Further, it is another practice that assists management
accounts to participate in business decision making and also manage the performance of
firm (Bhimani. and et.al, 2013).
 Risk management- Management accounting plays an important role to identify, measure,
manage and report the involved risk. It ultimately helps in attaining the goals of the
business in effective way (Chenhall and Moers, 2015).
Advantages of management accounting:
 Reduction in the expenses: Management accounting will help Unicorn Limited, in
reducing their operational expenses. It provides them information regarding economic
resources and other involved business operations, which gives understanding regarding
how much is utilized in running company.
 Improvement in cash flow: Management accounting provides general mangers with
budget aspect, which aids Unicorn Limited company in preparing the master budget for
future business expenditures (Horngren. and et.al, 2010).
 Effective decision making: Management accounting acts as tool for Unicorn Limited and
helps General mangers in effective decision making.
 Rise in Financial returns: On the basis of consumer demands and potential sales,
management accounting provide help to general manager in preparing the financial
forecast for Unicorn Limited.
However, management accountant within Unicorn Limited focuses upon
undertaking different decisions related to availability of cash, inventory management,
outstanding debts, etc. Thus, preparing and recording proper information results in undertaking
appropriate financial decisions that results in achieving desired targets (Kotas, 2014). The
different types of management accounting systems have been enumerated below- Throughput accounting system- It is one of the typical costing process within traditional
management accounting system. Management accountants within Unicorn focuses upon
identifying the restrictions within the production system of firm (Saladrigues and Tena,
2017). Thus, through minimizing such constraints it results in providing various facilities
to business and enhance their production volume.
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 Cost accounting system: It is the process by which company can estimate the cost of its
products for inventory valuation and control of cost. It can help Unicorn Limited in
checking the accuracy of their financial accounts (Englund. and Gerdin, 2011). Job costing system: It helps in providing manufacturing cost to all the individual and
batch products. Through this General manager of Unicorn Limited can calculate the
expenses that is required for labor and materials. Inventory management system: This system is manged by sophisticated applications that
created to effectively manage highly complex inventory plans. It will help General
manger of Unicorn Limited firm to maintain the balance of products stock in the
warehouses (Ambe, 2016).
 Price optimization: It the analysis by company to regulate how consumers gonna respond
to various prices of its products. Through this Unicorn Limited can focus on the different
goals such as margin and sales volume of units.
P2 Methods for management accounting reporting
The discussion of the different methods of management accounting has been done below:
Financial planning-
Main purpose of each and every business is to carry out financial planning and thus maximize
the profits so that set results could be attained. However, if company has sound economic
planning that it would help in gaining high profit and that would develop brand image of the
organization (Romano, 2015). With the assistance of sound planning Unicorn Limited will be in
position where it can minimize its unproductive variables and can improve its economic
performance.
Operating Budgetary report:
Operating budget report support in allocating resources properly. Individual can make
effective control over unnecessary cost and can increase cash inflow in the business. It is
essential method of management accounting, with the help of this tool companies can measure
their business performance and can make necessary changes which can support in improving its
performance. Budget report helps in allocation of resources so that unnecessary expenditures can
be minimized. Budget is one of the critical aspect on business operations. Good and accurate
budget can support organization in accomplishing their objectives significantly (Deegan, 2013).
With the help of budgetary report Unicorn Limited can make comparison between actual and
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expected budget performance of company in specific fiscal year. If there is huge difference
between expected and actual budget that can cause loss in the entity. All records are entered into
income statement and balance sheet of the company. On the bases of these reports cited firm
prepare its budget for next financial year (Chenhall and Moers, 2015. With the help of this
method managers of Unicorn Limited can get indication where to invest and how much
investment can be profitable for the cited firm. If organization uses this technique effectively
then it can help in minimizing the financial risk of the corporations (Ambe, 2016).
Job cost report
Job cost reporting is another method of management accounting that support the
managers in identifying cost of each job. This helps in improving working progress and
identifying the variance in estimated cost and actual cost. It supports in tracking the each cost
which are related to the business operations so that unnecessary expenditures can be minimized.
Financial statement analysis:
It is another method that is used by the organizations of management accounting reporting.
Balance sheet and income statement are two main records which are necessary to prepare by
limited firms. By analysing these statements Unicorn Limited can collect important information
about expenses of previous year and areas in which company has generated high profit
(Saladrigues and Tena, 2017). By this way organization will be able to analyses its market
position and will be able to make effective strategies that can help in increasing revenues and
fulfilling the objective of the company.
Performance report
It is considered as one of the effective tool that helps in management accounting.
Management can take support of performance review and can compare it with the previous
performance and with the competitor performance. This can support in identifying loop fall in
the system and managers can make necessary changes in its accounting system so that
performance of the organization can be improved.
Inventory management report
It is another method of management accounting in which managers have to look upon the
report of inventory. Total management of assets can help in analysing the financial performance
of the company. If inventory are not being utilized properly and if company is unable to generate
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funds by using assets it means accounting techniques of the firm is poor. By using this method
entity can improve its performance to great extent.
Cost accounting:
It is one of the important toll that supports in gathering information, classifying activities,
summarizing and allocating resources (Kaplan. and Atkinson, 2015). Through this company can
make effective control over its cost and reduce operational cost of the entity. By gathering these
details management of Unicorn Limited can identify unnecessary expenses and can make plan
for future development. With the help of this method cited firm can collect information about
production cost, process cost and department wise costs (Chenhall and Moers, 2015). After that
it can calculate deviation in order to improve business performance of the company.
Sales reports:
It is one of the important tool of management accounting report in which companies gather all
information about sales of previous year. It provides in depth information about cost of per unit
sales (Ambe, 2016). With the help of this method Unicorn Limited can find out gap between
expected and actual sales volume. That would help cited firm in making effective strategies for
improving the business performance of the company. With the assistance of sales reports
company can find out that if there is continuous declining sale records that means organization is
not providing satisfactory products to consumers (Romano, 2015). That would help in improving
the process so that cited firm can get high profit and can gain competitive advantage.
These management accounting system is beneficial for the organizations.
One of the main advantage of using management accounting reports is the it supports in reducing
the expenses of the company. In these techniques company review the expenses and other
resources of the organizations (Deegan, 2013). It can develop better understanding about the cost
of the organization thus managers of Unicorn Limited can make plan to reduce expenditures of
the organizations. In addition to this, this can help in improving cash flow in the entity. By
minimizing unnecessary expenses of the company, Unicorn Limited can improve its cash
inflow. By this way cited firm will have sufficient working capital for further development of
organizations (Kotas, 2014). Unicorn Limited takes support of these management accounting
system in order to enhance its financial returns. Forecasting related to future expenses and
consumers demand can be done effectively thus, cited firm can make sound planning for further
development of the corporations. These are the significant tools that supports entities in
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managing their risk and minimizing them. That supports management in improving the business
performance and to enhance profitability and suitability of the organization to great extent. It is
concerned for planning and help in delivering effective operations so that company can get
benefited and can get optimistic outcome.
Performance report:
It is prepared by combining budget and cost report of entity. It is the management
accounting tool that assist in measuring overall performance of the organization and minimizing
issues. Through this report management can compare their standards and expenses with their
competitors. That will support in making effective strategies which can help in improving
business performance.
M1 benefit of management accounting system
Management accounting supports the organization in effective allocation of resources and
tracking the each cost. Management accounting is beneficial tool that helps in effective
utilization of resources and reducing expenses of entity. With the help of cost report and budget
report Unicorn Limited can easily improve its cash inflow (Romano, 2015). Because these
techniques are able to manage cash flow in the organization effectively. By this way entity can
make sound business decision which supports in its growth and gaining competitive advantage.
The main benefit of applying management accounting tools in Unicorn Limited is that to
increasing financial returns.
P3 Calculate cost using appropriate techniques of cost analysis to prepare income statement and
also explain difference among management accounting
Income statement is a financial statement through which organisation can effectively analyse
their financial position so, they can understand its effectiveness. Therefore, they can easily able
to know its position through net profit / loss in the profit and loss statement. It is mainly dividend
into two major parts that is revenue and expenses that are come from operating and non-
operating activities of a company. Thus, it can be prepared on the basis of two costing techniques
that are marginal and absorption costing. The marginal costing can be define as there is an
increment as well as decrement or change in the opportunity cost it can be due to production of
extra units produced. Beside this, there is an another techniques that is absorption costing in that
it takes both variable and fixed cost due to which it can be said that it is a type of full costing.
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The Unicorn limited company adopting both the costing techniques are the marginal and
absorption for the purpose of preparation of income statement. These are describe as follows-
INTERPRETATION:
From the above Table1 and Table2 there is an income statement has been prepared
through marginal and absorption costing. Therefore, the information from the both table it has
been seen that sales are to be taken in both income statement same that is £21000.Furthermore,
for the purpose of preparation of income statement they deduct cost of goods sold from the sales
revenue that is £6600. Thus, it can be calculated by take all such values are the direct material,
labour, variable production overhead and fixed production overhead. Thus, after calculation of
gross profit in the income statement by using marginal costing technique they take only variable
expenses and ignore the fixed expenses. It involve both variable production overhead £1200 and
£600 in the variable sales overhead. From this, there is an total variable expenses incur that is
£1800 that are deducting from the sales revenue minus cost of goods sold then there is an net
profit determined. On contrast to this, the cited company adopts the absorption costing
techniques in which they calculate the net profit but there is a vast difference among these that
are explained further. They will consider both types of expenses that are fixed and variable
expenses for the purpose of calculating net profit. Thus, in the marginal costing techniques the
cited company take sale revenue same and cost of goods sold that is £2100 and £6600
respectively. Regard to this, there is little difference from the absorption costing is that it takes
both total variable and total fixed expenses that are £1800 and £5100. For the purpose of
calculating net profit it takes both type of expenses is deduct from the sales revenue minus cost
of goods sold that is £9300. It has been asserted that from the both techniques in which the
marginal costing have a higher net profit than the absorption costing as it does not takes both
type of expenses.
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There is a lot of research has been done in which it has been said that the absorption
costing is more suitable than the marginal costing. It is only because it consider both type or
expenses that is fixed and variable expenses due to which accurate net profit can be accurately
determined.
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Difference among marginal costing and absorption costing techniques
Basis of difference Marginal costing Absorption costing
Meaning  The marginal costing
can be define as there
is an increment as
well as decrement or
change in the
opportunity cost it can
be due to production
of extra units
produced.
 There is an another
techniques that is
absorption costing in
that it takes both
variable and fixed cost
due to which it can be
said that it is a type of
full costing.
Cost recognition Under this marginal costing it
takes both type of cost that
are fixed and variable
expenses
Under this absorption costing
techniques it will take all
fixed and variable expenses
Profitability calculation With the help of profit
volume ratio the net profit
can be calculated
The company takes all the
expenses are the fixed and
variable due to which there is
a variation in the
organisation’s net profits.
Variation in net profit Under this marginal costing
the is high variation in this as
it only consider variable cost
Under this method these is
less net profit incur due to
only it take both the expenses
such as fixed and variable
expenses.
Cost recognition Under this marginal costing
the calculation among net
profit is more as it the cost is
not highly impact if there is
any variation in opening and
closing inventory.
Under this absorption costing
method it will highly
impacting if there is any
fluctuation in the opening as
well as closing stock.
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