Management Accounting: Unit 5 Report on Financial Strategies

This report delves into the realm of management accounting, exploring its systems, reporting methods, and application in financial analysis. The report begins with an introduction to management accounting and its importance, followed by a detailed examination of various accounting systems such as inventory management, cost accounting, price optimization, and job costing systems. The report further investigates different management accounting reporting methods, including cost accounting reports, inventory management reports, budget reports, and performance reports. It then discusses the benefits of management accounting systems and their integration within organizational processes. The report also covers the preparation of income statements using absorption and marginal costing methods. Furthermore, it analyzes the advantages and disadvantages of planning tools like budgetary control and compares the application of management accounting systems in responding to financial problems, using Alpha Financial and Brightstar as case studies. The report concludes by highlighting how management accounting can lead organizations to sustainable success and evaluating planning tools for accounting periods to address financial problems effectively.

Unit 5
Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting system and essential for various kind of accounting system.........3
P2. Different method of management accounting reporting........................................................5
M1 Benefits of management accounting systems........................................................................6
D1 Management accounting systems and reporting are integrated with the organisational
process..........................................................................................................................................7
TASK 2............................................................................................................................................7
P3. Preparation of income statements with the use of appropriate techniques............................7
M2 Management accounting techniques and financial reporting..............................................11
D2. Interpretation of prepared financial statements...................................................................11
TASK 3..........................................................................................................................................12
P4 Advantages and disadvantages of various kind of planning tools of budgetary control......12
M3 Use of different planning tools and their application for preparing the budgets. ...............14
TASK 4..........................................................................................................................................14
P5 Comparison of entity due to adapting management accounting systems to respond to
financial problems......................................................................................................................14
Comparison between Alpha Financial and Brightstar...............................................................15
M4 Responding to financial problems, management accounting can lead organisations to
sustainable success.....................................................................................................................16
D3 Evaluate planning tools for accounting period to respond financial problems appropriately
....................................................................................................................................................16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is also known by the managerial accounting. This is so because
it is a kind of accounting system which is related to providing necessary information to the
managers of company so that they can manage their activities and operations in an effective way.
So basically, this accounting discipline is worth-full for internal stakeholders not for the
external. Herein, the project report various types of accounting system and accounting reports are
mentioned (Abdelmoneim Mohamed and Jones, 2014). Apart from it, different method of
costing are discussed to produce the income statements on given data as well as advantages and
disadvantages of planning tools are also included in project report. Along with use of
management accounting in overcoming the financial issues is also mentioned. To understand in
detail sense Brighstar financial limited company is selected. The company provides financial
consultancy services to multi-pal companies and their headquarters is at Essex UK. In the report
company's client company KEF manufacturing company is selected.
TASK 1
P1. Management accounting system and essential for various kind of accounting system
The management accounting system can be defined as a process of collecting, analysing
and presenting the quantitative and qualitative information to the users for the purpose of making
decisions about the best sourcing and use of funds in any business. Though this accounting
system is not mandatory to implement for the organisations, but it is becoming essential part of
the companies. There is various kind of accounting system which have their own importance.
The Bright-star financial limited company use various kind of accounting systems that are
mentioned below: Inventory management system- This is a type of accounting system which is associated
with the better management of the stock. Due to stock management system companies
can analyse the need of raw material as well as can take decision about the production.
As well as it informs about the availability of raw material in the stock. Eventually, it is
essential for having detailed proper record of inventories. Like the Bright star financial
company can suggest to their client KEF manufacturing company to manage their stock.

 Cost accounting system- It is a kind of accounting system that enables effective cost
management in the organisations. As well as due to this accounting system, companies
can compute the cost of various activities separately. Basically, this accounting system is
essential for the companies in reducing and controlling the cost of different activities and
operations (Bagautdinova, Kundakchyan and Malakhov, 2013). The Bright-star financial
limited company can guide their client company to use this system so that their
expenditures can be managed. Price optimisation system- The price optimisation system is a part of management
accounting system which is related to the fixing the prices of products and services at an
effective level. As well as on the basis of this accounting system, organisations can
understand the behaviour of their customer on different pricing level. So it is essential for
the assigning the right price of products and services. Herein, the aspect of Bright-star
financial company, they give advice to the KEF manufacturing company to determine the
price of their manufacturing products.
 Job costing system- The job costing system is a type of accounting system that evaluate
the cost or expenditures of revenue which occurs due to any specific job. So basically, it
is an accounting system which gives broad information regarding to the cost which is
related to any specific job. In other words, this accounting system is essential for the
computing the cost which is assigned to various jobs. This costing system includes
following information’s which are mentioned below:
Direct material cost- It is a kind of cost which can be traced with the unit of production. This cost
is being involved in the job costing system.
Direct labour cost- This cost is related to the labour involved in the manufacturing of products
and services. As well as this information is provided by the job costing system.
So the job costing system has valuable information regarding to the different kind of cost. Due to
this companies can aware about their overall expenditure related to each job assigned to different
activities. In Bright-star financial limited company, they suggest their client KEF manufacturing
company which can help in computing the cost of job.

P2. Different method of management accounting reporting
Management accounting reporting is based on recording information by managers at
workplace in order to communicate relevant information related to accounting system to
different departments as well as top level management. These reports are used while taking
critical decisions for the betterment of any organisation. In different company’s different
accounting reports are prepared and at the same time management accounting reports have their
unique role in any firm as these are significant for internal management for preparing strategies,
programmes as well as plans for future time period. Monetary along with non-monetary
information is used for the preparation of such reports. The client company of Bright-star
financial limited company prepares following reports:
Cost accounting report: It is a kind of report that includes information regarding to the
cost of different activities. Under such reporting system, information related to various costs is
recorded in systematic manner. It involves costs related to material costs, overhead costs, labour
costs and many more. This report is used for realizing prices of various items in order to estimate
profit margins (Bargate, 2012). This report provides a clear picture of associated costs of certain
items in production procedures. The aim of preparing this report is to control costs along with
improving efficiencies at workplace. In KEF manufacturing company, managers by using cost
accounting report identifies additional as well as unproductive costs in production or
manufacturing process which leads to assist organisation to optimise costs in order to increase
profit margins.
Inventory management report: Under this report, information related to available stock
at warehouses, products in transits as well as finished goods which are available for selling
purposes are recorded in appropriate manner. This report is prepared by production along with
warehouse managers to keep the record related with available and required stock in order to
provide strength to organisation so that they can supply products as per the demand in market.
The chosen client company prepares this report where all the necessary information in detailed
manner is provided related to stock of inventory. By providing such report managers can
improve inventory management by tracking cost of sold products as well as assist them to avoid
overselling along with underselling of products.
Budget report: Under this report, budget estimations are made on the basis of previous
experiences. These reports provide information related to all sources of expenditures or revenues.

These reports are used by Bright-star managers to measure actual performance by comparing
standard targets with actual results. By analysing this report, managers management
organisational performances as well as certain issues which hampers achieving estimated targets.
On the basis of budget report, important decisions are taken for allocation of funds in various
departments along with serious activities for future time period. Like in the KEF manufacturing
company they prepare these reports to manage their performance.
Performance reports: This report includes performance of each employee along with
departmental performance and managers review such performances at the end of accounting
period. Apart from it, the performance report consist particular standard of performance for
measuring the actual performance (Bloomfield, 2015). Due to this companies can compare their
actual performance of employees and other activities and can take suitable decisions. This report
helps KEF manufacturing company to take key decisions as well as strategies for future time
period. Manager of selected business uses performance report to analyse strength as well as
weakness in order to make strategic decisions for the betterment of firm.
M1 Benefits of management accounting systems.
There are different kinds of management accounting system and each of them plays a
crucial role in the context of all kind of organisations. The KEF manufacturing limited company
implements various kind of accounting systems which are beneficial not only for them but also
for their clients. Herein, below advantage of these accounting systems mentioned:
Type of accounting system Benefits
Inventory management system This accounting system is useful in effective
management of the raw material and finished
goods. On the basis of it, companies take
decisions about purchasing and production. In
the KEF manufacturing limited company, they
suggest this accounting system to their clients
who operates in manufacture sector.
Cost accounting system As name assists, it is helpful in computing
overall cost of different operations and

activities. Like in the KEF manufacturing
limited company, this is beneficial in having
information about cost of their financial
services and products.
Price optimisation This accounting system is beneficial in the
analysing the customer's reaction on different
prices of products and services. For example,
in the KEF manufacturing limited company, it
helps in the fixing the prices of their financial
services and products (Collis and Hussey,
2017).
Job costing system It is beneficial in the computing the cost of
each job which is assigned to different
activities. Like in the KEF manufacturing
limited company, it is very beneficial in
providing information about the cost of job.
D1 Management accounting systems and reporting are integrated with the organisational process.
The management accounting systems and reporting are related with each other. This is
why because for the preparation of the management accounting reports, necessary information is
gathered from the different management accounting systems (Demerjian and et.al., 2012). Such
as in the Bright-star financial limited company's client company, they produce reports like
inventory reports, cost accounting reports with the help of inventory management system and
cost accounting system. So basically, both are aligned with each other and it is commonly
integrated within the organisational process.

TASK 2
P3. Preparation of income statements with the use of appropriate techniques
There is various kinds of costing techniques for preparation of the income statements.
Such as absorption costing method, marginal costing method etc. Herein, absorption and
marginal costing methods are mentioned below:
Absorption costing method- It is a kind of costing technique in which fixed and marginal
costs are written off as cost of product.
Marginal costing method- This costing technique is different from the absorption costing
method. Under this method both the costs are considered in a different way (Demski, 2013). The
fixed cost is considered as the period cost as well as variable cost is taken as unit cost.
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000

Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Income statement under absorption costing method for month of May & June
Particulars May June

(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5

Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)

Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000
05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £
3.75 each 20 3.75 75. 49 3.4427 168.6923