Management Accounting Report: Lets Grow Company Analysis

This report delves into the realm of management accounting, focusing on its role in aiding companies, particularly Lets Grow, in making informed decisions amidst economic changes. It outlines the requirements and benefits of management accounting systems, including cost accounting, job costing, inventory management, and investment appraisal. The report examines various management accounting reports, such as sales control, debtor analysis, breakeven analysis, and master budgets, highlighting their significance in efficient functioning. It further explores planning tools like cash budgets and zero-based budgeting, evaluating their advantages and drawbacks for budgetary control. A cash flow analysis for Lets Grow over six months is presented, along with recommendations for improvement. Finally, the report addresses how management accounting systems can be utilized to respond to financial problems, providing a comprehensive overview of the subject.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
P1 Requirement and benefits of management accounting system...............................................2
P2 Management accounting reporting help the company in efficient functioning......................4
P4 Explaining the benefits and drawbacks of planning tools that can be used for budgetary
control..........................................................................................................................................5
P5 Assessing how company can use management accounting systems for responding financial
problems......................................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is referred to as that part of the accounting which assists the
company in taking the decision for the management of the company and effective decision
making (Van der Stede, 2017). This is very much essential for the reason that if the management
accounting helps the company to use the financial information and facts and figures in order to
use the information in taking care of the company and take effective decision for the betterment
of the company. The present report is based over the company Lets Grow which is
manufacturing company and who is facing some or the issues due to recent changes in the
economic environment.
Thus, for this the present report will outline the different requirement and benefits of
management accounting system along with some management accounting reporting. Further the
cash flow of the company for the next six month will be made and then recommendation on its
improvement will be made. In the end the financial problem will be dealt with help of
management accounting system.
MAIN BODY
P1 Requirement and benefits of management accounting system
The management accounting system is the one which help the company in taking the
decision for the betterment of the company by keeping the base of the financial information as
the decision making. There are many different types of management accounting system which is
being used by Lets Grow for the management of the company. These management systems are as
follows-
Cost accounting management- this is a type of system which assist the company in
managing the cost of the company. This is because of the reason that when the company uses the
cost accounting system then the company is able to allocate the cost of the company to the
different activities undertaken during the working of company (Laing, 2018).
Job costing system- this is another major important system being used by the company in
order to take proper decision. This is majorly used as this system assists the company in

allocating the cost to the different jobs being undertaken in the business for accomplishing the
objective and goal of the business.
Inventory management system- this is another important management accounting system
which assists the company in managing the flow of inventory within the business. The inventory
is referred to as the stock which is being used in the manufacturing process and this need to be
managed timely (McLaren, Appleyard and Mitchell, 2016). This is majorly because of the reason
that if this will not be managed on time then the company will not be able to manage the
production of goods and services on time and with good quality.
Investment appraisal system- this is a system in which the company in managing the
investment which the company can do in other companies and other investment options. This is
majorly important because of the reason that for growing the company has to make a lot of
investment in other options to earn extra income so that they can grow and develop. Thus, for
this the company uses the technique of the investment appraisal in order to find that which
investment options in more beneficial for the company and which is not. Thus, this assists the
company in managing the profitability of the company as if they will invest in good option then
this will increase the profitability of the company to a great extent.
All these different types of management accounting system is very helpful and beneficial
for the company as this will help the company in managing the work and cost in effective and
efficient manner. Thus, this will assist the company in ascertaining the cost in effective and
efficient manner. The major benefit of these system in the company is that this will help the
company in making the apportion of the cost of running the whole business in effective manner.
Also, this will assist the company in estimating the revenues earned by the company in proper
and effective manner and this will add to the profitability and goodwill of the company. Another
important benefit of this management accounting system is that this helps the company in taking
the decisions in effective and efficient manner (Van der Stede, 2016). This is majorly because of
the reason that when the company analysis the financial information of the company then they
are able to take effective decision and these decision are very helpful for the company in growing
and developing.

P2 Management accounting reporting help the company in efficient functioning
The management accounting report are the different types of reports which are being
prepared in order to record all the different data and information for the decision making and
future reference (Bento, Mertins and White, 2018). Thus there are many different types of
management accounting report which are being made by Lets Grow in order to record all the
relevant data for the effective decision making for the company. Also, the major important
reason behind the preparation of the management accounting report is that this will help
company in knowing the fact that the company is working as per the requirement or not. If not
than what the company can do to improve the working of the company so that they do the work
in intended and expected manner. Thus, the different types of management accounting reports
prepared by Lets Grow are as follows-
Sales control report- this is a type of report which is being prepared by the company in
order to see the data relating to the total sales of the company. This is majorly because of the
reason that all the record of the sales will be recorded in this report and this will also help the
company in order to outline the fact that at what time the sales were maximum. Thus, this will
assist the company in analyzing the reason behind the sales to be maximum. Thus, this report
will also assist the company in order to manage and predict the future sales on the basis of the
past sales.
Debtor analysis report- this is another major important report which is being prepared by
the company as this will help the company in managing the amount to be taken from the debtor.
Thus, this report will assist the company in recording all the data and information relating to the
debtor that is how much money need to take from whom so this information can be helped in
recalling all the people who need to pay the money.
Breakeven analysis report- the breakeven analysis is a point which will assist the
company to know that at what point of time the company will be in a position of no profit no loss
situation. This is majorly because of the reason that this will help the company in managing and
analyzing the level of the stock at which the company will be able to recover all the cost
(Järvenpää and Länsiluoto, 2016). This is majorly because of the reason that this the best and
optimal manner in which the company will be able to work in good and effective manner. Thus,

this report will help the company in knowing and analyzing the point at which the company is at
good position and the point at which the company is not in good position.
Master budget- this is another major important report which can be used and prepared by
Lets Grow in order to manage the profitability and working of the company (Gibassier, 2017).
This is a type of budget which will assist the company in aggregating all the different lower level
budgets which are produced in the functional area of company. Thus, this will assist the
company in managing the working of the entire functional department within the one single
budget only that is the master budget which will outline all the estimation of the different
department in the single budget only.
Thus, in the end it is said that all these different types of report are very helpful for the
company in order to manage the working of the company to a great extent. This is majorly
because of the reason that all these information will assist the company in managing the working
of the company in more effective and efficient manner.
P4 Explaining the benefits and drawbacks of planning tools that can be used for budgetary
control
In the context of business unit, from the perspective of attaining success planning is
considered as essential aspects. In this, there are several tools which ABC can employ for
planning purpose includes capital budgeting, cash and zero based budgets. Thus, using such tools
company can make assessment of business aspects and performance in monetary terms and
thereby would become able to get desired level of outcome or success.
Cash budget
It may be served as a financial plan which contains information about cash inflows and
outflows pertaining to the specific time frame. Cash budget clearly entails income that business
unit will generate from several sources such as sales, other receipts etc. Further, this budgeting
tool helps ABC in identifying the position of surplus or deficit after deducting all the expenses
from inflows.
Budget for the period of 6 months are enumerated below

Particulars
March (in
£)
April (in
£)
May (in
£)
June (in
£)
July (in
£)
August (in
£)
Cash inflows
Sales (received in
same month) 30000 36000 24000 28000 32000 34000
Sales (received in
following month) 96000 120000 144000 96000 112000 128000
Total sales or cash
inflows 126000 156000 168000 124000 144000 162000
Cash outflows
Less: expenses
Purchases 50000 50000 70000 80000 90000 100000
wages 30000 30000 30000 30000 30000 30000
Rent (paid quarterly) 12000 12000
Depreciation 2000 2000 2000 2000 2000 2000
Variable overheads 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000
Total expenses 134000 127000 150000 166000 166000 178000
Cash surplus / deficit -8000 29000 18000 -42000 -22000 -16000
Opening cash balance 20000 12000 41000 59000 17000 -5000
Closing cash
balance 12000 41000 59000 17000 -5000 -21000

Advantages
 Helps in avoiding debt level
 Clearly exhibits financial position in terms of deficit or surplus
 Gives clear indication about variances and facilitates performance improvement
Disadvantages
 Lack of flexibility
 It is prepared on the basis of estimation which in turn limits significance level
(Disadvantages of cash budget, 2020).
 Manager does not consider non-financial factors while preparing financial plan using
cash budget.
Zero based budgeting
This modern method of budgeting is highly effectual in which manager includes all the
expenditures after making evaluation of each possible alternatives and associated cost. ZBB
starts from scratch and manager assigns cost to each activity on the basis of needs and
requirements (Zero based budgeting, 2020). Thus, using ZBB manager of ABC can avoid
unnecessary funding and exert control on expenditure level.
Advantages
 Emphasizes on cost-benefit analysis and thereby eliminates unprofitable activities from
operations.
 Facilitates effectual resource allocation
 Ensures prominent communication and coordination within organizational departments
Disadvantages
 Time consuming practice because every line of item is evaluated for the purpose of
resource allocation.

 More clerical work involved
 Need to conduct training session for personnel so that they can prepare suitable budget
using ZBB
Thus, by taking into account such cash and ZBB ABC can do comparison of actual
performance in against to the set standards. By this, fir can assess deviations and thereby takes
significant action or measure for performance improvement.
Capital budgeting or investment appraisal tools
By using capital budgeting process manager of ABC can do evaluation of potential
investments for assessing their attractiveness in monetary terms. There are several investment
appraisal tools which firm can undertake for analyzing the suitability of capital project includes
payback, net present value, average and internal rate of return (Capital budgeting, 2020).
For instance: ABC has two options for an investment purpose with similar initial
investment. In this case, by applying capital budgeting tools manager can take suitable decision
about investment.
Net present value
Year
Cash
inflow
(Project
A)
PV
factor @
10%
Discounted
cash inflows
Cash
inflow
(Project
B)
present
value of
cash
inflows
1 10000 0.909 9091 14000 12727.3
2 18000 0.826 14876 22000 18181.8
3 15000 0.751 11270 17000 12772.4
4 25000 0.683 17075 32000 21856.4
5 38000 0.621 23595 43000 26699.6
Total discounted cash inflows 75907 92237
Less: initial investment 60000 60000
NPV 15907 32237

The above mentioned table clearly presents that project B will prove to be
beneficial for the firm as it has higher NPV. In this way, capital budgeting tool helps in assessing
the extent t which particular project will offer returns after specific time frame.
Advantages
 Assists in identifying risks and related effects
 Helps in avoiding over and under spending
Disadvantages
 Expensive and time intensive exercise
 Availability of competent manpower is not easy
P5 Assessing how company can use management accounting systems for responding financial
problems
With regards to business unit, managerial accounting techniques are highly prominent
which helps in detecting and resolving monetary problems effectually. Hence, benchmarking,
KPI, financial governance and balance scorecard are the main tools that ABC can undertake for
analyzing problems in the best possible way.
Benchmarking
According to this, ABC can identify and respond problems by doing comparison of
business processes as well as performance in against to the industry standards. Through this,
ABC can ascertain the extent to which it failed to comply with the standards. In this way,
benchmarking tool helps in doing specific modification in existing strategic and policy
framework (Benefits and drawbacks of benchmarking, 2020).
Advantages Disadvantages
 Facilitates execution of innovative
ideas from problem resolution
 Sometimes insufficient information
mislead results

 Ensures quality work by helping in
identifying essential activities
 Decreases employee morale and
motivation
Key performance indicators:
Every business organization sets some standards in relation to sales, profit, market share
etc by taking into account current trends and competitor’s performance. Thus, by setting KPI’s
related to such aspects ABC can compare its performance and assess loopholes accordingly.
Thus, referring cause appropriate action can be undertaken for improvement purpose.
Advantages Disadvantages
 Facilitates improved tracking and
monitoring aspect (Benefits of KPI,
2019)
 Ensures spotting of problem within
suitable time frame
 It is appropriate only for short term
goals.
 It is result oriented which in turn
decreases employee creativity
Balanced scorecard-
This is a technique of strategic planning which will assist the company in planning and
managing the whole system which will help the company in attaining the aims and objectives of
the company and the goals and mission as well. This is a technique which majorly focuses on the
development of the whole organization in overall manner as this will assist the company in going
for a balanced scorecard. Thus this method includes four different perspective or aspect of the
whole development of the overall company. This different perspective includes the financial
perspective, consumer perspective, internal perspective and innovation and learning perspective.
All these different types of perspective help the company in making a balanced growth and
development of the company in the direction of growth and development (Novas, Alves and
Sousa, 2017).

The financial perspective analyses the way in which the company takes care of the way
how the company looks at the shareholders and the need and requirement of the shareholder.
This is essential as if the shareholder will not be satisfied then it might be possible that the
company may not be successful. The consumer perspective includes the fact that what the
consumer feel about the company and whether the company is successful among the consumer or
not. If not then the company has to make or use some of the strategies for the use of the
developing of the interest of consumer within the company. The internal perspective on the other
side will assist the company in managing the internal process of the company in order to
maintain the working of the company (Järvinen, 2016). At last the innovation and learning is also
very essential for the company as the business exists in the dynamic and ever changing world
and because of this the company has to time to time bring innovation and learn all the new things
going on in the market. This is essential for the better working of the company as the consumer
will like the fact that the company is working by taking into consideration all the latest changes
and trends.
Hence, the balanced scorecard is very helpful for Lest Grow in order to deal with any sort of
financial problem and to solve it in proper and effective manner. Also, this will help the
company in increasing the profitability and productivity of the company to a great extent as this
technique ensures that the company is focusing on the overall development of the company. On
the contrary the KEF Ltd is using the technique if benchmarking but this is not much reliable and
valid. This is majorly because if the reason that this technique is not good if the other companies
are low in performance. This is majorly because of the reason that when the company does not
have better option to compare from then the company will not be able to compare the
performance as it is the best company.
CONCLUSION
In the end from the above discussion it is clear that the company need to use the management
accounting for the company as this assist the company in making the performance and take
decision in more effective manner. This is more important as the company can take more better
and good decision if the critically analyses the financial information. The present report
discussed about the different management accounting system like cost accounting, job costing
and many others. Also the different reports of management accounting were discussed like