Management Accounting Report: Systems and Methods for Her Co. Ltd.

This report provides a detailed analysis of the management accounting practices at Her Co. Ltd., a UK-based plastic product manufacturer. It begins by exploring various management accounting systems, including transfer pricing, cost accounting, process costing, budgetary control, job costing, batch costing, inventory management, and price optimization. The report then examines the different methods used by Her Co. Ltd. for management accounting reporting, such as payroll reports, job cost reports, budgeting reports, sales and revenue reports, and manufacturing reports. A key section of the report focuses on the calculation of net profit using both marginal and absorption costing, highlighting the differences between these two methods. The analysis includes the preparation of income statements using both approaches and a comparison of their outcomes. Finally, the report assesses the advantages and limitations of various planning tools used for budgetary control within Her Co. Ltd., concluding with an evaluation of the adoption of different management accounting systems to address potential shortfalls. The report provides valuable insights into the financial management strategies of Her Co. Ltd. and the practical application of accounting principles in a business context.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Several kinds of management accounting systems and their essential requirements in Her
Co. Ltd....................................................................................................................................1
P2 Different method which are used by Her Co. Ltd. In management accounting reporting
system.....................................................................................................................................3
TASK 2............................................................................................................................................4
P3 Calculation of net profit with the help of marginal and absorption costing......................4
Difference among marginal and absorption costing methods................................................6
TASK 3............................................................................................................................................7
P4 Advantages and limitations of various planning tools which are helpful for budgetary
control.....................................................................................................................................7
TASK 4..........................................................................................................................................11
P5 Assessing adoption of different management accounting systems by Her Co. Ltd in order
to combat shortfalls..............................................................................................................11
CONCLUSION..............................................................................................................................14
........................................................................................................................................................15

INTRODUCTION
Accounting is an integral process of every business organisation which helps to identify,
record, classify, measure, summarize, verify as well as interpret various financial transactions
and informations of the firm. Further, it is very necessary to manage such financial transactions
in order to improve financial performance of the business entity. The study is based on Her
Company Limited which is based on the UK country and producing different kinds of plastic
products. The report describes about different types of management accounting systems and
approaches which are helpful for the entity. Further, the report analyses about methods which are
used by Her company limited for managing accounting reports at the workplace. It shows
preparation of income statement for determine net income or profit with the help of absorption as
well as marginal approach of costing. At the last, present study shows various tools of planning
used for control over the budgetary at the workplace of Her company limited.
TASK 1
P1 Several kinds of management accounting systems and their essential requirements in Her Co.
Ltd.
Management accounting systems are important part of the company such as Her Limited
which helps to fulfil requirements of business and achieve goals and objectives in effectual way.
In the business process various systems of management accounting used by the firm are
explained as below: Transfer pricing: Level of price at which a parent company sales its products and
services to the subsidiary firm for consume and further production process is known as
transfer pricing. When compare with the market price and transfer price amount is always
higher in the market. Motive of the companies while selling services and products in the
market is to earn and maximize level of profit (Andor, Mohanty and Toth, 2015.). On the
other side, the parent company not selling goods and services to subsidiary for maximize
profit. The respective management accounting system requires for Her Limited in order
to reduce total cost of production and provides goods at the lower prices compare to
rivalry firms. Further, more number of users attract towards it and helps to generate
higher sales and yield at the end of year.
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 Cost accounting: The approach of management accounting where different kinds of costs
and expenditures are to be analysed and helps to Her limited to determine cost of per unit
is identified as cost accounting. When the business entity adopt accounting system such
as cost at the workplace then highly able to determine total expenditures incurred in the
producing goods and services. When the level total cost is higher, then the company able
to take corrective actions for overcome such kinds of problems and obstacles. Higher the
level of expenses are lead to increase prices of products and services in the market.
Ultimately less number of customers will attract and reduce profitability ratios at the end
of year. Process costing: According to the respective management accounting system company
requires to know every phases of production and operation process (Bierman Jr and
Smidt, 2014). Here management of Her Limited can know that at every stage of
production there are how many costs is incurred and what is level of output. If at
particular stage it can be found by managers that costs incurs higher, then it makes
strategies to control over the expenses.
 Budgetary control: At the last it management accounting approach where Her Limited is
easily determined that how many expenses will be incur in the future along with disposals
(Venkatesh, 2016). Here it can know net cash balance and financial performance in the
overall plastic industry at the end of current and future accounting periods.
 Job costing system- This is a system for assigning manufacturing costs to an individual
product or batches of products. Generally, the job order costing system is used only when
the products manufactured are sufficiently different from each other.
 Batch Costing system- It is also known a order costing system, in which costing of jobs
are implement on the specific orders. There are two type of costs which are used in batch
costing such as set up cost and carrying costs. Thus, by using batch costing it help the
organisation to make effective control on each unit of cost.
 Inventory management system- This system of costing is help to track the inventory such
as orders, sales and deliveries etc. It also used in manufacturing industry so that it will
help to create a work order, bill of materials and various kinds of order document.
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 Price optimisation system- This system is used to analysis the cost by using mathematical
analysis. It help to determine the response of the customers at different price. It also used
to determine the price that the company determines will best meet its objectives for
maximizing their operating profits.
P2 Different method which are used by Her Co. Ltd. In management accounting reporting
system
Accounting report helps to the company in order to record various kinds of financial
transactions and informations in structured and proper way. Further, when all the financial data
are in a structured form then it highly able to determine position of it in overall plastic industry.
When there are all the small reports are gathered by manager then it able to prepare different
financial statements (Kaplan and Atkinson, 2015). Moreover, methods and reports prepared by
Her limited for management accounting reporting are described as below: Payroll report: The report where different kinds of expenses related to the paying, wages
and salary of employees are recorded is known as payroll report. Here each and every
costs and expenditures which are associated with the people and worker of Her limited
are to be recorded. With this it able to determine total cost of employees and included in
income statement of Her company limited. Job cost report: Another kind of accounting report is job cost where expenses related to
each and every stage of production and operation process are to be recorded and
analysed. With help of such report Her company is easily able to know that at which
stage or phase costs are higher or lower. When there are level of expenditures are higher
in a particular stage then management take corrective actions (Fullerton, Kennedy and
Widener, 2013). Total expenses of job cost report are to be treated in the expenses side of
profit and loss account as a manufacturing or production costs. Budgeting report: The report where various kinds of financial data are forecasted by the
management of Her limited on the basis of analysing past financial performance in the
plastic sector. The company able to determine that in the future accounting periods
financial performance will be whether increase or decrease. In context to this, when net
cash balance in cash budget is higher, then it is good for the firm. On the other hand,
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when level of net cash balance at the end is poor then it able to make or formulate
strategies according to the respective situation. Report of sales and revenue: Apart from the above analysed accounting reports other is
related to sales and turnover generated by Her limited within an accounting year. It is
base of key financial statement such as profit and loss account. If there are sales or
revenue is not available then business entity cannot prepare income statement and
balance sheet as well. It included various kinds of cash incomes which are arises in the
firm and helps to calculate financial ratios (Schaltegger, Gibassier and Zvezdov, 2013).
In this any kind of expenses are not deducting due to which it is base of calculating net
profit at the end of a financial year.
 Report of manufacturing: Other type of report is for the manufacturing where financial
transactions are recoded which are related to convert raw materials into finished goods. In
this different expenses which are used in the manufacturing process are recorded and at
the end of year treated in the profit and loss account of Her company limited. Along with
this, manufacturing report includes total number or level of outputs.
TASK 2
P3 Calculation of net profit with the help of marginal and absorption costing
The statement which helps to the company in order to determine profitability position is
known as income statement. Here all kinds of incomes, revenue as well as all the expenses are
recorded and financial outcome is identified as a net income. Different methods and approaches
are used by Her company limited in order to calculate net profit and prepare income statement
(Aksoylu and Aykan, 2013). The approaches are such as marginal and absorption costing which
are stated as below:
Profit and loss account or income statement on the basis of marginal costing:
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Particulars
Sales 21000
Less: Cost of goods sold 6600
Gross profit 14400
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Net profit 12600
Amount (in £) Amount (in £)
Profit and loss account or income statement on the basis of absorption costing:
Particulars Amount (in £) Amount (in £)
Sales 21000
Less: Cost of goods sold 6600
Gross profit 14400
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Less: Fixed Expenses
Production overhead 2000
Administrative cost 700
Selling cost 600
Total fixed expenses 3300
Total expenses 5100
Net profit 9300
Interpretation
From the above tables it can be depicted that both the income statement shows different
value of net profit at the end of an accounting period. As per the marginal method of costing net
income is generated worth of £12600 which is higher as compare to another method. Level of
total expenses of production is worth of £1800 in the marginal costing while as per the
absorption method of costing total expenditures on production process are worth of £5100. It can
be analysed that net income at the end of year as per absorption method is worth of £9300. There
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is a huge difference between profit and expenses of both method because both considers different
kinds of expenses. Marginal approach takes all the variable as well as direct expenses in order to
determine net profit of Her limited. On the other hand side, absorption costing considers direct,
variable, fixed and all costs which are comes into existence in business. Due to this reason level
of net profit differs from each other.
Difference among marginal and absorption costing methods
Marginal costing approach Absorption costing approach
The method of costing for determine net
income is marginal which takes all kinds of
variable as well as direct costs for analysing
net profit at the end (Jacobs and Cuganesan,
2014).
The method of costing absorption consists all
the costs and expenses which are incurred
directly or indirectly in production process.
The method is less reliable and used by Her
Limited company because here the firm unable
to cover all the costs.
On the other side, absorption costing method is
used by most of the companies due to including
all the costs. Here it able to recover all the
expenses by which actual profit is to be
calculated.
Various kinds of costs and expenditures
incurred in such costing method are such as
follows:
 Direct labour
 Direct material
 Variable expenses etc.
List of costs and expenses which are used in
absorption method are is such as follows:
 Direct labour
 Direct material
 Variable expenditures and costs
 Fixed overheads
 Selling and distribution expenses
 Administration costs etc.
Level of net profit is higher and expenditures
are lower in such kinds of approach of
In the absorption costing approach, net profit
lower and total expenses are higher as compare
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marginal costing. to marginal costing method (Ball, 2013).
TASK 3
P4 Advantages and limitations of various planning tools which are helpful for budgetary control
Plan is a very important and useful aspect of every business organisation which helps in
its smooth functioning up to greater extent. With the help of planning Her Co. Ltd able to make
different strategies in order to meet with goals and objectives. There are various kinds tools and
techniques are available with the organisation which helps to make effective plan which are
delineated as below:
Capital budgeting methods:
The methods and tools by which management able to take investment decisions from two
or mutually exclusive criteria are identified as a capital budgeting techniques. It shows viability
of one project between two or more simultaneous projects and helps to Her company to become
higher financially sound. As per the methods the company can take effective investment
decisions and generate higher level of return (Muniz K., 2013). Different kinds of tools used in
such technique which are like as net present value, internal rate of return, average or accounting
rate of return, payback period, profitability index etc. Among all of these net present value is
highly reliable and provide effective investment decisions. Hypothetical example of some capital
budgeting tools are such as follows:
Internal rate of return
Year Cash flow
Investment -56000
1 15640
2 24670
3 29820
4 41890
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5 46530
IRR 38.41%
Average or accounting rate of return
Year Cash flow
Investment -56000
1 15640
2 24670
3 29820
4 41890
5 46530
Total 158550
Average 31710
Investment 56000
ARR 56.63%
Both the above table shows that initial investment provides IRR and ARR are such as
38.41% and 56.63% respectively which are higher return. Further, the company put sum of
money in such investment criteria.
Advantages:
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The capital budgeting methods are very helpful for Her limited in order to effectual
business decisions. Internal rate of return consider time value of money, cash flow of every year
as well as number of years by which it able to gives better decisions. In case, when the company
has two or more simultaneous project then with the help of such capital budgeting method it able
to make comparison between them (Burritt, Schaltegger and Zvezdov, 2011). By comparing two
or more investment avenues the management is highly able to analyse that which one will
provide higher return at the end of project life.
Disadvantages:
However, cost of capital remains same for every year while doing calculation of
investment up to end of life of project. Further, as growth rate of economy and inflation rate
fluctuates then cost of capital also affected. At that time investment decisions get hamper and
Her Limited cannot earn return which is calculated earlier. Apart from this, such tools are not
providing short term decisions for making an investment. These gives long term decisions and
company cannot make effective decisions in business entity.
Budget:
Another planning tool which helps to control over the disposals and cash flows is budget.
It is the most helpful, widely used and reliable tool for making effectual financial plan to
generate higher sales and revenue. In reference to this, Her limited is easily able to estimate
future data and informations related to financial of the company by taking base of past
accounting periods (Fullerton, Kennedy and Widener, 2014). When the firm can know that in
future how much profit it will generate then able to take corrective actions in case of finding
negative returns. Various kinds of budget statements are prepared by Her limited business entity
which are like as cash, production, material purchase, sales etc.
Furthermore, with the help of cash budget Her limited company able to determine future
incomes as well as financial disposals in business process. If the enterprise not able to earn more
profit, then it able to take corrective actions by formulating effectual strategies. Moreover,
production budget provide informations related to level of output that in the current and future
year how many units are to be produced. Sales budget gives data related to the number of units
needs to be sold at the particular prices and charges. By this, Her limited can determine that
specific amount of revenue must be generated from business process in next year.
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Some advantages, benefits as well as limitations of budget are analysed as below:
Benefits:
Very primary advantage of the budget tool is to estimate or forecast various kinds of
informations and data related to the financial position of business entity (Herman, 2011). When
the company determine that in the future what will be situation then can take corrective actions
for overcome negative results. In context to this, by using budget Her limited enterprise able to
manager various risks and obstacles occurs related to return and financial items. On the basis of
budget Her limited highly become able for reduce and control those expenses which are useful
and hamper profitability of it.
Limitations:
On the contrary of benefits, budget has different kinds of limitations by which effective
business decisions is affects in negative way. It is to be prepared based on past financial
informations and data and in reality it is not necessary that growth rate will be same. For this
highly qualified and skilled financial employee has to appoint who taking higher charges of his
services. Further, profit level of Her limited gets reduce in the overall plastic industry. Apart
from this, it is a very lengthy process as well as highly time consuming which lead to reduce
efficiency of individuals.
Financial ratio analysis:
Apart from budget and capital budgeting techniques another important planning tool is
financial ratio analysis which is used by Her limited. This technique or tool for making financial
plan helps to the selected company in order to determine performance of the entity in terms of
financial in the overall industry (Jarzabkowski and Kaplan, 2015). Calculation of different
financial ratios are to be completed with the help of data provided in various financial
statements. By this it able to know level of profit, efficiency as well as liquid position of Her
limited in smooth way. By computing such ratios if it found that firm not able to perform well in
the industry then it will take actions against it and make effectual business strategies. Various
kinds of financial ratios are to be calculated by using financial statements are given as below: Profitability ratios: Net profit, operating profit, return on investment, gross profit ratio
etc.
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 Liquidity ratios: Cash ratio, current and quick or acid test ratio. Efficiency ratios: Stock, fixed assets, total assets turnover ratio etc. Gearing ratios: Debt to equity ratio, interest coverage ratio etc.
Advantages:
Key benefit of financial ratio analysis is to interpret financial statements and determine
performance of Her limited in overall plastic industry. By this management of entity able to
assess that company is financially sound or not and up to which level. If it is not performing well
then make strategies which helps to attract higher number of customers and increase profit level
at the end of year (Hammad, Jusoh and Yen Nee Oon, 2010). It is very necessary that firm has
higher liquid position which is to be derived by financial ratios. In addition to this, strengths and
weaknesses in term of finance of Her limited company are to be analysed by the respective
planning tool.
Drawbacks:
Financial ratios are to be computed with help of different financial statements and in
these adequate data are not available by which performance of entity is not analysed properly.
The respective tool is one type of quantitative approach and it ignores all the techniques of
qualitative approach by which reliable data are not determined. Furthermore, only one or two
financial ratios are not enough to interpret financial performance and make effectual.
Management needs to calculate all kinds of ratios which are very time consuming.
TASK 4
P5 Assessing adoption of different management accounting systems by Her Co. Ltd in order to
combat shortfalls
At the business environment there are different kinds of problems and obstacles occurs
which affect to the financial performance of entity. Different kinds of financial problem comes
into consideration at the workplace such as Her limited and in order to reduce such problems
different management accounting systems are applied (Weißenberger and Angelkort, 2011). The
systems and approaches are analysed as below: Transfer pricing: It is term where company exchange goods and services from parent to
subsidiary firm where prices of such products and services are lower as compare to
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external market. When Her limited purchases services or products as a raw material and
unprocessed goods from parent company then it has to pay lower prices in comparison to
market. With the help of such accounting system total cost of production reduces which
lead to make the firm more financially sound. Hence, problem of enhancing costs and
expenses reduces by which it able to charge low prices and attract more number of
customers. Transfer of prices make the fairness and accuracy of information, sop that it
can represent the positive situation of a company. To transferring then price, it required
the complete documentation process, so that all the data which recorded related to the
transferring of price is reliable and based on recurrent position of a company. So that
transfer pricing plays an important role to identify the financial problem in an
organisation. Accounting system of lean: The aspect lean is known and applied in the production
process in order to reduce and eliminate wastage products and services. Further, when
such kinds of goods eliminated then level of quality affects in highly positive way. Due to
this reason, more number of consumers attract and it able to become financially strong.
Apart from this, in the production and operation process various kinds of extra and
miscellaneous expenses are incurred which can be reduced by using lean accounting
approach in Her limited entity (Burritt and et.al., 2011). It can be said that the company
will gain competitive advantage by providing better quality and differentiate products to
the consumers. It helps that manager that collect the information and check that such
information is based on time or not. Lean accounting also make the decision of manager
faster and accurate, so that it is beneficial for the company. In this way, lean accounting
help to identify the financial problems like availability of fund in an organisation and
help to improve the efficiency of an organisation. Control over the budget: Budget shows future financial incomes as well as expenses
which will be incur in current and future accounting periods. By this the company can
know lack of terms expenses which are in-useful and unproductive for Her limited.
Further, total expenditures of production and operation reduces and helps to the entity in
order to provide goods to customers by charging lower prices than its competitors.
Hence, it can be said that by using budgetary control Her company limited can control
over the expenses and reduce financial obstacles.
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 Process costing: According to the process costing system of management accounting Her
limited is highly able to determine every information and financial data related to every
activity of operation process. By this it can know problems which are associated with the
each and every stage of operation process (Håkansson, Kraus and Lind, 2010). Moreover,
financial obstacles related to the production process are to be reduced and properly up to
higher level.
 Cost Accounting- Cost accounting is an importance part or element of an organisation to
find out the financial problems. In RL Maynard company, many mangers can use the cost
accounting to estimate the cost of unit of each products. To preparing the income
statements manager need various costing methods such as marginal costing techniques.
absorption costing methods. So that they can assess the cost of product and after that they
prepare a budget which are beneficial for the organisation's growth. Cost accounting also
help to proper utilizing the resources so that there are no chances of wastage of cost. In
this way, to solving the financial problem by using costing method, managers need to
make proper plan and setting the appropriate procedure and rules, after that by following
right decision-making process manager can estimate the cost of each unit in an
organisation.
 Financial governance:- One of the small part of corporate governance is financial under
which different aspects of the financial transactions are recorded in proper manner.
Further, it takes care and analyse this and provide information to Her Company about its
performance. In case, any kind of financial problems come into existence the nit supports
to identify along with responsible factors. Hence, such constraints can be resolve in
effective manner.
 Key Performance Indicators:- From such kind of management accounting system the
firm able to assess performance in several kinds and aspects. KPIs for analyse business
performance are such as quality, productivity, net profit, efficiency of individuals, liquid
position, sales and revenue generation etc (Hammad, Jusoh and Yen Nee Oon, 2010). For
example, if Her company generates more revenue as compare to previous periods then it
can be said that entity performs well within market sector.
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 Budgetary control:- Another approach which rely under the management accounting is
budgetary control where firm follows to the budgeted figures. In this basically variance
analysis method is undertaken by the management where it compares to agreed data with
facts and figures generated by it. In case, the data are not achieved then performance of it
considered as poor where appropriate strategies are to be made.
 Bench marking:- In this standard values are compared with the generated figures by the
business entity. The standard or agreed values are settled by either firm itself or industrial
authorities. It is also one of the highly supportive kind of tool to assess performance with
the reasons and then effective solutions are made.
CONCLUSION
It can be depicted from the above carried out analysis that accounting is key aspect of
business entity such as Her Company Limited which helps to make it highly profitable. There are
various kinds of systems and approaches of management accounting requires for the company in
order to resolve various financial problems. It can be said that different management accounting
systems by which financial obstacles resolve are like as process costing, lean accounting,
budgetary control, transfer pricing etc. Further, it can be concluded that net profit on the basis of
marginal as well as absorption costing approaches are such as £12600 and £9300 respectively. At
the last it can be summarized that various planning tools such as budget, financial ratio analysis
and capital budgeting techniques are helps in budgetary control at the workplace of Her
Company Limited.
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