HND Business: Management Accounting Systems Analysis at Agment

This report provides a comprehensive analysis of management accounting systems relevant to Agment LLC, a manufacturing company specializing in metal platers, oil supplies, and other items. It explores various management accounting tools, including costing, budgeting, and variance analysis, and their application in measuring performance and facilitating decision-making. The report details essential requirements of different management accounting systems such as financial accounting, cost accounting, inventory management, and performance management. Furthermore, it discusses the preparation and maintenance of key reports like budget reports, inventory management reports, price optimization reports, ratio analysis reports, job cost reports, and accounts receivable aging reports. The report also includes calculations using absorption and marginal costing methods, highlighting their impact on profitability. Finally, it examines the advantages and disadvantages of different budgetary planning tools and recommends management accounting systems to mitigate economic challenges faced by Agment LLC.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................4
TASK 1............................................................................................................................................4
P1) Management accounting and essential requirements of different types of systems.............4
P2) Management accounting reports...........................................................................................6
TASK 2............................................................................................................................................9
P3) Calculation of absorption and marginal costing statement...................................................9
TASK 3..........................................................................................................................................12
P4) advantage and disadvantage of different types of budgetary planning tools......................12
P5) Management accounting systems to reduce economic problems of Agment.....................15
CONCLUSION..............................................................................................................................17
REFERENCE.................................................................................................................................18

INDEX OF TABLES
Table 1 Calculation of cost per unit under marginal & absorption costing method......................10
Table 2 Calculation of net profitability under absorption costing.................................................10
Table 3 Calculation of net profitability under marginal costing....................................................11
Table 4 Profit Reconciliation statement.........................................................................................12

INTRODUCTION
Management accounting is a procedure in which statistical and financial information
obtained through financial and cost accounting is analysed, examined and interpreted. It
assists managers in sound decision-making process, creation of policies, strategic planning
& day to day operational management plans. Performance measurement & analysis, risk
assessment, resource allocation and others are several key focus areas of management
accounting. It assist all the business establishments regardless their sizes whether small,
medium or large sized in successful execution of their regular activities. The present
research paper investigates the contribution of managerial accounting tools for Agment
LLC. It operates in manufacturing industry and produces metal platers, fat & oil supplies,
surface finishers, hi-temperature alloy and many others items. The report targeted at
examining different types of management accounting systems which policymakers can
utilize for measuring & interpreting their actual results and make good decisions for
running operations in a better way. Besides this, marginal & absorption cost methods and
other techniques like key performance indicators and benchmarking will be discussed to
combat financial difficulties.
TASK 1
P1) Management accounting and essential requirements of different types of systems
Management accounting: - It is a multidisciplinary approach of accounting system
that is useful to mange entire operations of business organisation. However, actual
performance of entity is analysed by using management accounting systems on the basis of
which further decisions are made to provide better product services effectively. It
influences productivity and profitability of company which is linked with its business and
competitive strategies for producing goods and services in future time (RURY, 2013). In
addition to this, several tools are used of management accounting system like; costing,
budgeting, variance analysis and so on. By this way, actual position of Agment LLC is
presented for manufacturing chemicals of different forms. Besides this, various substances
are presented to show its scope, nature and overall potential to improve its financial
position regarding future business operations. It involves financial, cost, inventory and
performance management systems of organisation that proceed to make further to
implement its strategies. In this process, financial data are obtained as well managed in a
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specific manner for improvement in activities systematically. Thus, management
accountant of Agment identifies all operations for manufacturing chemical by which
adequate decisions are made for setting price on expenditure for labour and purchasing
materials. Including this, cost incurred on additional overhead is also evaluated that affects
production and distribution of metal platers, oil etc. Hence, management accounting is
essential for decision making to produce better product services and creating optimum
utilization of resources and fund (Ahmed, Neel and Wang, 2013).
Essential requirements of different management accounting systems:-
Management accounting systems comprised of several tools for decision making to
provide better product services. It includes financial accounting, cost accounting, inventory
management and performance evaluation systems that remains appropriate for adequate
decision-making and implementing services in a systematic manner (Demski, 2013).
Accordingly, some of the management accounting systems and their necessities can
describe as below:- Financial accounting system: - Financial accounting is an approach involves
recognising different components like; financial statements, notes which shows
monetary position of Agment. In this process, management accountant identifies
profit and loss account, balance sheet, income statement. Therefore, potential of
entity to create innovation in business operations is gained that proceed to make
decisions for its implementation. In addition to this, balances between incurred
expenditure and gained revenue is obtained that proceed to decision-making
process adequately (Hennes, Leone and Miller, 2013). Hence, financial accounting
system is benefited for proper management of entire business operations
economically. Cost accounting system: - Through this process system, incurred expenses and
gained revenue on production of metal platers and oil is recognized. Further,
decisions are made regarding setting cost for product services and their production
efficiently. It is appropriate for cost effectiveness and creating proper balance
between production and supplement of goods (Ball, 2013). Thus, cost accounting
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system is vital for proper costing and making decisions regarding various
implementations and adequate production of manufacturing company's products Inventory management system: - Under this management accounting
system,liquidity position of Agment is identified for which different ideas are
created to improve it. However, all inventories get managed through this system as
well proper strategy is prepared to implement its quality goods efficiently. It is
helpful for utilization of resources and fund that impacts on its productivity and
profitability for producing metal platers, surface finishers, hi-temperature alloy and
so on. Including this, various innovations are created for providing better quality of
company's items . Thus, inventory management system of management accounting
is essential for proper management of goods and different implementations
effectively (Warren, Reeve and Duchac, 2013).
 Performance management system: - As management accounting is a
multidisciplinary approach, it evaluates performance of entity and its workers.
Under this system, performance of Agment involves its business and competitive
strategies to face competition and make place in competitive market. In this regard,
various tools are applied for improving performance and product services provided
by entity. It is interlinked with further decision making process and useful for
enhancing its efficiency at high level (Adibah and et.al., 2013). Therefore, business
performance get improved systematically that affects productivity and profitability
of organisation in further years.
P2) Management accounting reports
Management accountant of Agment prepares and maintains different reports to
show its financial and non-economic position. It evolves reports like; price optimization,
ratio analysis, variance analysis, budgeting and budgetary control system etc (Huber and
Scheytt, 2013). In this process, performance of entity is recognised that generates several
ideas for further implementation and for providing better quality services systematically.
Thus, some of the main reports can be understood as:- Budget report: - It is beneficial for adequate decision-making process and use of
resources and fund that influences further profitability and sustainability However,
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budget report is a kind of preparing agenda and steps to be followed on
systematically (Kim and et.al., 2013). For preparing budget, management
accountant of Agment analyses all business operations and further makes decision
related to improvement in its quality services. Therefore, management of entire
business is possible by using this process as well increasing organisation's
efficiency. Hence, budget report is beneficial for providing better services and
managing all operations of the entity effectively. In this process, cost incurred on
production and supplement of goods is also determined that is helpful for cost
effectiveness. Along with this, proper balance between production and distribution
of goods can be achieved to achieve effective business operations. Thus, preparing
budget report is essential for formulating strategies requires to be followed on as
well creating innovations in overall business entity's operations. Inventory management report:- For preparing and maintaining report is related to
improving liquidity position of organisation, all inventories are analysed as well
managed systematically. In accordance to this, management of all goods and
services provided by Agment is determined involving cost effectiveness,
effectiveness of organisation, improving efficiency and so on. Therefore,
appropriate management of all inventories is possible by identifying mentioned
data presented in last year's inventory report. Moreover, it is related with business
operations and financial position of Agment also remains suitable for their proper
management (Methot and Wetzel, 2013). Thus, inventory management report is one
of the vital recording data part that affects effectiveness of entity same as creates
various innovative ideas for utilization of resources for manufacturing of oil, metal
platers, surface finishers etc. It is beneficial for keeping goods safe and helpful to
improve quality services of organisation. Hence, management accountant of the
company evaluates all inventories and their implementation for better services and
effectiveness at high level. Price optimization report: - It is related with cost effectiveness approach that is
essential to be reported price of goods. In accordance to this, several aspects are
used for reporting and setting price of producing items of Agment in future time
period. However, varieties are ideas are created for price optimization and
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determining affordability of customer to pay on produced goods. In this process,
cost for production and distribution of goods provided by entity is set that affects
further profitability of entity. However, price optimization report is helpful for cost
effectiveness and adequate costing of goods. Thus, preparing this report remains
suitable for management of business operations effectively and satisfying its
customers by setting affordable cost. For setting price of product, all costs incurred
on material, labour and additional overhead are determined that proceed to
production of products. Hence, price optimization report is beneficial for adequate
costing and proper decision making for appropriate business operations
(Management Accounting, 2016). Ratio analysis report:- It is financial component that is suitable to analyse
economic position of Agment to operate activities in future time period. For this
purpose, several ratios are analysed including profitability, liquidity, efficiency, debt
equity ratio and so on. In this regard, monetary and non-economic position of entity
is analysed by which different innovative ideas are created for providing better
services. In addition to this, comparison of last years' performance is obtained for ,
bridge the gap and improving services various tools are obtained. Along with this,
ratio analysis also creates comparison of organisation's position to its other
competitive entity. In accordance to this, various innovative methods are applied for
creating market position and increasing its competitive strategies. Thus, preparing
report of ratio analysis is helpful to recognise performance and position of metal
platers' provider entity effectively (RURY, 2013). On the basis of which, different
ideas are generated for adequate production and distribution of goods and services
provided by entity. Job cost report: - Preparing and maintaining job cost report is useful to analyse
expenses incurred on business operations. It is suitable to recognise earning areas to
operate business activities. For manufacturing company Agment, job cost report is
essential to identify cost incurred on manufacturing, production and supplement of
items. It influences productivity and profitability of entity also affects its
competitive strategy to face competition and sustaining its position in market.
However, various ideas are created for costing and producing goods. Therefore,
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records of setting costs for production and distribution is presented that affects
further implementations. In this report, various tools are applied for manufacturing
of metal platers, oil and surface finishers systematically (Ahmed, Neel and Wang,
2013). Thus, on the basis of analysing this report, further decisions are made for
adequate costing and producing items of the organisation.
 Accounts Receivable Aging: - By preparing this report, company's cash collection
process is determined. It includes analysis of credit to its customers through
presented invoices in aging reports. Therefore, problems with collection of money
form customers is obtained by which further credit policies are crated to tighten the
operations and cost of products. Thus, manager of the organisation identifies
account receivable aging by which credit for producing and supplementing money
can manage effectively (Demski, 2013).
TASK 2
P3) Calculation of absorption and marginal costing statement
According to the stated case scenario, Agmet Company produces a single item and
incur various costs to produce the item such as material, labour and other fixed and variable
overheads. Cost management is an important area of management accounting in which
managers create plans, policies and decisions for controlling overrunning expenditures and
maintain such expense in line with the target (Cooper, Ezzamel and Qu, 2017). There are
two most fundamental techniques applied by numerous business entities for cost
computation i.e. marginal and absorption costing methods, detailed here as follows:
Marginal costing: It is an accounting system which gives value to variable costs
only thus, it determines production costs through accumulating all those expenditures
which changes proportionately with the change in output (Ax and Greve, 2017). It is a
principle costing method that helps in successful & sound business decisions. It find out
contribution and net profitability through using following formula:
Contribution: Total sales turnover – total variable cost
Net profitability: Contribution – Total fixed cost OR Total sales turnover – Total cost
Here, Total cost = Total fixed cost + Total variable cost
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Absorption costing: This method quantifies cost of a product or service
incorporating both the direct as well as indirect cost. This method accumulates all the costs
that are associated with goods manufacturing to determine the product cost. Agmet can
compute their manufacturing costs taking into account material, labor’s wages & other
fixed & variable as well as direct & indirect overheads (Novas and et.al., 2017). It uses
following accounting equation to measure gross profit and net profit as follows:
Gross profit = Total sales turnover – cost of goods sold
Net profit = Gross profit – Non-manufacturing overheads (Includes variable &
Fixed)
Table 1 Calculation of cost per unit under marginal & absorption costing
method
Items Marginal Absorption
Cost of direct material Consumed 6 6
Cost of direct labour’s wages 5 5
Variable manufacturing overheads 2 2
Fixed manufacturing overheads 3
Total cost per unit 13 16
Table 2 Calculation of net profitability under absorption costing
Particulars Calculation Amount
Sales revenue @ 35/unit (600*35) 21000
Less: Cost of sales
Opening stock 0
Add: Cost of goods manufactured @16/unit 700*16 11200
Less: Closing stock
(700-
600)*16 1600 9600
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Less: Under absorption overheads
Actual production overheads 2000
Budgeted fixed production overheads (700*3) 2100 -100
Cost of goods sold 9500
Gross profit
(21000-
9500) 11500
Less: Other indirect non-production overheads
Cost of administration 700
Variable sales overheads @ 1 per unit (600*1) 600
Selling costs 600 1900
Net profit/loss 9600
Table 3 Calculation of net profitability under marginal costing
Particulars Calculation Amount
Sales revenue @ 35/unit (600*35) 21000
Less: Cost of sales
Opening stock 0
Add: Cost of goods manufactured @13/unit 700*13 9100
Less: Closing stock
(700-
600)*13 1300
Cost of goods sold 7800
Contribution 21000-7800 13200
Less: Fixed overheads
Fixed manufacturing expense 2000
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Cost of administration 700
Variable sales overheads @ 1 per unit (600*1) 600
Selling costs 600 3900
Net profit/loss 9300
Working note:
Calculation of overhead absorption rate (OAR) for fixed production expense
= Budgeted overheads/Budgeted production for the period
= 1800 GBP/600 units
= 3 GBP/unit
Table 4 Profit Reconciliation statement
Net profit as per absorption costing 9600
Less: Fixed production overheads on closing stock @ 3GBP/unit 300
Net profit as per marginal costing 9300
Interpretation: Finding the results of net profit under both the method, it is clear
that absorption costing method reported higher amount of return worth £9,600 whereas
under the variable costing, it is determined to £9,300. First method quantified per unit
production cost at £16/unit whilst in marginal costing, it is founded to £13/unit. Elimination
of fixed production overheads @ £3/unit (£1800/600) is the only reason behind different
unit costs. It also causes variation in the closing inventory valuation by (£100*3GBP/unit)
£300. Apart from this, there is a difference that can be seen in both the statement is
adjustments for under-absorption of fixed production overheads (Goddard and Simm,
2017). Evidencing from both the statements, MC do not account such under or over-
absorption whereas AC accounted such adjustments by £100 which reduced cost of sale by
£100. In MC, cost of sale is determined to £7,800 which is reported higher to £9,500 in AC
just due to considering fixed manufacturing overheads. Net earnings under absorption
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