Management Accounting Report: Analysis of L&B Haulage's Financials

This report provides a detailed analysis of the management accounting practices employed by L&B Haulage, a civil engineering contractor. It begins with an introduction to management accounting, emphasizing its role in providing accurate financial information for effective decision-making. The report then explores the management accounting system, including inventory management, cost accounting, and price optimization systems, highlighting their importance and benefits. It discusses various accounting management reports such as budget reports, cost management reports, and performance reports, explaining their significance in internal and external management. The report further delves into the integration of management accounting systems and reporting within organizational processes, emphasizing their interrelation. It also includes an annex section, which provides examples of absorption costing and marginal costing. The report also examines planning tools used in budgetary control, such as zero-base budgeting and incremental budgeting, along with their advantages and disadvantages.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1 ...................................................................................................................................1
PART A.......................................................................................................................................1
PART B ......................................................................................................................................4
ANNEX (A) Q2. .........................................................................................................................4
ANNEX (B).................................................................................................................................5
ACTIVITY 2 ...................................................................................................................................6
PART (A).....................................................................................................................................6
ANNEX C ...................................................................................................................................9
PART (B)...................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCE ................................................................................................................................13

INTRODUCTION
Management accounting is the combination of management reports and accounts that is
used to provide appropriate and accurate financial information in order to make profits. The
manager of the organisation identify, collects and records the monetary transaction by managing
the accounting information and maintain profits. Moreover, management accounting is the wider
term to understand which helps to make effective business decision by managing proper
accounts and information (Abdelmoneim Mohamed and Jones, 2014). The L&B haulage is a
civil engineering contractors limited industry which was formed thirty years ago, it provides
different types of services such as recycle and waste management project, engineering contracts
etc. Basically, it deals with construction project and follows management accounting. This report
will emphasis on different topics such as management accounting and its system, planning tools
that is used to control the budget and role of management accounting report to sole the financial
problems.
ACTIVITY 1
PART A
Management accounting system and its requirements
Management accounting system are essential in all organisation because it help
businesses to run speedily by providing financial information on internal operations. For
managing the system manager need to have specific information on fixed processes to control
over the cost and make sound decision. The L&B haulage is civil engineering organisation that
follows management accounting system in order to make correct business decisions. Moreover,
by following management accounting system it manage accounts properly that increase
profitability (Armitage, Webb and Glynn, 2016). Herein, the essential requirement of
management accounting system is discussed below-
Inventory management system: This system is very important in all organisation that is
used to keep proper records of inventory and manage it accordingly. It is mainly used in
manufacturing industry to track the goods and services and entire the supply chain business. The
manager of L&B haulage are using this system to track stock with the help of engage supply
chain or business operations. It used to cover from production to retailing, warehousing, storing
to shipping that increase profit margin.
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Cost accounting system: This is managerial accounting system which is used to
calculate accurate and exact cost in all size of organisation. It includes procedure of recording,
analysing, classifying, summarizing and distributing the cost in order to control the excessive
cost. Moreover, this is used to know the actual cost of different product and services. Such as
L&B haulage used this system to calculate the cost of each civil projects and also ensure whether
project are profitable or not. By following cost accounting system company can assure cost of
entire business activities and maintain a profitable organisation.
Price optimisation system: Pricing is the main factor in each industry that determines
what software should be use to set the price of the products and services. It is the use of
mathematical analysis that state that how an organisation should adopt the pricing strategy in
order to increase profitability. Moreover, this system helps to provide guidance to set the prices
which should be suitable for both industry as well as customers. Such as L&B haulage use this
system and set the prices of projections after covering the cost that helps to attract customer and
increase the profit margin by setting the prices of civil projects (Boučková, 2015).
Various methods for accounting management reports
Accounting management reports are useful for internal and external management that
provides internal financial reports, accounts and records to make decision for achieving the short
term and long term goals. In other words, management accounting method helps to make
planning, regulating and controlling the accounts of the industry. Such as the manager of L&B
haulage industry prepares accounting management reports with the help of financial information
and managing accounts. Following management accounting method are discussed as below-
Budget reports: This is critical report which is used to measuring the enterprise's
performance and generated profits for small, medium and large size of business. Therefore, every
company creates a budget to understand the needs and scheme of business that helps to generate
profits. It is prepared on the basis of past experience and information that helps to gain income
and expenditure. L&B haulage industry prepares budget report that guides manager to give better
employee incentives and predict the future income and expenditure (Cleary, 2015).
Cost management accounting reports: This is used to define the cost of products and
services which are manufactured. A cost reports gives information of all incurred cost and divide
the amounts of products manufactured. This reports suggest manager of L&B haulage to realize
the cost prices of each projects by managing the cost accounting reports. Profit margins are
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estimated and recorded through this reports as after having the clear picture of all cost.
Moreover, it helps to manage the inventory waste, labour hour cost and overhead cost by
optimisation of all resources among different departments.
Performance reports: These reports are created to review the performance of an
industry and employees at the ending process. Managers use these reports to make key strategic
decision regarding future expectation. Organisation awarded good performer for their well work
that helps to motivate the staff and they efforts more. Hence, performance reports are essential
which is prepared by mangers through recording performance and behaviours of employees. In
L&B haulage civil engineering industry managers used this report to make feel them good
through awards and other benefits. As result they works more and in efficient manner by
following rules and regulations (Gibassier, 2017).
Benefits of accounting systems and application in context to organisational process-
Organisation follows different types of accounting system that has own importance and
values. It depend on the organisation's nature and size how it helps to make profits by
overcoming cost. The L&B haulage follows different management accounting system whose
benefits are described as below-
Inventory management system: This system is helpful to achieve efficiency and
productivity in operating functions that provides maximum benefits by reducing cost and
maximise sales and profits. Such as by application of this system L&B haulage is getting benefit
of achieving the goals and objectives through managing inventory. Moreover it helps to integrate
the entire business by applying this system.
Price optimization system: This system provides different benefit such as it helps to
retain the customer by better utilization of prices, to set the reasonable prices of products and
identify the risk in a company. Such as L&B haulage used this system that help to analysis the
purchasing pattern and give preference for prices. This system helps to attract the customer that
increase profit margin through large number of customer who obtain more projects (Hilton and
Platt, 2013).
Cost accounting system: It is beneficial in all organisation such as it helps to define the
profitable and non profitable activities, guides for further production policies and standard and it
control over goods and supply of material. By application of this system L&B haulage can get
the information about profitable and unprofitable business activities and can find out the exact
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reason of unprofitable activities. Hence, it apply this system to know the future production and
profits.
Integration of management accounting system and reporting in organisational processes
The management accounting system and reporting are interrelated with each other such
as reports are prepared with the help of management accounting system. It come through
management accounting system that ensure which activity is profitable or which one not.
Manager of L&B haulage follows inventory management system and prepare report that gives
efficient used to goods and service. By following cost accounting system manager can get
information about cost that is needed for organisation and prepare through costing reports.
Additionally, price optimisation system is also integrated with reporting such as through reports
organisation can get what prices needs to set in order to attract the customer. Hence, reporting
are the important documents that guides which system should be used in order to maintain profits
(Hirsch, Nitzl and Schauß, 2015).
PART B
ANNEX (A) Q2.
Absorption costing: This method is used to define the all manufacturing cost which is
assigned to units manufactured. In other words, the cost of finished units will consider in raw
material, direct labour and overhead cost that used to calculate profits.
Marginal costing: This is one of the best method of calculating the profits and making
decision by defining the overall cost of organisation. It helps to ascertain the fixed and variable
cost that is used to describe profits.
Calculation of profit by Marginal costing method
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Calculation of profit by Absorption costing
ANNEX (B)
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Interpretation: From above solved questions it has been analysed that product X and Y are
creating different level of cost by using absorption conventional costing. Product X incurred £
72000 and Y incurred £ 92000. By using Activity based approach machine hour per rate of
product X is £ 24000 where as product Y has £ 16000 that gives an estimation of profits.
Additionally, overhead are also different for both products such as product X has £ 82,749 and Y
has 181,255.
ACTIVITY 2
PART (A)
Planning tools which is used in budgetary control and its advantages and disadvantages
Planning tools are the techniques which is used to control over the budget and help to
maintain the profitability in organisation. Every organisation used different types of planning
tools that are useful to set up budget and control the excess activity. The manager of L&B
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haulage used planning tools to ascertain the cost and and manage the business activities in a
organisation (Kalkhouran and et.al., 2015).
Budgets are prepared in all sizes of enterprises that gives an estimation of future incomes
and expenditure in order to gain profits. Budget are helpful to set the goals and objectives in an
organisation through making an estimation. The accountant of L&B haulage prepares different
types of budget that helps to allocate the resources and money in specific activities in order to get
profits and and increasing number of customers. In other words, planning tools helps to make
budget and control over the excess budget id required. The organisation is using is using
different types of budget such as -
Zero base budget: As the name given zero that means it allows enterprises to start with
zero for all item in budgeting list. This budget includes new financial information which starts
from new accounting period. It is best for new start up business that helps to set up the business
from new budget. It does not concentrate any past information and past year statements in order
to preparing zero base budget. L& B haulage can use this budget in order to invest more money
in marketing department in next year that will help to prepare budget from zero (Advantages and
disadvantages of zero base budget 2019).
Advantages: L&B used this budgeting in order to prioritizes profits over expenses that
helps to generate more revenues. This is also helpful to reduce the errors and business look
deeply in business process.
Disadvantages: It does not focus on cost centres as result low productivity and low
profits. Moreover, is needs detailed information that may be complex for L&B haulage.
Incremental budget: This budget prepare by making changes in previous year's budget.
This budget is based on past year's information that includes financial information of any
organisation. The manager of L&B haulage can use this budget after making changes in past year
budget. For instance, if manager want to expand its business then it need to more investment. For
doing such manager can make changes in past year budget by increasing investment. Changes
are done in the form of reduction and addition in last year's budget.
Advantages: L&B haulage can ignore the unnecessary expenses by preparing
incremental budget. It helps to save time and money because it is based on past year budget that
is used to make changes if needed.
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Disadvantages: It may be wrong because it consider lack of innovation and no cost
reduction for managers. By preparing this budget manager of L&B haulage disconnects from
reality that gives in appropriate results.
Rolling budget: This budget is prepared after completing the current budget. It is also
known as continuous budget which is preparing by replacing the last budget from new budget.
The manager of L&B haulage can also use this budget by incrementing the past budget from new
budget. It gives ideas what need to get changes in current year budget and how can increase
profitability by replacing the budget.
Advantages: It help L&B haulage to integrated changes from previous period to next
period, increasing continuity by updating the budget from time to time. Is is flexible that means
changes can make in rolling budget and responds properly for upcoming periods that states
future profits (Pavlatos and Kostakis, 2015).
Disadvantages: It is complex for L&B haulage to prepare this budget because it
consumes more time and money that reduces profits. Moreover, it has chances to limit
opportunities for employees in order to achieve targets.
Analysis the use of planning tools and its application for forecasting budget
Planning tools are helpful in any organisation such as it helps in preparing and
forecasting the budget. It help L&B haulage manager's to cope up with future uncertainty that is
based on past and present financial information. As forecasting starts with assumption such as
experience, knowledge and results that decides what needs to do in order to forecasting budget.
By application of zero base budget L&B haulage can set new budget in new accounting period
that helps to get actual income and profits. And by application of incremental and rolling budget
L&B haulage can make changes in past year budget and also can replace the old budget from
new budget that lead to generate more profits in this industry.
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ANNEX C
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