Management Accounting Report: Analysis of Morphy Richards Company

This report provides a comprehensive overview of management accounting, focusing on its significance in the context of Morphy Richards, a UK-based electrical appliance manufacturer. The report begins by defining management accounting and its importance for effective decision-making, emphasizing its role in cost control and financial analysis. It then explores various management accounting systems, including cost accounting, price optimization, and inventory management, highlighting their practical applications within a manufacturing firm. The report also delves into different methods of management accounting reporting, such as performance reports, inventory management reports, and accounts receivable aging reports, and discusses their benefits. Furthermore, it analyzes marginal and absorption costing techniques, illustrating their differences through profit calculations. The report concludes by examining how management accounting systems can be utilized to address and resolve financial problems, making it a valuable resource for understanding the practical implications of management accounting in a business setting.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Section 1...........................................................................................................................................1
P 1 Management accounting and requirements of management accounting in the company1
P2 Methods of management accounting reporting and benefits of management accounting
systems...................................................................................................................................3
P3 Marginal and absorption costing.......................................................................................5
Section 2...........................................................................................................................................7
P4 Discussing kinds of planning tools....................................................................................7
P5 Discussing how management accounting system is used to adapt to respond to financial
problems...............................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is useful branch of accounting which provides required
information to management to take better decisions in effective way. The present report deals
with Morphy Richards Company which is engaged in manufacturing of electrical appliances in
UK and provides quality goods to customers to enhance their level of satisfaction. Importance of
management accounting is highlighted in this report along with various management accounting
systems which provides necessary information to manager so that better decisions can be made
with much ease. Moreover, different planning tools are discussed along with marginal and
absorption costing techniques which are required mainly in manufacturing firm. Furthermore,
financial problems are resolved by implementing management accounting systems which are
discussed as well. Thus, the report highlights significance of this branch of accounting for getting
desired results.
Section 1
P 1 Management accounting and requirements of management accounting in the company
Management accounting is essential tool for company as it help management to take
effective decisions with much ease. Management accounting uses financial information provided
by another branch of accounting which is known as financial accounting. The information
provided by this accounting system help management to draw interpretations about the company
and as such, better understanding of the effectiveness of the company is easily made. Thus,
management accounting is effective technique which help organisation to take enhanced
decisions with reference to cost control. Expenditures are carefully analysed and management
take measures so that it can be reduced up to high extent (Cooper, Ezzamel and Qu, 2017).
Management accounting is useful tool for Morphy Richards Company which is engaged
in manufacturing of electrical appliances and as such, this system is much useful for it to draw
meaningful information for making effective decisions with much ease. Furthermore, it is quite
essential tool for management as it aids in making decisions by supplying required information
in effectual manner. Applying techniques of absorption, marginal costing provides useful piece
of information to the management for taking decisions. Moreover, it is helpful for controlling
performance of the company by using various techniques such as standard costing, budgetary
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control which help management to have effective control on operational tasks of the
organisation.
Management accounting is also helpful for preparing and formulating policies for the
betterment of company so that it may be able to achieve common targets with much ease
(MONEM and SAEIDI, 2017). This is done by implementing regression analysis and time series
analysis which is helpful for forecasting and as such, objectives can be achieved with much ease.
Moreover, this information is useful for making decisions as it interprets financial statements so
that results can be assessed and company may be able to manage upon activities to accomplish
desired outcome. In relation to this, cash flow statement, fund flow statement are useful
techniques aiding management for decision-making in effectual manner. The types of
management accounting systems are as follows-
1. Cost accounting system
It is useful method of management accounting system which deals with ascertaining costs
and take measures to control so that expenditures may not exceed revenue of the firm. Morphy
Richards Company effectively uses cost accounting in daily operations so that it may be able to
take better control over it. Cost accounting plays important role in the company particularly in
manufacturing concern which involves various costs such as fixed, variable, direct, indirect and
semi-variable costs. Thus, it is required by the company to evaluate these expenditures so that it
may not outreach revenue of the firm (What is cost accounting?, 2018). Therefore, it assists
management in taking better and effective decisions to control costs so that overall revenue may
be increased by reducing expenditures incurred on production.
2. Price optimisation
Price optimisation is another useful management system that deals with carrying out
mathematical analysis to assess consumer behaviour in effective manner. In simple words, price
of a particular commodity can be easily set with the help of this technique. Morphy Richards
Company should use the same so that it may be able to assess the behaviour of customers
towards commodity whether they prefer to purchase at a quoted price or not. Thus, customer
behaviour is easily extracted with the help of this management accounting system to derive
fruitful results. This is also essential so that customers are not attracted to rivals in any manner.
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This is effective technique by which organisation quotes price with reference to desire of
customers and as such, satisfaction level of customers are maximised up to high extent.
3. Inventory management system
Inventory management system is quite essential system of management accounting which
is used to manage inventory in the best possible way. This is essential as resources are scarce and
it is required that effective utilisation of the same should be made to derive better results.
Numerous orders are received from customers on daily basis and as such, it is required that
Morphy Richards Company should use the resources in effective way so that demand can be met
of customers by providing required quantum of stock to production department. If there is less
quantity of inventory in the warehouse, then demand of production department cannot be
satisfied and as such, production cannot be achieved (Honggowati and et.al, 2017). On the other
hand, if excess inventory is present, then additional costs of handling is incurred. Thus, it is
required that inventory should be managed to accomplish production
P2 Methods of management accounting reporting and benefits of management accounting
systems
Management accounting reporting is quite significant for the company to generate
relevant information about internal operations of the company in the best possible way. The
various methods of management accounting reporting are as follows-
1. Performance report:
Performance report is quite essential reporting method used by the management to assess
performance of something in the organisation. Usually, employees performance is being assessed
by the company to check their progress towards work whether they are achieving productivity or
not. Morphy Richards Company also uses this report to evaluate performance of workers in the
organisation. This is necessary so that efficiency and productivity can be enhanced in the best
possible manner. This is important for company so that common goals may be accomplished in
effective way. It is essential for evaluating and monitoring performance of the company with
much ease (Bennett and James, 2017). Planned results can be compared with actual results by the
management and as such, desired outcomes can be achieved. This is important so that corrective
action can be taken so that performance of workers can be improved if deficiencies are found.
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2. Inventory management report:
Inventory is integral part of the company and without it, production cannot be
accomplished. Inventory plays important role in the company and as such, desired production
can be achieved. Inventory is required to be ordered in adequate quantity so that demand of
production department can be easily achieved. This is important so that desired production can
be done without any wastage. If more than required quantity is ordered from suppliers, then it
will lead to unnecessary addition to handling inventory in the warehouse. Thus, excess quantum
of stock leads to addition in expenses of the organisation (Christ and Burritt, 2017). It is required
that production department should prepare inventory report in which need and demand of
required inventory should be stated. This report is then forwarded to management to analyse the
need of production department and as such, adequate inventory can be ordered without leading to
spoilage.
3. Accounts receivables ageing report:
Accounts receivables ageing report is another useful management accounting reporting
method which is used to derive effective results. Customers are allowed credit facilities so that
payment can be made afterwards. This is essential for the company so that customers may be
benefited by paying after and purchasing before the payment. This enhances customer
satisfaction and they become loyal to the company. Morphy Richards Company also provides
credit facilities to consumers so that they may become loyal towards it. Management prepares
accounts receivables ageing report which is based on unpaid customer invoices from which
outstanding amount need to be recovered.
This report paves the way for the organisation to recover amount pending from credit
customers. Thus, management analyses unpaid invoices and customers are contacted by concern
workers to pay the same. If credit is more outstanding, then organisation need to formulate well-
structures and strict strategies so that timely payments can be done by the customers (Ax and
Greve, 2017).
There are various benefits of management accounting systems which are already
discussed. It includes inventory management system, cost accounting system and price
optimisation. These are important aspect of the company so that benefits can be gained out of the
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same. Starting from inventory management system which is used for managing inventory in the
best possible manner so that wastage of inventory can be minimised up to high extent. This help
production department to accomplish desired production and as such, customers are being
satisfied with much ease. This enhances overall productivity of organisation and timely goods
can be produced Morphy Richards Company with much ease.
On the other hand, cost accounting is beneficial for the company as it assess costs and
implements measures to reduce the same (ALIFARI and et.al, 2017). This help to have better
control and monitoring of expenses in effectual manner. Moreover, it is beneficial for making
budgets in effective way. This is done by comparing actual costs incurred over the budgeted
costs and as such, corrective actions are taken if costs are more than planned costs so that it can
be reduced quite effectively.
Price optimisation is also beneficial for the company as it help it to assess customer
behaviour in effective manner. Thus, it is quite essential for the organisation to check over
customers' attitude whether they are ready to purchase goods or not at quoted price. Thus, it is
beneficial for Morphy Richards Company so that it may set price in accordance to preference of
customers.
P3 Marginal and absorption costing
A) Difference in profits
Absorption Q1
Particulars Amount (in ￡)
Sales revenue 66000
Cost of goods manufactured (78000*.85) 66300
Closing stock (12000*.85) 10200
56100
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GP 9900
Adjustment under absorption 400
Less: Fixed selling & administration
expenses 5200
5600
Net profit 4300
Absorption Q2
Particulars Amount (in ￡)
Sales revenue 74000
Cost of sales
Opening stock 10200
Production 56100
66300
Less: Closing stock 3400
62900
GP 11100
Less: Absorption adjustment 2800
8300
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Less: Selling cost 5200
Net profit 3100
Marginal costing Q1
Particulars Amount (in ￡)
Sales revenue 80000
Cost of goods manufactured (78000 *.65) 50700
Closing stock (12000*.65) 7800
42900
Contribution 37100
Less:
Fixed overhead 16000
Fixed selling & administration expenses 5200
Net profit 26300
Marginal costing Q2
Particulars Amount (in ￡)
Sales revenue (74000 *1) 74000
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Less: Opening stock (12000*.65) 7800
Cost of goods manufactured (66000*.65) 42900
Cost of goods which are available for
sale 50700
Closing stock (4000*.65) 2600
48100
Contribution 25900
Less: Fixed cost 16000
Fixed selling & administration expenses 5200
21200
Net profit 4700
Marginal and absorption costing are important concern for the company. Marginal
costing is useful technique when cost is added by generating one more unit of output. The main
essence of this method is that it considers variable costs. On the other hand, absorption costing is
based on absorbing all manufacturing expenditures and as such, units produced are absorbed.
Both the costing techniques are useful for Morphy Richards Company to have clear
understanding of financial picture in the best possible way.
Profit ascertained in both the techniques are different from each other. The main reason
behind this is that profits are reconciled in different manner which gives distinguished results.
The profit under marginal costing is 8920 and if level of stock decreases, then profit is much in
this technique. This is attained because when fixed overhead are carried forward, opening stock
is gets more and this leads to increasing in cost of sales (Agrawal and Cooper, 2017).
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On the other hand, profit under absorption costing is 18700 which is different from
marginal costing. The main reason behind is that charging of fixed overheads in both the
methods are not the same. The profit is 18700 and this is attained as fixed overheads are carried
forward to next year. This leads to minimisation of cost of sales which provides clarity about the
profit made by the company. If level of inventory increases, profit under absorption costing is
higher.
B) Reconciled statement
Reconciliation of Profits
Particulars Quarter 1 Quarter 2
Profit from absorption
costing 4300 3100
Add: Opening stock
adjustment 2400
Less: Closing stock
adjustment 2400 800
Variable costing
profit 1900 4700
Section 2
P4 Discussing kinds of planning tools
1. Zero based budgeting
Zero based budgeting is quite essential tool for company to prepare budget from a scratch
base and without referring to historical figures of previous year's budget. This is useful for
Morphy Richards Company to formulate budget with completely new base.
Advantages
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1. It is easier to prepare budget as it is not based on previous figures and as such,
effective results can be attained with much ease. Moreover, it provides accurate results to
company as every unit is observed in effective manner.
2. This method restricts budget inflation as it is completely based on new base. This
results in optimum utilisation of resources. Thus, it is more useful than incremental budgeting
(Zero Based Budgeting, 2018).
Disadvantages
1. It is not effective as it consumes lot of time of employees which hampers their routine
work which is the biggest disadvantage of this planning tool. Moreover, time of employees is
wasted which destroys their daily work.
2. It is not advantageous to company as manpower is required in more quantity for
making budget from zero basis. Moreover, every task is required to be formulate by management
which involves lot of training expenditures.
IRR (Internal Rate of Return)
IRR is useful planning tool which provides effective outcome related to new project of
the company. It is a meaningful tool that highlights attractiveness of the project in effectual
manner. It is calculated as an interest rate in which net present value of all cash flows equal to
zero. It is recommended by market analysts that more the IRR, better for the organisation to
chose the project.
Advantages
1. It is useful tool because even in the event of uneven cash flows, it takes into account
time value of money. This is the biggest advantage of IRR method as a planning tool (Turner and
et.al, 2017).
2. IRR is helpful as it provides profitability aspect of the project that will be generated by
it. It considers entire life of project and provides correct results.
Disadvantages
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