Management Accounting Report: In-depth Analysis of Nero Ltd Accounting

This report offers a comprehensive analysis of management accounting practices, focusing on the case study of Nero Ltd. The report delves into the definition and requirements of management accounting systems, exploring various methods used in management accounting reporting, including performance reporting, inventory management reports, and job costing reports. It examines different costing methods such as marginal costing and absorption costing, while also evaluating the benefits of implementing a management accounting system, such as cost control and inventory management. The report further analyzes the integration of accounting systems and reporting methods, highlighting their importance in identifying and resolving financial issues. Additionally, it assesses the advantages and disadvantages of planning tools in budgetary control and evaluates how companies can respond to financial problems using these tools. Overall, the report provides a detailed overview of the application of management accounting principles to improve financial performance and decision-making within an organization.

MANANGEMENT
ACCOUNTING

Contents
TASK 1..........................................................................................................................................................3
P1: Define management accounting and requirements of management accounting systems................3
P2: Different methods used in management accounting reporting:.......................................................5
M1: Benefits of using management accounting system..........................................................................6
D1: Analysis of the various reporting methods and accounting system integration................................7
TASK 2..........................................................................................................................................................7
P3: Different kinds of costing methods....................................................................................................7
M2: Various types of accounting tools and techniques.........................................................................11
D2: Analysis of data collected through income statement....................................................................11
TASK 3........................................................................................................................................................11
P4 Advantages and disadvantages of using planning tools:...................................................................11
M3: Analysis of the planning tools.........................................................................................................13
D3: Evaluation of planning tools for responding to financial issues......................................................13
TASK 4........................................................................................................................................................13
P5: Measures taken to resolve the financial problems of company......................................................13
M4: Evaluation of the planning tools to deal with the financial issues..................................................15
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................16

INTRODUCTION
Management of the company plays an essential role in managing the operations of the
business activities so that the organizational goals are achieved in an effective and efficient
manner. Role of management is very crucial in every organization irrespective of its size. For
this, Management accounting system plays an important role by providing the internal managers
with the essential information. The management accounting system summarizes the information
of the financial statements of the company with the future economic and non economic
conditions that may affect the business in the near future, and then passes on this information to
the managers so that they can take suitable decisions and attain the organizational objectives.
In this research report we will discuss about ‘Nero ltd’ and the various accounting
systems that should be implemented and their essential use in the workings of the organizations.
We will discuss about the methods used in management accounting reporting, what are the
appropriate techniques of cost analysis, advantages and disadvantages of planning tools in
budgetary control and how companies respond to financial problems using accounting system.
TASK 1
P1: Define management accounting and requirements of management accounting systems
Meaning and Definitions: The management accounting is the form of accounting which
is done for providing the necessary information to the internal management of the company. The
accountant collects the information from the financial statements of the company and studies
other future economic and non economic condition and then presents all of that information in a
report, and that report is given to the internal managers for taking suitable decisions for the
company so that the company can take suitable decisions according to the market conditions.
The information presented in this report is quantitative in nature as compared to the qualitative
nature of financial accounting.
Management accounting is concerned with the preparation of financial reports and
forecasts that are reliable, accurate and fair, the data contained in these reports should be helpful
to the internal management for formulating the plan and policies for the organization that would
help the company in attaining the determined objectives which may be short or long term.

Types of accounting systems:
Price Optimization: This is the accounting system which focuses on balancing between
the value and profit of the product to maintain the customer satisfaction along with the
profitability of the company. This accounting deals with determining the price of the product in
such a manner so that the price of the product seems optimum to both the company and the
targeted customers. The system of price optimization allows the companies determining the
demand of their products in the market and accordingly setting the pricing strategies.
Cost accounting system: The modern companies such as Nero. Ltd can only survive in
this competitive environment only if they use such costing systems in managing their operations
and determining their production cost to perform effectively and efficiently. Thus, the
accountants of such companies need to ensure that there is no excessive cost involved in the
business operations and if there is he need to cut it down. This helps in reducing the wastages of
financial resources incurred in the activities of business.
Inventory management system: This accounting system deals with managing the
inventory levels of the organization. The companies like Nero ltd. Needs to maintain their stock
levels by using this system for satisfying the demands of their customers as and when required.
The managers of Nero Ltd should take the responsibilities of managing all the activities starting
from the production level till the final sales of company. The inventory management system that
companies follows are discussed as under:
FIFO: This inventory system suggests that the goods that came first in the stock of the
company are supposed to be sold first, which means that cost of goods sold represent goods that
came earlier in the stock and the goods that came in later goes to the closing inventory.
LIFO: This system of inventory management means last in first out and it suggests that
the goods that came into stock later are supposed to be sold first and thus the cost of goods sold
represents goods that came into inventory in the end and the earlier purchased goods goes into
closing inventory.

Weighted average method: This system of inventory management takes the weighted
average of the total inventory of the company and then the stock is cleared for sale. In this
inventory system the cost of goods sold and closing inventory have same prices of the product.
Job costing system: This accounting system is helpful in tracking the labor cost
manufacturing cost and other overheads cost that is related to specific product or a batches of
different products. This costing system is applicable only in those industries where manufactured
products differ from each other.
P2: Different methods used in management accounting reporting:
A management accounting report is summary of the financial statements of the company
such as balance sheet, statement of profit and loss etc and other future economic and non
economic factors that are taken into consideration and summarized by the accountant in order to
help the internal management of the company in taking the decisions and formulating plan and
policies for the companies. These reports can be more effective if they are prepared by using the
accurate and reliable data available with the company without ant wrong entries in the financial
accounts. This is observed in many organizations that companies can achieve the pre specified
objectives only if they are using reliable and accurate information, this also impacts the goodwill
of the company and its market image. In order to gain the market share and maintain the
sustainability in the market, they need to do an effective reprting which reflects true and fair
market information on which the management can rely and act. The various kinds of reporting
systems that are discussed as under:
 Performance reporting system: This system of reporting ensures that accounting
reports should be analyzed and interpreted in such a manner that it should represent the
recent financial performance of the Nero ltd. The performance reporting system helps in
analyzing both the individual and the performance of company as whole for an
accounting year.
 Inventory management report: This report helps managers in maintaining the stock
levels in the company and helps in analyzing the stock positions of the company at
different times of accounting year. This report works as an effective tool for the purpose
of managing the levels of inventory in the Nero ltd. The tools that help in maintaining
these reports are Economic order quantity (EOQ), inventory turnover ratio and ABC

costing. Economic order quantity is the optimum level of stock that should be ordered
timely in order to maintain the stock levels in the company.
 Accounts receivable report: This report is also known as debtors report. According to
this report the managers estimated the amount of debtors that company currently have
and analyzing how much amount is to be received from them, and at what date the
amount is to be received. This report also tells about the debtors of the company that are
not making the payments at the right time which in turn helps the companies in
formulating stricter debtor collection periods to collect the amount as early as possible.
 Job costing report: This reporting system takes into account the costs that are related to
the production of specific product or batches of products and services during an
accounting year. It takes into account the detailed information about the direct material,
labor and other overheads that are used by the Nero ltd in production of certain goods and
services.
 Operating budget report: This report takes into account the expenses and costs that are
incurred in the operations or the regular activities of the business, basically production
related expenses. It determines the actual costs that are incurred in the production of total
units. These reports often consider the operations cost of entire business or sometimes of
individual projects. By gathering all the operation budget into a report the total expenses
are identified which are then used in the income statement for finding the profitability or
the net earnings of the company.
M1: Benefits of using management accounting system
From the above discussed various accounting systems, it has been determining that they
all are having equal benefits that are vital for the company in future planning. Some of them are:
Cost accounting system: By the help of this, Nero ltd can easily be able to control and identified
their overall cost incurred on the production process.
 Inventory management system: one of the biggest advantage of using this system is to
determine opening and closing availability of stock with the company.
 Price optimization system: With this system, manager of Nero ltd can easily analyses
the perception of the customers regarding product those are offered in front of time by the
Nero ltd company.

 Job cost system: As per this system, owner of the company or production manager can
examine individual cost of products that are manufactured during the period of time.
D1: Analysis of the various reporting methods and accounting system integration
It has been analyzing that accounting system and reporting both are valuable parts of the
company. Manager of Nero ltd can make sure that all the information regarding the present
position can easily be determining by these tools. It can assist them to reduce all the financial
issues those are arises within an organization. There is different reporting system such as
performance report, account receivable, inventory report and so on. These are interlinked with
the each other to directly so that further decision can be made in near future time.
TASK 2
P3: Different kinds of costing methods
Cost is referred as the total amount of expenses that are incurred in the operations of the
Nero ltd. Costing in an easy way is method of determining the projected expenses that are
involved in manufacturing something. These costing methods used by the companies help them
in improving the overall production process by estimating the costs involved in advance and
helps in reducing the cost involved in production process by reducing wastages. These cost
analyzing techniques helps the Nero ltd in determining the profitability from the produced goods.
These are discussed as under:
Marginal costing: This costing process determines the cost that is incurred in the
production of additional units of products by the company. It is the additional cost per unit of
product produced. The marginal cost of production involves only variable cost such as material
labor etc and do not consist fixed cost. This costing helps in analyzing the profitability that the
company made from producing those additional units.
Absorption costing: This type of costing method considers the total cost that is incurred
in the process of manufacturing. The absorption costs are inclusive of both the variable and fixed
cost that incurs in production. Because of this, the method is used from a long time. Variable
costs of production are changed with every unit produced whereas apportionments of fixed costs
are done according to other aspects of product.

Comparison
Absorption costing Marginal costing
This method of costing terms cost on
conventional basis.
The marginal costing method determines cost
as contribution per unit.
This costing method takes into consideration
both variable and fixed cost
The marginal costing only considers the
variable cost per unit
This is undertaken for company’s long term
strategic development.
This is for short term planning.
Marginal costing method:
Quarter 1
Particulars Amount (in ￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock
(12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 1900
Quarter- 2

Particulars Amount (in ￡)
Sales 74000
Less: Cost of sales
Opening inventory
(12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock
(4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 4700
Absorption costing for Quarter
1:
Particulars
Amoun
t (in ￡)
Sales 66000
Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900

Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Absorption costing for Quarter
2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
Less: selling expenses -2800
8300
Fixed expenses 5200
Net profit 3100
Reconciliation
Q1 Q2
Variable costing profit 1900 4700
Opening inventory 0 7800
Closing stock 7800 2600
Absorption costing profit 4300 3100
Opening inventory 0 10200
Closing stock 10200 3400

M2: Various types of accounting tools and techniques
From the above analysis, it has been determining that company can use various types of
accounting tools and techniques in their operation planning. These are effectively helpful for
them in attaining future targets for the company. Some of them are:
 Marginal costing tools: It is known as the one of the best techniques that can assist in
proper evaluation of net profitability of the company. In this, company can change their
variable units but cannot change the fixed cost.
 Historical cost: It is another important tools that can create value to the company by
measuring the prices of an assets on the given balance sheet on their nominal cost instead
of original cost.
D2: Analysis of data collected through income statement
In accordance to different kind of issues those are occurs within an organization in
coming period of time. They required to make use of different costing method. It would make
better reliability to the company so that future decision can be made. The two important methods
used to calculate the net income is marginal cost and absorption. By the use of absorption
costing, they are getting total profit of 3100, whereas with the use of marginal costing 4700.
TASK 3
P4 Advantages and disadvantages of using planning tools:
Budgetary control: This is the process of preparing budgets for the future period and
then these are compared with the actual performances that occur at the time and then finding out
the variances, if any and taking corrective actions. These budgets can be related to costs, sales,
production etc. the management compares these budgets with the actual performances and then
find the problems and accordingly takes action to correct them without any delay.
Planning tools: Every organization does planning by using administrative tools for deciding the
plan and policies and for the attainment of pre specified objectives. There are various types of
tools that are used control the budgets. These are discussed in brief as under:
 Forecasting tools: This tools takes the assumption that is based in the internal
management which consists of effective skills, decision making and knowledge. This

tools analyses the historical data and reports for making the future report and forecasting.
These forecasts also analyses the future economic and non economic policies that may be
implemented in the future and how it will affect the business. This forecasting tool also
tells about the future and current industry trend in which the company is associated. The
forecasts such as demand, supply, prices and labor costs are done in this forecasting
system.
 Advantages: This tool is very crucial tool industries can use for examining and analyzing
their pre specified targets. With help of this they can formulate the policies accordingly
and determine the sales demand and relate costs that will incur in production.
 Disadvantages: The drawback of this tool is that it makes the forecasting based on the
future information which may not always be certain and are based on assumption only.
Scenario analysis tools: With the use of these tools the managers of the organization can
analyze about the current trends of the market that are applicable. This tools assists in planning,
investing and operational administration of Nero ltd. The changes in the working are done with
the scenario analysis such as variations of demand in market and so on.
 Advantages: By using the assistance of scenario tool managers of the company are able
to generate proper ideas for the selection and interpretation of upcoming opportunities
and can make decision regarding whether or not to choose them.
 Disadvantages: It has been seen sometimes that this technique is not so effective when
changes are done in policies and this is not able in generating positive outcomes.
Contingencies planning tools: These tools are formulated by the companies when the firms
have to make critical decisions at the time of contingencies. Implementation of a plan that is
made for contingencies can be very effective in tackling critical situations.
 Advantages: These plans are very helpful in the times of contingencies as they help a lot
in overcoming the critical situations.
 Disadvantages: The Plans made for contingencies are very uncertain and complex in
predicting future conditions of the markets.