Management Accounting Report: Analysis of Network Rail's Practices

This report provides a comprehensive overview of management accounting principles and their application within the context of Network Rail. It begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its role in managerial decision-making. The report then delves into various management accounting systems, including inventory management, price optimization, cost accounting, and job costing, explaining their functionalities and advantages. It further explores different types of management accounting reports, such as budget reporting, inventory management reports, accounts receivable reporting, and performance reporting, detailing their significance and how they are utilized by Network Rail. The report also examines the integration of these systems and reports within organizational processes, emphasizing their interrelation and contribution to effective business operations. Finally, it discusses the advantages of different management accounting systems and how they contribute to improved productivity and profitability within Network Rail, providing valuable insights into the practical application of management accounting concepts.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1....................................................................................................................................1
PART A..................................................................................................................................1
PART B..................................................................................................................................6
ACTIVITY 2..................................................................................................................................11
PART A................................................................................................................................11
PART B................................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is a branch of accounting that is afraid with the identification,
measurement, analysis and interpretation of accounting information. It can be used to provide
help to managers for make the decisions and manage company's operations (Astuty, 2019). It is
different from financial accounting because it provides reports and books to top management to
help in decision making process. On the other hand, financial accounting focus on preparing
information for external parties and define about the company position. To understand the
concept of the report selected engineering organisation, Network rail which was known as
Railtrack plc before 2002. It is an arm length publicly body of the department for transport with
no shareholders. There are includes several topics such as essential requirement of various types
management accounting system and several types of management accounts reports. It also
defined that how to use absorption and marginal costing method in order to calculate of net profit
as well as compute labour variances. This report also tells about the merit and demerits of several
planning tools and compare that how company are selecting different management accounting
system in reference to overcome the financial problem.
ACTIVITY 1
PART A
Management Accounting and their necessary requirement
Management accounting is a process of measure, analyse, interpret, communicate
information and support to decision making process of top management. It is also known as
managerial accounting as well as cost accounting. It focuses on the several fields of accounting
which mainly aim to provided various types of information to top level management about the
metrics in business operations. Through management accounting system an organisation can
arrange their business activities in effective manner. Network Rail Ltd apply several types of
management accounting systems in reference to change their functional skillfulness to cut down
their overall manufacturing cost improve profitability of the company (Barnard and Mostert,
2015).
Management accounting system is a profession that include partnering in management
decision making, develop planning and performance management system. The particular system
can analysis of different systems to control of business activities and provide guidance to
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manager in the execution and implementation of an organization strategy (Weygandt and others,
2018). Following are the different types of management accounting system -
Inventory Management system – It is a system which is based on the technology,
procedures and process to maintain and monitor of the Engineering process. The manufacturing
company have different types of product and at every stage need to analysis of quantity of the
material. The stock of a business stock in their warehouse then check that whether the product
which are stored as raw material supplies, finished goods which are ready to sale out in market.
In Network Rail Ltd, essential requirement of the system to aware for the inventory and helps to
manager to manage in stocks in effective manner. The company use different types techniques of
inventory - LIFO – The particular method defines that inventory for the business come in last that
will sale out first. FIFO – According to this method inventory come first that is first out from the company
for the sales.
 AVOC – In this method sale out inventory on average cost to the customers and
distributors.
Price optimization system – It is a system where manager focus on the price of the
different products. Price optimization system can help to manager to set price structure after the
analysis of market. It uses analysis of mathematical activities and determine that how customers
might respond to several prices in reference to products and services. In Network Rail Ltd apply
particular system to analysis perception of different customer and know about their taste &
preference. As a result it can help to fulfil the requirement of company and maximize the profit
(Bedford and Speklé, 2018).
Cost accounting system – A cost accounting system mainly applied by manufacturing
company in order to record manufacturing activities through perceptual inventory system. It is a
measurable accounting system which can use to tracks the flow of inventory continually with the
help of several stages of manufacturing. The system predicts the cost of various products to
ascertain the profitability and productivity in reference to particular organisation. In Network
Rail Ltd, manager apply the system to estimate cost and analysis that how much profit they can
gain in future.
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Job costing system - The particular system consists of the procedure of accretion
content related to costs that is connected to particular production and specific job. There is
required to submit the cost information to a customer on the basis of contract and mention about
costs. With the of this system utilise the information and determine their accuracy of a company's
reckoning system. A job costing system contains of three types of information in reference to
network rail Ltd these are - Direct Material – The job costing system track the record of materials and analysis of
their cost at the time scrapped. It can compile the cost with the help of manual tracking of
materials on costing sheets. Direct Labour – The particular system must track the cost of labour used on a job which
is connected to services. These are distributing with a time card and time sheet with time
clock application (Bolt-Lee and Monte Swain, 2016).
 Overhead – It is assigning with job costing system where include of depreciation and
building rent. In the end of financial period to total amount of each cost allocate as per
the methodology.
The particular system require for the Network Rail Ltd to know cost of specific job role.
Different methods use for management accounting reports
Management accounting Reporting: Management accounting is a function that
pertaining to controlling, monitoring, and analysing the overall performance of the company in
terms of internal control of business operational activities for a specific time period. It is very
helpful to the business organisation to understand the uses of management provision and
business matters. Network Rail Ltd uses these reports to evaluating the actual business status in
the market in relevant to infrastructural management. So they can produce better result in future.
This reporting to the management is beneficial for company and its growth. Following are the
different type of reporting system that used by the Network Rail Ltd:
Budget Reporting: It is Internal reporting system of the management accounting that
contrast budget forecast and actual accomplished data during a specific period of time. It is very
critical reporting to the management that based on past experience and future circumstances that
may arises in future (Taschner, 2015). It describes list of future earning and expenditure of the
business. Network rail manager initiate this report to verify the operational activities are
performed in actual are match with budgeting report or not. By application of this reporting
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management can analyse the variances between actual and budgeting data, and make appropriate
decision in business. Budget report may guide to management credit period of supplier,
effectiveness of worker, cut cost of production.
Inventory management reports: This report shows that the real time flow of the
inventory in particular time period. This report is generated by production and infrastructural
based organisation to keep maintaining the record of stock material. It may include inventory
scrap, cost of production per unit and labour cost per hour. This report provides the detail
summery related to material, labour and overhead cost (Dowdell Jr, Herda and Notbohm, 2014).
Network Rail is prepared the particular report on monthly basis with the detail analysis of the
overall cost of production and used by the management in order to know day to day operation of
the business activities. With the help of this report they can handle real time stock management
and valuation of the outward inventory.
Account receivable Reporting: It is an amount collection tool that states the credit limit
of the customer or how much time taken by customer to pay their dues. Through this report,
manager can identify the over-due payment along with issue in collection process of the
company. So they can tighten the policy of credit allowed period as cash flow operation cycle
can be balanced. Network Rail Ltd needs to determine the effectiveness of the credit policy of
their clients and cash flow of the organisation as there are always some bad debts that are being
write off in business transaction. So they get to know where they are required to improve in good
flow of operating cycle.
Performance Reporting: It is management accounting tools that convey the businesses
object and mission to every employee who are working together with. So they can be more
efficient in respect of their accountability at the end of year. It is annual performance report that
asserts contribution of the employees and their efficiency in terms of productivity. Business
managers are use this report to make strategies decision in the future. Network Rail Ltd measure
the various aspect in respect of the overall performance of the employee with their actual
efficiency. So they can enhance their effectiveness in abilities. The role of this reports is essential
for any Network rail to keep an accurate standard for their strategy towards its goal (Gunarathne,
2015).
Advantage of different types of management accounting system
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Management accounting systems have their own value and advantage provide to different
types of business. It is totally depended on the manager of companies how effectively apply
systems in their company. Advantage of management accounting system applied at Network Rail
Ltd are the following -
Different types of system Advantage
Inventory management
system
The particular system can provide actual information of stock
utilisation. It is beneficial for Network rail Ltd to effectively
manage productivity and increase profitability of company.
Through particular system easily conduct business activities in
smoothly manner. It saves time by preparing the status of
inventory in accurate manner which can be used anytime (Qiang
and others, 2014) .
Cost accounting system The particular system provides benefits to the selected
organisation to measure the cost, time and expenses in reference
to determine cost of production. The system provides benefits to
manager of Network Rail Ltd to highlight of unprofitable
activities which can become reason of loss then reduce it from
production process.
Price optimization system The particular system provide advantage to evaluate actual prices
of business products or services in the open market. With the
help of particular system collect information from market and
analysis price of different products in Network rail ltd.
According to market activities set price of product and increase
profitability.
Job costing system This system helpful to managers for compute cost of specific job.
It is also helpful to execute of desirability of specific job for the
future situation. The advantage of this system to provide fair
value of costs which is related to delivering particular job in
Network rail Ltd.
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Integration within the organisational processes
Management accounting system and management accounting reports are inter related
within organisational process. Different types of management accounting system can apply on
the organisation to conduct various business activities in effective manner (Harris and Cassidy,
2014). The system are using by business, cost accounting system, inventory management system
etc. All systems are play significant role and help to prepare management accounting reports.
These reports are related to different departments and provide detailed information regarding to
business operations and how to conduc6t in efficient manner. These reports provide to top
management then they will take effective decision and run organisational process. It can help to
provide competition to competitors at market place.
PART B
ANNEX (A)
Marginal Costing - It is a costing technique where cost changes with per unit of
production and fixed component remains constant throughout. This implies an additional charge
involved with every extra unit of output. These consist of direct material, labour and variable
overheads. The prices are determined on the basis of marginal cost and contribution. It is used by
managers of Network Rail Ltd for the purpose of decision making of an organisation and helps
them to ascertain the value at every level of production through break even analysis. The
advantage of this method is that it is easy to understand and operate (Hope and Wang, 2018).
Absorption Costing - It is a costing method (also known as full costing) that ensures all
the manufacturing cost have been assigned to the units produced. This includes any direct cost in
producing a good or service. The finished product will include direct material, labour, variable
and fixed production overheads. They are required for financial and income tax reporting. These
include the effect of opening and closing inventory. The advantage of this technique is that it
considers both direct and fixed cost. They provide a company with more accurate picture of
profitability situation.
Income statement by marginal costing method:
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Interpretation: As per the above table it has been analysed that to calculate net profit according
to marginal costing method less variable cost from sales. After then get amount of contribution
which is 195750. from the amount of contribution less amount of fixed expenses and in the end
accomplish amount of net profit which is 150750 of the year.
Income statement by absorption costing method(1st quarter)
Interpretation: From the above it is getting that from the amount of sales less amount of cost of
goods sold then get amount of gross profit which is 195750 then less amount of under absorption
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and receive actual gross profit of 202550. After that deduct amount of fixed expenses 45000 and
get amount of net profit 157550.
Working note:
1.
2.
Income statement by absorption costing method(2nd quarter)
Working notes:
1.
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Total variable cost per unit 51.5
COGS
opening stock 25750
Production cost 303850
Less: closing stock -149350 180250
2.
ANNEX (B)
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