Management Accounting Report: Pico Technology Analysis and Budgeting

This report provides a comprehensive overview of management accounting, focusing on its importance, integration, and application within an organizational context, using Pico Technology as a case study. It explores various management accounting techniques, including budgeting reports, historical cost accounting, marginal costing, and standard costing, along with income statements prepared using absorption and marginal costing. The report also delves into the benefits of management accounting systems for Pico Technology, the integration of management accounting systems and reports, and three key planning tools used for budgetary control: zero-based budgeting, top-down budgeting, and activity-based budgeting. Furthermore, it examines how management accounting can be utilized to respond to financial problems, offering valuable insights into financial analysis and decision-making within a business environment.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
LO 1.Management accounting its importance to integrate management accounting system,
evaluation of management accounting system and their application within an organisational
context.........................................................................................................................................1
LO 2.Different techniques and methods used for management accounting reporting................2
3.Income statements using marginal and absorption costing......................................................3
M1 benefits of management accounting system for Pico Technology organisation..................5
D1 integration of management accounting system and management accounting report in Pico
Technology..................................................................................................................................5
TASK 2............................................................................................................................................6
LO 3. three planning tools in management accounting used for budgetary control...................6
LO 4. Ways in use of management accounting to respond financial problems..........................7
M3. Planning tools and their application for preparing and forecasting budget.........................7
M4. Role of management accounting for sustainable success....................................................8
D3. Role of planning tools to solve financial problems of the organisation...............................8
Conclusion.......................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
To achieve business goals' management accounting used by managers. It is also known as
managerial accounting and cost accounting. Management accounting used to analyse business
cost and business operations which is prepared for internal financial report. This present report
will explain management accounting and also integrated management accounting system.
Further, in this report different techniques and methods used for management accounting
reporting is to be analysed. Three plaining tools in management accounting and their advantage
and disadvantages is going to explain in this report. Chosen SME organisation for this report is
Pico Technology.
TASK 1
LO 1.Management accounting its importance to integrate management accounting system,
evaluation of management accounting system and their application within an
organisational context
To consider business needs or events of organisation which happened around the business
operation, management accounting or managerial accounting used to look at that events. It is
used by managers of the organisation for internal purpose in their decision making. Integrated
accounting system used by managers to combine both financial and cost accounts in one ledger
account. Pico Technology managers used management accounting system in developing decision
which is related with internal operations of the organisation.(Management Accounting –
Meaning, Advantages & Functions,2018. )
Integrated management accounting system used by organisation to standardise procedure
in recording transaction and financial information of the company. It is a type of software which
helps managers in reducing a lot of paper work in organisation. This is used by organisation to
get accurate financial information of each department of the organisation such as sales, stores,
back office and front office. Its importance for pico Technology are as follows-
 real time data processing
Integrated accounting systems used in organisation to find real- time accurate information of the
business transactions of the organisation. For example number of inventory ans sales of the
organisation and their records are easily gets track by using of this accounting system in the
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organisation. Day to day transaction of the organisation is also be tracked by managers of
organisation.
 One stop shop
Using of integrated accounting system in an organisation helps managers to record all the
transaction on one ledger only. This accounting reports may include record of financial
accounting, management accounting and cash flow reports of the organisation. By using this
managers will able to get information of records at one stop shop only.
 Functional simplicity
Integrated accounting system helps managers in doing accounting in simple manner. This is
known to be an automated data processing system of the organisation, under which complex
reconciliation statements will easily record.(Ishanka and Gooneratne, 2018.)
For Pico Technology, management accounting system plays an important role and its evaluation
for organisation are as follows-
Advantages-
Role of management accounting is to provide future decision by analysing past financial
data's of organisation therefore, managers of Pico Technology used this accounting to develop
effective decision of organisation.
This accounting analysed details of organisation data by which managers will able to
analyse feasibility and profitability of the organisation by developing effective decision.
Disadvantages-
This accounting system depends on the cost and financial accounting therefore accurate
data information is to be required in decision making process of the organisation. Sometime
biasses is also to be faced in organisation because decision is taken by top level management.
LO 2.Different techniques and methods used for management accounting reporting
Methods and tools used for management accounting report is as follows-
Budget report- it helps small business owners in analysing their organisation's performance
with departmental performance and also cost of the organisation. This budget analysis used by
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analysing previous expenses of the organisation. This budget report helps managers in
maintaining organisation funds.
Historical cost accounting- it helps managers to control cost and to develop effective future
planning. Because it provides previous financial data which include details of job, departments
and also process of organisation.
Marginal costing- to control cost and to maximise profit of the organisation this costing
techniques used by managers which also incudes differential cost analysis and also break-even
analysis of company.(Richardson, 2017.)
Standard costing- to control cost and to take correct decisions for future of the company this
costing technique is used by managers of the organisation. It elements cost which used in
producing single unit or to produce number of units. These units are measures with actual cost in
taking decision regarding specific future time.
Ratio analysis- to increase efficiency of the firm ratio analysis is the best tool which measure
liquidity, solvency, profitability and also investors, creditors, and outsider of the organisation.
Therefore, this is the important tool for management accounting reporting.
These are some techniques and methods which used in preparing management accounting
reporting for the Pico Technology organisation.
3.Income statements using marginal and absorption costing
Income statement as per absorption costing of Modern Ltd.
particulars Product X Figures
(in £)
Product Y
Figures (in
£)
Sales revenue 828000 (180*4800) 480000
(150*3200)
Production cost 750000 (5000*150) 364000
(3500*104)
Less: inventory at the end of period (-) (-)
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Gross profit (sales- COGS) 78000 116000
Less: fixed expenses
Fixed production overhead -210000 -210000
Fixed administration overhead -54000 -54000
Net operating income 3000 41000
Computation of manufacturing cost per unit
particulars product X (Figures (in £)) Product Y Figures (in £)
Direct labour 36 24
Direct material 30 24
Variable production overhead+
variable selling overhead
26 18
Fixed production overhead 60 40
Total manufacturing cost per 150 104
As per the above table product X has gross profit 78000 and their net operating income is
3000 and product Y has gross profit of 116000 and operating income is 41000. Therefore,
product Y is more profitable in terms of product X.
1. Income statement on basis of marginal costing Modern Ltd.
particulars Product X Figures
(in £)
Product Y Figures (in
£)
Sales revenue 828000 (180*4800) 480000 (150*3200)
Less: variable expenses
Direct labour 180000 (5000*36) 84000 (3500*24)
Direct material 150000 (5000*30) 84000 (3500*24)
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Variable production overhead 120000 (5000*24) 56000 (3500*16)
Less: closing inventory (-) (-)
Contribution (sales- variable cost) 378000 256000
Less: fixed production overhead cost -21000 -21000
Fixed administration overhead -54000 -54000
Net profit 303000 181000
According to marginal costing product X has contribution of 378000 and net profit as
303000 and product Y has contribution of 256000 and net profit as 181000. Therefore, here
product X is more profitable than product Y.
M1 benefits of management accounting system for Pico Technology organisation
Benefits of management accounting system is that it helps in increasing efficiency of the
company. It also helps in increasing profitability of the organisation, helps managers in taking
effective decisions for the company, it also provides cost transparency in evaluating business
cost, by developing management accounting managers will able to control monetary finds of the
organisation. Pico Technology managers has developed management accounting system to
achieve higher performance and profitability of the organisation. It also helps them to develop
effective decision for the company.
D1 integration of management accounting system and management accounting report in Pico
Technology
Types of reporting Integration with organisational process
Budgeting report This integration process between Pico
Technology and budgeting report helps
managers to develop effective decision to
achieve targeted future needs.
Job cost report By developing this strategy Pico Technology
will able to reduce overall cost of organisation
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by which company will able to decide fair
prices and also will achieve cost report and
objectives.
Performance report By this integration Pico Technology will able
to achieve high profitability of the organisation
and will also able to manage future production
of the organisation.
TASK 2
LO 3. three planning tools in management accounting used for budgetary control
Planning tools used by organisation to manage organisational plans, goals, and also to
forecast company's overall budgets by which organisational objectives get achieved. To develop
effective planning in organisation company used various tools by which effective budget plan
will be developed in achieving organisational objectives. Three budgeting planning tools are as
follows-
Zero-based budgeting- this budgeting technique used by organisation to examine every cost of
business. Excess expenses of the organisation will be eliminated to justify business budget. This
method leads to decrease business budget and by which cost of the company will get saved.
(Wouters and et.al., 2018.)
Its advantage are as follows- it provides budget in more flexibility, by developing budget it helps
in focus operations of the business by which organisational objectives achieved in more
disciplined execution, it also helps in lower cost of the organisation.
Disadvantage includes in this- by developing this budgeting there is a possibility of getting
manipulated decision and also managers are biased towards short- term planning.
Top down budgeting- under this budget method starts from top level management and work
with lower level management. Under these tools budgeting decision is taken by top level
management and its information is provided to lower level management and direct them to
follow for achieving organisational objectives.
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Its advantages includes- under these, decisions are developed by top-level management and
lower level involvement is not necessary by which time got saved of person who are involved in
day to day operations.
Disadvantage of this includes that this budgeting techniques are developed by top level
management therefore they are not aware of the day to day operation by which specific budget
expenses requirements for day to day operations will get failed.
Activity based budgeting- to control cost of the organisation this budgeting techniques used by
organisation. Under which budgeting is developed for particular activities of the organisation by
that productivity and business practises of the organisation gets improved.
Advantages of this budgeting includes that it provides more accurate costing of products of the
organisation, it helps in utilizing unit cost rather than to analyse total cost of the organisation, it
eliminates waste cost of the organisation.(Kihn and Ihantola, 2015.)
Disadvantage includes of this budgeting is that to maintains this budgeting tool huge cost is
required, it easily misinterpreted by managers in developing effective decision of budgeting of
the organisation.
LO 4. Ways in use of management accounting to respond financial problems
To respond financial problems of the organisation, Pico Technology used some
techniques from management accounting system. Various management accounting techniques
which used to solve financial problems may includes benchmarks, by utilising financial and non-
financial key performance indicators by that financial performance get solved of the
organisation. Financial indicators which include to respond financial problems are-
Liquidity, solvency, debt ratio under this key performance indicators are current ratio,
quick ratio, and working capital ratio. To solve or to respond to financial problem current ratio
helps in indicate ability under which payment of short term debt over short term assets will
create. Quick ratio provides sufficiency of liquid assets with short-term debt. Working capital
will help in achieving day to day requirements of the enterprise by remaining solvent.
Profitability ratios are also used to solve financial problem under which gross profit,
selling cost, net operating and selling cost will use. These all ratios are used to set benchmarking,
goal setting and budgeting. Also, revenue ratios are used to solve financial problems in which
sales, sales growth is used to solve problems.(Kerzner and Kerzner, 2017.)
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Non financial indicators will include management of human resource. To solve financial
problems company will use their employee as assets of the company and this factor will prove as
success of the organisation. Another factor to solve is product and service quality and to solve
financial problem entity has to compared it with competitors to satisfy customers.
M3. Planning tools and their application for preparing and forecasting budget
Planning tools Applications
Activity based budgeting To control cost of the organisation this
budgeting techniques used by Pico Technology
organisation. It provides more accurate costing
of products
Top down budgeting Under these budgeting decision is taken by top
level management and its information is
provided to lower level management to achieve
organisational objectives of Pico Technology.
Zero-based budgeting This budgeting technique used by organisation
to examine every cost of business. Excess
expenses of the organisation will be eliminated
to justify business budget.
M4. Role of management accounting for sustainable success
To develop effective decision in organisation management accounting elements like
marginal costing, standard costing, break-even will analyse by that managers will able to develop
policies and strategies for achievement of goals. To determine price and planning of the
organisation management accounting report include sustainable success of the organisation.
These are the role of management accounting for sustainable success of organisation.(Goetsch
and Davis,2014.)
D3. Role of planning tools to solve financial problems of the organisation
Management accounting contribute in solving problems at all level of department of
organisation. Such departments are-
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Planning and controlling- this is major element for Pico Technology organisation. To develop
effective ideas planning used in organisation and to execute them according to plan, controlling
is developed in organisation.
Implementing plans- to implement plan management accounting helps Pico Technology to
collect information and budgets, performance report for the implementation.
Competitive advantages- management accounting helps organisation to develop strategies
which helps them to stand competitive in business markets.
Conclusion
From the above study it can be concluded that management accounting plays an
important role for developing effective decision in organisation. This present report has cover
meaning of management accounting and integrated management accounting and Different
techniques and methods used for management accounting reporting. Three planning tools in
management accounting used for budgetary control and ways in use of management accounting
to respond financial problems is also explained in this report.
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REFERENCES
Books and Journals
Ishanka, S. and Gooneratne, T., 2018. TOTAL QUALITY MANAGEMENT AND CHANGES
IN MANAGEMENT ACCOUNTING SYSTEMS IN A MANUFACTURING FIRM: A
CASE STUDY. Asia-Pacific Management Accounting Journal. 13(1).
Rante, A., Rosidi, R. and Djamhuri, A., 2017. MANAGEMENT ACCOUNTING SYSTEM AS
MEDIATING THE EFFECT OF DECENTRALIZATION AND LEADERSHIP STYLE
ON MANAGERIAL PERFORMANCE. Jurnal Keuangan dan Perbankan. 15(1).
Richardson, A.J., 2017. The Relationship between Management and Financial Accounting as
Professions and Technologies of Practice. The Role of the Management Accountant: Local
Variations and Global Influences.
Wouters and et.al., 2018. T Course: Management Accounting 1 [T-WIWI-102800]. Module
Handbook Industrial Engineering and Management (B. Sc.).
Kihn, L.A. and Ihantola, E.M., 2015. Approaches to validation and evaluation in qualitative
studies of management accounting. Qualitative Research in Accounting &
Management. 12(3). pp.230-255.
Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning,
scheduling, and controlling. John Wiley & Sons.
Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. Upper
Saddle River, NJ: pearson.
Online
Management Accounting – Meaning, Advantages & Functions.2018. [ONLINE]. Available
through <https://cleartax.in/s/management-accounting>
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