Management Accounting Report: Methods, Analysis, and Planning

This report delves into the realm of management accounting, providing a comprehensive overview of its systems, applications, and benefits. It begins by defining management accounting and its role in assisting strategic decision-making within organizations, using Aldi as a case study. The report explores various management accounting systems, including cost control, job costing, price optimization, and inventory management, highlighting their essential requirements and advantages. It then presents different methods of management accounting reporting, such as cost reports, performance reports, budget reports, accounts receivable reports, and inventory/manufacturing reports. Furthermore, the report includes a detailed analysis and calculation using both marginal and absorption costing techniques, exemplified by Conway Ltd. The advantages and disadvantages of different planning tools for budgetary control are also discussed. Finally, the report examines the adoption of management accounting systems for responding to financial problems and achieving sustainable success, concluding with a synthesis of the key concepts and their practical implications.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its system with their essential requirements...........................1
P2 Presenting different methods of Management Accounting reporting....................................3
TASK 2............................................................................................................................................4
P3 Presenting the calculation of on basis of Marginal and Absorption costing..........................4
TASK 3............................................................................................................................................6
P4 Explaining advantages and disadvantages of different types of planning tools for budgetary
control.........................................................................................................................................6
TASK 4............................................................................................................................................8
P5 Adoption of management accounting system for responding to financial problems and
leading to sustainable success.....................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Accounting is the language of a business as it defines the performance and financial
position of the organisation. The accounting mainly includes mainly two parts that is financial
and management. Financial one deals with the monetary transaction of firm while the scope of
management accounting is vast as it includes both financial and statistical data of the entity to
assist the management of the company in strategic decision-making process. In the present report
a detailed discussion about the management accounting system. Their application in business and
benefits are presented. Moreover, calculation using marginal and abortion method of costing is
carried out use and application of planning tools for budgetary control is presented. Application
of management accounting for responding financial problems is also carried out.
TASK 1
P1 Management accounting and its system with their essential requirements
Management Accounting: This can be defined as that process which analyse the cost of
business and its operation for preparation of internal financial reports, records and accounts
which assist the management in the decision-making process to achieve the business objectives
(Kenno and Free, 2018). This is an act making the financial and costing data sensible and
translating the same into useful information for the management and offices in the organisation
to use the same in effective decision making.
The institute of management accounting defines it as “it is a profession involving
partnership with decision making, making plans, performance management system, with
providing expertise in the financial reporting and controlling to assist management in
formulation and implementation of the strategy of the business”
Different types of management accounting system and their requirements, benefits and
application in Aldi:
Cost control system: This system is used by Aldi to involve a practice of identification
and reduction of the expenses and cost of business with enhancing the profits of the business.
This starts with preparation of the budgetary system (Hiebl, 2018). The managers of Aldi
compare actual cost and revenue with the budgeted ones, if the actual cost is Hight than planned,
controlling actions are taken to reach the expected level.
Benefits:
 It assists in improvement of profitability and competitiveness of the firm.
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 It helps in reduction of the cost of production and thus reducing the sale prices.
 The prices are kept stable hence maintaining the higher level of sales which ensure
regular profits generation.
Job costing system: This system is used by the management of the Aldi for assigning
and accumulating the manufacturing cost to individual units, departments or job. This is used as
various items are produces which are significantly different from each other and their cost of
production changes too (Usenko and et.al., 2018). The job cost record reports each item's direct
materials and direct labour that are actually used and an assigned amount of manufacturing
overhead.
Price optimization:
This technique is emphasised on analysing and comparing the prices of products and
services which have been offered by Aldi in different segmentation. It demonstrates how people
respond to the different prices at the same products and services (Azudin and Mansor, 2018). It
benefits the managerial professionals in analysing demand and developing best pricing strategies
for better profitability. This strategy will benefit the managerial professionals in decision making
and analysing the outcomes as per effective requirements.
Inventory management:
This is the method presented for managing inventories of the organisation. Therefore, there
are several elements which have been presented in the database that defines effective supply
chain management. It funnels the managerial professionals in analysing the demand and
producing the products as per the required (Anand, Balakrishnan and Labro, 2018). Therefore,
the chances of having wastage and inappropriate management of products will be controlled.
Additionally, it will help Aldi in securing the costs utilised in products and distribution of
products by effective execution over inflows and outflows of stock.
However, by implicating these techniques in the business operations will be effective in
terms of improving the creditability. Thus, it will be beneficial in terms of presenting accurate
and reliable information among the accountant of Aldi which in turn helpful in drafting the final
disclosure and decision making in the business. Additionally, such information will be effective
for organisation for having strong financial control.
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P2 Presenting different methods of Management Accounting reporting
Management accounting report: These reports are essential requirement of the
business of Aldi an organisation the retail sector of UK. Theses report provides the business
with the required information to trim the cost, giving reward to high performing employees, to
cut out the not profiting product line, and make investment in goods which are offering
significant financial returns for the business of Aldi. These reports can be generated quarterly,
monthly, weekly or even daily (Bodleand and et.al., 2018). Beneath are the different types of
management accounting report used in Aldi:
Cost report: The cost report defined the cost related with specific project, department,
job and even the per unit cost of production of Aldi. This aids in identification of the areas with
higher earning and area not generating any profits in Aldi (Habidin and et.al., 2018). Thus, assist
the management of the business in allocation of the resources as more allocation to profit making
activities and to cut the resources for those jobs with no or less profits.
Performance report: These reports are generated in Aldi to review the performances of
company as a whole as well as each employee and department in the organisation (Aziz and
Ahmad, 2018). These reports are used by the manager of the Aldi to make the key strategic
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MANAGEMENT ACCOUNTING REPORT
Cost Report
Budget
Report
Performance
Report
Account
Receivable
Report
Inventory and
Manufacturing
Report

decisions regarding future of the firm. The higher performers are given rewards and for under
performer controlling and monitoring strategies are made.
Budget report: This report assists them in analysis the business performance by the
owners and evaluating the department wise performance by manager of Aldi. The forecasted
budgeted are prepared for a specific time period and are based on the actual expense and revenue
of previous years (Bebbington and Unerman, 2018). This budget helps the management of Aldi
in cutting the cost and to decide upon the bonus and incentives to the employees. This report is
also crucial in the context of decision making as it need preciseness and accuracy in determining
the level of outcomes that can be achieved, with the available resource with the business.
Account receivable report: For the business relying on extending credits this report is of
essential need. It is necessary to prepare to break down the remaining balance due form the
consumers for a time period allowing the manager of the Aldi to identity the defaulters as well
the problems in the collection process of the organisation (Kenno and Free, 2018). There is
always some bad debt that needs to be written off, which can be done with the help of this report
which makes is easy to find the defining parties who will not make payments.
Inventory and manufacturing report: This management accounting report is used to
maintain the inventory level of the organisation. This reporting makes the manufacturing process
more efficient. In this reports' thing which generally includes are, inventory waste, hourly labour
costs, per unit overhead cost (Hiebl, 2018). A comparison of the cost of different assembly line
within the business is done with a view to highlight the areas for the improvement or offering
business best performing department.
TASK 2
P3 Presenting the calculation of on basis of Marginal and Absorption costing
Conway Ltd has been presented several accounting issues on which outcomes has been
determined by the managerial professionals (Usenko and et.al., 2018). However, these
accounting problems will be resolved as per implicating two methods such as Marginal and
Absorption costing techniques.
Income statement through Marginal costing techniques:
In marginal costing technique there will be consideration of the variable cost which will
be charged in the Unit of costs (Azudin and Mansor, 2018). Similarly, the fixed cost of the
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period is completely out of the contribution of data base. However, the income statement of
Conway Ltd has been based on marginal costing technique such as:
Income statement on the basis of Marginal costing techniques
Particulars Details (in £) Amount (in £)
Sales revenue 40000*15 600000
Less: cost of sales
Material 40000*4 160000
Labour 40000*4 160000
Variable cost per unit 40000*2 80000
Gross profit 200000
Operating expenses
Fixed production overhead 50000 50000
Other fixed overheads 100000
Total operating expenses 150000
Net profit 50000
Income statement through Absorption costing techniques:
This technique is consisting of accumulating the production process and apportioning
them to individual products. There has been requirement of costing for the accounting period
which in turn creates inventory valuation for organisational balance sheet (Anand, Balakrishnan
and Labro, 2018). However, for Conway Ltd the income statement based on absorption costing
techniques have been analysed such as:
Income statement on the basis of Absorption costing techniques
Particulars Details (in £) Amount (in £)
Sales revenue 40000*15 600000
Less: cost of sales
Material 40000*4 160000
Labour 40000*4 160000
Fixed production overhead 50000 50000
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Gross profit 230000
Operating expenses
Other fixed overheads 100000
Total operating expenses 150000
Net profit 80000
Interpretation: On the basis of above analysed income statement through marginal and
absorption costing techniques for Conway Ltd. there have been huge differentiation in the
analysed data set by these methods. Sales revenue of business on the basis of produced units
which were 40000 on the selling price such as 15. The total amount of sales has been analysed as
600000. The gross profit of the data base as per marginal costing technique is analysed as
200000 and absorption costing GP as 230000. Similarly, in analysing the net profit of the
presented variables which have defined the outcomes or marginal costing as 50000 and for
absorption as 80000. Thus, as per such outcomes on which it can be said that, the absorption
costing techniques is comparatively profitable for the industry with reference to analyse the net
profit.
Basis Marginal costing Absorption costing
Cost application Variable cost of the inventory
is considered
Variable and fixed overheads
both are applied to inventory.
Profits Each individual sales shows
higher profits
The profitability appears
lower for each individual sale
Measurements Profits are calculated using
contribution margins
Gross margin which includes
applied overheads are used to
measure the profits
Cost consideration Variable cost is considered as
product cost and fixed one is
treated as period cost.
Considers both fixed and
variable cost as product cost.
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TASK 3
P4 Explaining advantages and disadvantages of different types of planning tools for budgetary
control
In relation with improving the efficiency of the business on which there will be use of
effective planning tools and budgetary control techniques. Preparing budgets will be beneficiary
methods on which managerial and accounting professionals will articulate the costs implied in
each activity as well as estimate it for the further period (Habidin and et.al., 2018). To analyse
the effectiveness of such tools there must be analysis on the advantages and disadvantages such
as:
Incremental budget: The concept behind this method is that managerial professionals
articulated costs and gains from the previous year and make slight changes in the preceding
period’s budget for Aldi (Incremental budgeting, 2017). It does not require much time for
formulating the budgets as they estimate the costs and profits on the basis of raising the actual
outcomes on a certain proportion.
Advantages:
 This is the easiest way of formulating budget for upcoming period.
 It does not require much time and efforts by professionals.
 It brings stability in operations and funding
Disadvantages:
 It is consisting of risks as there would not be proper analysis over cost implicated in the
activities.
 There can be chances of manipulation by managers for satisfy their personal needs.
 The allocation of costs in activities will not be accurate as some activities might have less
funds will the unnecessary activity have more than enough amount of funds.
Activity based budgeting: These are the budgets which were prepared on the basis of cost
implicates in each activity. Thus, on the basis of which professionals analyse the past results to
determine the costs implicated in each activity as well as revenue gains through them
(Advantages, Disadvantages and Limitations of Activity Based Costing (ABC) System, 2017).
These information helps them in drafting a valid conclusion to decide the future costs implicated
in such activities of Aldi.
Advantages
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 This is the most accurate and transparent technique in context with drafting budgets for
the activities.
 Helpful in costing of process, value streams and supply chain management.
 It considers the unit cost instead of total cost as well as integrates with six sigma
approach which enables the business in ongoing performance increment.
Disadvantages:
 There will be requirement of appropriate information regarding the past transactions on
which it took much time and efforts.
 Using this technique to generate reports is does not comply with principles of GAAP
(generally accepted accounting principles).
Zero based budgeting: This budgetary technique is based on the concept of not considering
the previous year’s transactional details (Aziz and Ahmad, 2018). Thus, in which an accountant
decides the budgets to be start at the zero value. Each period activities have funds which is
relevant with the real time requirements.
Advantages
 This is the systematic analysis over the costs of budgets as well as requires less time and
efforts from an accounting practitioner.
 Each activity has enough amount of funds moreover, it is cost effective to business.
Disadvantages:
 There will not be focus on cost centres as there are chances of having mis management of
costs implied in activities.
 There will be huge manipulation and misinterpretation of funds in operations.
Cash flow budget: This method for planning and estimating the cost of operations and
revenue which will be generated through operations of firm (Bebbington and Unerman, 2018).
The cash flow statement has been prepared on the basis of inflows and out flows in a year
bounds manager in planning costs for proceeding period.
Advantages
 It is the most accurate and simple way of determining the expenses and revenue from
operations of firm.
 It entitles the managerial professionals in decision making and formulating the plans for
identifying alternatives that reduce costs.
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Disadvantages:
 It will require the past data and a good understanding of accounting terms which will help
in developing appropriate estimation.
TASK 4
P5 Adoption of management accounting system for responding to financial problems and leading
to sustainable success
Management accounting and financial problems:
The MAS can be defined as that systematic approach followed by an organisation to
measure and evaluate its internal performances so that the managements can be given with
significant information for decision making process. The financial problems faced by a business
can e outlined as inadequate cash flow, cost containment, credit and debt issues.
Advantages:
 The MAS effective identify he financial problems and solve the same before time.
 Assist in planning, decision making and directing the operation of the business.
Disadvantages:
 This is time consuming process.
 This requires key skills and detailed information to evaluate the performance.
For managing the operational performance of the organisation on which there will be
need of evaluating the objectives by implicating the several tools and techniques. Adaption of
management accounting system funnels the managerial professionals in decision making and
analysing the funds flow in entire business operations (Kenno and Free, 2018). It will be
effective in resolving the financial problems and have improved performance on long term.
Moreover, to respond the financial issues there must be implication of several management
accounting tools such as:
Variance analysis report:
This is the difference between actual and budgeted funds used in the business operations.
thus, such analysing represents positive and negative change, which enables accounting
practitioners in decisions making and resolving financial issues.
Pricing strategies:
It governs through implicating prices on products on a profit margin that cost of
manufacturing must be covered in a limited period (Hiebl, 2018). However, Aldi will be
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beneficial as per setting prices on products with proper ascertainment of strategies. There are
several pricing techniques that will be helpful to the business such as price penetration, seasonal,
premium, economy and skimming pricing.
Financial governance:
Assigning the role and duties to the accounting professionals which is relevant with
controlling, monitoring and executing the operational transaction of business (Usenko and et.al.,
2018). Aldi will have profitable success as if the qualified and skilled auditor analyse the
performance of business and suggest effective changes to be done costing system.
Management accounting information system:
Communicating the reports regarding revenue and expenses incurred in each department or
unit of business with the top-level professionals (Azudin and Mansor, 2018). Thus, delivering the
accurate reports helps them in analysing the profitability of such department analysed as per their
cost of investment. It will be assistive to professionals of Aldi in making satisfactory changes in
the costing methods and funds invested in practices.
Key performance Indicators:
Setting up small targets, challenges and objectives leads a business to sustain growth and
profitability. KPI includes various techniques such as balance scorecard and benchmarking
which motivated workforce to make effective efforts in attaining business targets (Anand,
Balakrishnan and Labro, 2018). Thus, such motivation will be effective for Aldi in having better
growth and profitability through operational efforts by employees.
Benchmarking: with this an organisation sets a bar to reach a certain level of performance
with its owe performances or that of a competitors and by evaluating its current position with the
set bench mark it can identify the lag and facial problems.
CONCLUSION
On the basis of above report, it can be concluded that management accounting systems,
techniques, tools, reports and methods are effective for managing performance of business. Aldi
had been suggested methods and tools to be implicated in business operations which would lead
to attain sustainable success. Along with this, there had been use of two costing techniques such
as marginal and absorption for resolving accounting problems of Conway Ltd. Moreover, other
non-financial techniques had been suggested to overcome with the financial problems and
leading the business in retaining effective success for the upcoming period.
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REFERENCES
Books and Journals
Anand, V., Balakrishnan, R. and Labro, E., 2018. A Framework for Conducting Numerical
Experiments on Cost System Design. Journal of Management Accounting Research.
Aziz, N. M. A. and Ahmad, F. A., 2018. Islamic Green Accounting Concepts for Safeguarding
Sustainable Growth in the Islamic Management Institutions. International Journal of
Academic Research in Business and Social Sciences. 8(5). pp.830-847.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review. 23(3). pp.222-226.
Bebbington, J. and Unerman, J., 2018. Achieving the United Nations Sustainable Development
Goals: an enabling role for accounting research. Accounting, Auditing & Accountability
Journal. 31(1). pp.2-24.
Bodle, K. and et.al., 2018. Critical success factors in managing sustainable indigenous businesses
in Australia. Pacific Accounting Review. 30(1). pp.35-51.
Habidin, N. F. and et.al., 2018. Critical success factors of sustainable manufacturing practices in
Malaysian automotive industry. International Journal of Sustainable Engineering. 11(3).
pp.217-222.
Hiebl, M. R., 2018. Management accounting as a political resource for enabling embedded
agency. Management Accounting Research. 38. pp.22-38.
Kenno, S. A. and Free, C., 2018. Fostering and forcing uses of accounting: Labour-management
negotiations in the automotive crisis in Canada 2008–2009. Management Accounting
Research. 39. pp.17-34.
Usenko, L. N. and et.al., 2018. Formation of an integrated accounting and analytical
management system for value analysis purposes. European Research Studies. 21. p.63.
Online
Advantages, Disadvantages and Limitations of Activity Based Costing (ABC) System. 2017.
[Online]. Available through :<
http://www.accountingexplanation.com/advantages_disadvantages_and_limitations_of_a
ctivity_based_costing.htm>.
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Incremental budgeting. 2017. [Online]. Available through :<
https://www.accountingtools.com/articles/what-is-incremental-budgeting.html>.
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