Management Accounting Report: Costing Methods and Planning Tools

This report examines management accounting principles, focusing on different types of systems, costing methods, and planning tools. It includes a case study analysis of Sollatek, a company in the electrical services sector. The report explores various management accounting systems like cost accounting and job costing, and explains different reporting methods. It delves into calculating costs using marginal and absorption costing to prepare income statements. Furthermore, the report discusses the advantages and disadvantages of planning tools used for budgetary control and compares how organizations can adapt management accounting to address financial challenges. The report aims to provide a comprehensive understanding of management accounting and its application in a real-world business scenario.

Assessme
nt
Criteria
In this assessment you will
have the opportunity to
present evidence that shows
you are able to:
Task
Numbe
r
Evidence
Page
number
LO 1: Demonstrate an
understanding of management
accounting systems
P1 P1 Explain management
accounting and give the
essential requirements of
different types of management
accounting systems
1 3
P2 P2 Explain different methods
used for management
accounting reporting.
1 4
LO 2: Apply a range of
management accounting
techniques
P3 P3: Calculate costs using
appropriate techniques of cost
analysis to prepare an income
statement using marginal and
absorption costs.
2 6
LO3: Explain the use of
planning tools used in
management accounting
P4 P4: Explain the advantages
and disadvantages of different
types of planning tools used
for budgetary control.
3 10
LO4: Compare ways in
which organizations could use
management accounting to
respond to financial problems
P5 P5: Compare how
organizations are adapting
management accounting
systems to respond to
financial problems.
3 12

Management Accounting

INTRODUCTION
Management interpretation is a term which is used to characterize, analyse, record and
display the economic information as it is used in the business entity internally. By utilizing this
data or matter, they could achieve better planning, analysis making and authority that guide in
performing the system. Administration accounting useful for the company as it helps in gathering
information and with that authority members as well as supervisors can make adequate decision
(Baldvinsdottir, Mitchell and Nørreklit, 2010). Further more, system accounting enables in
calculating the activity so that organisation can account the place in the market. The current
research is dependent on Sollatek that is constructor of gate and pipes. The primary aim of a
company is to provide proper electricity services to their customers who are suffering from
heavy power-cut problem. With support of appropriate information they can ensure to provide
them proper health protection. The below written task, shows debate dependence on different
varieties of administration accounting field. Moreover, numerous methods that are required for
management interpreting need to be specified (Why lean accounting?, 2017). Along with that,
benefits and drawbacks of the various kinds of planning equipments need to be explained.
TASK 1
P1. Management accounting and different type of system
Management accounting is a system which helps the company in doing the proper and
appropriate management by using the proper resources that how much needed and how they are
using to produce the goods and services and sell it to the consumers. It is a provision of financial
data which helps in providing the advice to the company that they have to use this in the firm as
it aids in doing to developments of business (Bennett, Schaltegger and Zvezdov, 2013).
Management accounting system refers to that system which helps in making the correct and
appropriate decisions by making proper plans as well as measuring the performance of the
company. Along with this it helps in providing the expertise so that they can make financial
reporting so that they can make a control in formulating the strategies so that they can attain the
success in the competitive market as well as succour in increasing the performance as well as
productivity. Management accounting provides the data by doing management and according to
that the employees of the business entity can take appropriate decisions which aid in reap the
targets. Also improve the efficiency and effectiveness. It is a occupation which includes

partnership so that administration of the firm can make best decision. Along with this plan
should be devised in a proper manner along with the supervision of performance of employees.
Along with this it helps in providing the expertise so that they can control the different business
activities in formulation as well as implementation of Sollatek strategy. The system of
management accounting aid in reducing the cost which are associated with the production of the
goods and services (Busco, and Scapens, 2011). Different types of management accounting
systems are:
Cost accounting system: A price book-keeping method (also called merchandise costing
system) is a structure which is adopted by the firm to identify the value of the product as it helps
in analysing the profits. It leads to the process of collecting, analysing, summarising and
evaluating the cost and its profitability. It mainly focuses on controlling of the cost (Christ and
Burritt, 2013). Identifying the actual cost of the product leads to know the profitability.
Job costing system: It is a framework includes the way toward conglomerate data about
the expenses related with a particular manufacturing or administration work. This data might be
required with a specific end goal to present the cost data to a client under an agreement where
expenses are repaid. The data is likewise helpful for deciding the precision of an organization's
assessing framework, which ought to have the capacity to quote costs that take into consideration
a reasonable benefit. The data can be utilized to allot stock expenses to produced merchandise
(Cinquini and Tenucci, 2010). Example- Designing a software programme or constructing a
building.
Inventory management system: Stock administration programming is a computer based
framework for leading stock levels, orders, deals and conveyances. It can likewise be utilized as
a part of the assembling business to make a work arrange, bill of merchandise and other
production related documents. Example- Electronic inventory or grocery inventory.
Price optimisation system: Value improvement is the utilization of scientific examination
by Sollatek so that they can decide that how clients will react to various costs for its items along
with the administrations through various channels. It is likewise used to demonstrate the costs
that organization decides will best meet its targets, for example, boosting working benefit
(Contrafatto and Burns, 2013). Example- In hotels, hospitals or insurance companies.

P2. Different methods of management accounting report
Administration bookkeeping is a profession that includes collaborating in management
basic leadership, conceiving arranging and execution supervision frameworks as well as it
renders effective and technical knowledge in reporting of financial aspects and also it formulates
its control for the application of the strategy of an organization.
 Financial planning: - The main objective of any business is to make their profit
maximum, there objectives can be only fulfilled by sound financial planning, it is the best
tool for the achieving of business objectives and goals (Dillard and Roslender, 2011).
 Cost Accounting: - Cost data are been compared with the predetermined data and then
the comparison is been done the management then decide the reasons responsible for the
differences. It should include marginal costing and direct or incremental costing, standard
costing should be in Sollatek to solve the problem in cost accounting (Fullerton, Kennedy
and Widener, 2014).
 Miscellaneous Tools: - Sollatek should include some accounting methods like integrated
auditing, revaluation accounting, decision making accounting, managerial reporting, and
management information. This is the methods or the topic which should be in
miscellaneous tools (Håkansson, Kraus and Lind, 2010).
 Decision making accounting: - the problems in Sollatek can be solved by the best
alternative or the method with is been preferred, to select the alternatives the relevant cost
is been compared.
 Future information/Ratio analysis:- It shows the way for the effective control over the
business, in this method includes budget and budgeting information of future, in this
Solletek has to forecast there business, the appraisal and evaluation also be there in this
method (Herbert and Seal, 2012).
 Revaluation Accounting: - in this method Sollatek has to revalue the fixed assets as per
there revaluation accounting methods so that the capital of the company is been
represented with the assets values (Hiebl, 2014).
 Management Information System: - the flow of the communication within the Sollatek
should be done to function there business effectively, the management of Sollatek should
design the system so that every employee of the organisation can assess the information
which is been design.

 Management Reporting: - in Sollatek there should be an accountant who will be
preparing the profit and loss account and the balance sheet and to summit it to the top
management, the report can help in knowing the strength and the weakness of the
organisation, it also helps the management in decision making (Jansen, 2011).
 Budgetary control: - This method is use to control the financial performance of the
business concern, the business operation are been directed in a desired directions with are
been set (Kaplan and Atkinson, 2015).
 Job cost report: This report includes the summary of the job which includes summary of
the company that what purchased by vendor. All the detail related to the jobs related cost
which is incurred by each vendor and subtotalled by job. It also includes the information
about the cost of the sales and inventory.
 Stock administration report: Companies in an products oriented business more often
than not struggle to oversee stock at specific levels. There's a consistent pull of-war going
ahead between the need adequate merchandise to satisfy request, and the needs to stay
away from the expensive pitfalls related with overloading.
 Performance report: It is a account of the execution of something. They are routinely
created by government bodies which, being financed by public company, are required to
demonstrate that the cash was spent effectively and helpfully. Example- In a police
station performance report shows the number of arrests, number of crimes occurred in a
crime category.
 Variable analysis report: This report includes all type of variable and has to properly
analyse so that they cannot face any issue in attaining the goals and objectives. This
report includes the evaluation of all fluctuating events so that they can meet their targets.
M1
There are different type of management accounting system which can be used by Sollatek
so that they can attain the competitive advantage which helps in developing the cost allocation
process by using the management function (Lee, 2011). These system helps in reducing the cost
of the merchandise and services. Along with this it helps in improving the cash flow so that
managers as well as employees helps in making the correct and relevant business decisions and
they are in the favour of Sollatek so that they can attain their goals and objectives. Moreover, it
assist in improving the productivity as well as proficiency.

D1
As indicated by Luft and Shields, (2010), it has been analysed that Sollatek is an
assembling organization and for that they need to utilize suitable administration bookkeeping
framework as they aides in lessening the cost of the items and supervising. Management
accounting aid in settling on the applicable choice by utilizing the data and information. Further,
administration bookkeeping helps in measuring the execution with the goal that they can achieve
the objectives. It helps in enhancing the income of Sollatek. They need to make the best possible
bookkeeping which helps in achieving the objectives and target accomplishment in the
competitive market.
TASK 2
P3. Income statement on the basis of different costing methods
There are different costing methods which helps in finding out the net profit. Two
methods are:
Absorption costing: It is a technique for ascertaining the cost of a stock and also undertaking
which was considered by utilizing the immediate and in addition backhanded costs. It is a
method which helps in computing the cost of an merchandise and every costs of Sollatek
identified with assembling of work and in addition price of raw material (Lukka and Modell,
2010). In this immediate cost of any item can be effortlessly distinguished. On the opposite side,
coordinate cost can't be recognized and ascertained.
Income statement on the basis of Absorption costing method:
Selling Price £35
Unit costs
Direct materials £6
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £13
Budgeted production for the period is 600 units
Fixed cost for a month:
Production overhead: In this budgeted cost is £1,800 and Actual cost is £2,000

Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod. O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
0
11200
(1600)
600
700
21000
(9600)
11400

Fixed selling expenditure
Over absorption
Net Profit
600
(100) (1800)
9600
Marginal costing: It is a change in the opportunity cost which assist in arising the quantity
which is to be produced as well as it can be raised according to the units which they are
producing. It is a cost which can be calculated according to the levels of manufacturing includes
the price which is additional and that is required and necessary to produce the next unit
(Macintosh and Quattrone, 2010). There is a formula which aid in finding the marginal cost that
is:
Marginal costing = Change in consumption/ Change in quantity of merchandise
By calculating the cost which is marginal in nature it should be high and according to the
condition company is producing best products.
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales
Less Variable costs
Opening stock
Manufacturing
0
9100
21000

Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
Net Profit
(1300)
600
2000
700
600
(7800)
13200
3900
9300
M2
Sollatek have to use proper and relevant management functions and also to be use
management techniques so that they can do effective operations as well as activities. In Sollatek,
less than 50 staff members are working and turnover is also less that is £500,000 (Nandan,
2010). Some methodologies which can be adopt by Sollatek:
Cost volume profit analysis: This analysis is to be done by Sollatek and by this they can
determine the changes in the cost as well as volume which is affected by the operating and net
income. PV ration can be find out by using the formula which is total contribution divided by
sales that is
= contribution /sales x 100
= 10800/21000 x 100
= 51.42%
Absorption costing technique: By using this instrument, it has been interpreted that staff
members having an over absorption of expenditure and gross profit is 11400. By this it has been
identified that gross profit is affected by the over absorption of fixed expenses (Pipan and
Czarniawska, 2010).
D2
Every company have to make their financial reports which assist in maintaining the
different information or data. Along with this Sollatek have to present the information or data in
a attractive way as it assist in making the correct decisions for doing the investments. Moreover,
it provides the some description or overview of the financial position of Sollatek so that investors

can find out the capabilities and on the basis of that they decide to do investment in the company
or not (Quinn, 2011). According to the Marginal cost, net profit is 9300 along with the
contribution which is 13200. Moreover, net profit by absorption costing is 9600. So, by this it
can be analysed that by using both the methods of costing new profit is different. So, this aid the
investor in making the correct decisions to do more investment.
TASK 3
P4. Distinctive methods of planning which is associated with budgetary control along with pros
and cons
Budgetary control refers to that managers of Sollatek have to utilize the budget so that
they can monitor as well as control the cost and operations in the given accounting period.
Budgetary control succour the managers of the firm in setting the financial and performance
goals by making the appropriate budgets (Renz, 2016). Along with this, they have to compare the
actual results as well as adjust the performance if there is necessary. Proper budgets helps the
managers of Sollatek in managing as well as coordinating the resources. Along with this it helps
in defining the standards which are needed in the control system. Moreover, it helps in providing
the guidelines so that they can use proper resources and also fulfil the expectations of the
consumers. It assist in evaluating the performance of the managers. They have to use proper and
relevant approaches so that they can make the financial situation in an operational way. They
have to attain the appropriate information in an effective manner which provide support to the
manager in a planning and control procedure (Significance of Management Accounting
Techniques in Decision-making: An Empirical Study on Manufacturing Organizations in
Bangladesh, 2011). There are different type of budgets which helps in doing planning for
budgetary control.
Master Budget: It is a comprehensive projection which helps in managing the different activities
so that they can conduct each an every components of a business operation for a particular
budget period. it involves the concise details of activities of a project that includes cash budget,
budgeted statement of income and balance sheet.
Operational Budget: It covers the revenues and expenses so that they can do day to day
activities of the company. Managers of Sollatek have to compare the results to make budgets by

doing proper planning as well as adjusting for variations in revenue (Sánchez-Rodríguez and
Spraakman, 2012).
Cash flow Budget: This budget helps in examining the cash inflow and outflow on the daily
basis. They have to maintain the records for the expenses and sales so that employees cannot
face any problem in maintaining cash.
Advantages and Disadvantages of different type of planning tools are:
Advantages:  It provide the support to management accounting to
manage all the strategies for the operational activities
regarding future (Setthasakko, 2010).
 It assists in doing the proper and effective
communication related to facts and figures which having
an affect in the operations of Sollatek.
 It improves the performance of the employees (Shah,
Malik and Malik, 2011).
 By using all the appropriate planning tools employees of
Sollatek attain the actual and relevant information or
data and by that they can attain the targets.
Disadvantages:  These planning tools provides the pressure on the
employees of Sollatek that as these budgets provide the
targets and they have to fulfil them on a specified time
(Talha, Raja and Seetharaman, 2010).
 When the managers allocate the resources then
sometime it creates a conflict among the different
departments.
 If targets of the company which are pre-decided and they
are not achieved then it create a dispute among
employees (Vaivio and Sirén, 2010).
 All the budgets which includes the high cost and they are
prepared by the managers of Sollatek.