Semester 1 Management Accounting Report: A Comprehensive Analysis

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REPORT ON MANAGEMENT ACCOUNTING
STUDENT NAME:
STUDENT ID:
ASSIGNMENT CODE:

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Table of Contents
Introduction.................................................................................................................................................3
Activity 1......................................................................................................................................................4
Part A: LO1...................................................................................................................................................4
P1: Explanation of management accounting and its essential requirements..........................................4
P2: Methods used for management accounting reporting......................................................................6
M1: Advantages of management accounting system and its application in the organization.................7
D1: Integration of management accounting reporting and management accounting system within
organization.............................................................................................................................................8
Part B: LO2.................................................................................................................................................10
Annexure A: Question 3.........................................................................................................................10
Annexure B: Question 1.........................................................................................................................13
Activity 2....................................................................................................................................................15
Part A: LO3.................................................................................................................................................15
P4: Benefits and limitations of planning tools.......................................................................................15
M3: Use of planning tools for preparation and forecasting of budgets.................................................17
Part B: LO4.................................................................................................................................................20
P5: Comparison showing how organizations are using the system of management accounting for
responding to financial problems..........................................................................................................20
M4: How management accounting can lead organizations towards sustainable success.....................20
D3: How planning tools help in solving financial problems for long term success.................................21
Conclusion.................................................................................................................................................22
References.................................................................................................................................................23

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Introduction
The management accounting is identified as the crucial branches under the discipline of
accounting that helps the business managers to effectively deal with the daily routine problems
and activities of the business. The management accounting develops the suitable decision
making power and skills among the managers for the sustainable growth of the organization. The
present business report will include the discussion with respect to the concept of management
accounting and its requirements along with the different techniques such as marginal and
absorption costing. The report also includes explanation for the different types of planning tools
and how these tools and management accounting can assist in solving the financial problems for
sustainable growth of the business.

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Activity 1
Part A: LO1
P1: Explanation of management accounting and its essential requirements
The CIMA has defined management accounting as the process that involves functions like
identification, measurement, accumulation, analysis, preparation, interpretation along with
proper communication of the important information that is desired by the managers for
undertaking effective planning and controlling of the activities in the organization. Thus,
management accounting helps in ensuring optimum utilization of resources can be made with
suitable accountability (DRURY, 2013). Moreover, the management accounting is also helpful in
appropriate reporting of the non-financial and financial information of the organization that
assists the management accountant of large business organization to undertake informed
decisions that enables to attain the long term objectives of the organization. The management
accounting is different from financial accounting in the following ways:
Users of the information: The internal audience such as the departmental managers and
employees uses the management accounting information as compared to financial accounting in
which the users of the financial information include the external audience like directors,
shareholders, government, suppliers, creditors, general public etc.

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Statutory requirements: The management reports can be prepared in any format and that too as
per the need of the managers while the financial reports are prepared in the format as provided
by GAAP and IFRS and they are prepared at the end of each accounting year (Drury, C., 2013).
Essential requirements of management accounting
Cost accounting system: The system is recognized as the framework that is adopted by the
companies in order to accurately determine the cost of the product, profits earned along with
proper control over the factors that leads to cost enhancement (Ward, 2012). The system is
essentially required with the management accounting system so that the managers are able to
received useful information with respect to the different types of inventory valuation methods
such as weighted average, FIFO and the LIFO method.
Price optimization system: This is the system that is basically required for analyzing the
response of the customers towards a significant price change made in respect to a particular
product or service. The essential requirement of the price optimization in the management
accounting system is that appropriate selling price can be determine by the company for the
products and services when sold through different distribution channels (Wickramasinghe and
Alawattage, 2012). The system helps in fulfilling the objective of profit enhancement which
comes under the top priority of organization.
Inventory management system: This is the system that is mainly developed for carrying out
effective supervision of the products include in the stock of the company along with the non-

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capitalized asset like inventory of the organization. The system is basically required in the
management accounting system so that the managers are able to make sure that proper flow of
finished products is maintained from the warehouse to the point of sale and the selling stores of
the company (Otley and Emmanuel, 2013). The system is also useful for the managers as the
most appropriate level of stock can be identified in order to remain safe from the situation of
danger stock and shortage of inventory as demanded by the customers.
Job costing system: The system of job costing is recognized as the system in the organization
that helps in the determination of different types of manufacturing costs as associated with the
total cost of each of the particular product manufactured or services rendered by the company.
The system is essentially required by the management in order to obtain important and crucial
information with respect to the direct labor, material and overhead utilized by each specific
product (Kaplan and Atkinson, 2015). Thus, the profits earned or loss incurred from each
particular job can be examined through the system.
P2: Methods used for management accounting reporting
Budget report: The report basically helps in the formulation of the estimated budget for the next
years on the basis of the evaluation of the expenses and incomes of the previous year (Hilton and
Platt, 2013). The report is helpful as it can be used by the manager for controlling the rising
expenditure in the business by making useful decisions for the achievement of profit
maximization objective of business.

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Cost managerial report: The report is one of the most useful method form management
accounting reporting as the reports are able to deliver complete information with respect to the
selling price, cost incurred in the production, inventory wastage and the hourly cost associated
with labor (Fisher and Krumwiede, 2012). The managers with the help of the report are able to
take practical decision with respect to cost control function.
Inventory and manufacturing report: These are the reports that provide the manager with
entire data related to inventory cost, labor along with various types of overhead that are incurred
while manufacturing the products (Parker, 2012). The report is essential for management
accounting reporting as it provides the necessary information with the existing stock of the
company and the requirement to store excess inventory in order to meet the customers’ demand.
Performance report: The report is also one of the useful means for management accounting
reporting as the management is able to receive accurate and complete information with respect to
the performance of each of the employees along with performance of the organization as a whole
(Kočišová, 2014). The report is important as it enables the managers to differentiate between the
high performing and low performing employees and subsequently rewarding the high
performers.
Job cost report: The report is helpful in delivering useful information with respect to each
specific job in terms of total cost incurred and the future income earned from the products and
specific project (Kočišová, 2014). Thus, the managers with the help of this report can undertake

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an appropriate profitability analysis so that more resources can be employed if greater profits are
earned from a specific job.
M1: Advantages of management accounting system and its application in the
organization
Timely decision making: The different reports prepared under management accounting helps
the managers to make timely decision with respect to multiple matters that are faced while the
routine functions of the business. Thus, timely decisions can improve the operational efficiency
of the company.
Helps in profit maximization: This is one of the core benefits as provided by the management
accounting systems with the help of different costing techniques like standard costing that
enables the managers to undertake a suitable comparison between the actual and the standard
performance of the organization (DRURY, 2013). The application of management accounting
within the engineering company of UK will help the managers to quickly identify the causes that
lead to deviation between the actual and the standard performance. Thus, rising costs can be
controlled.
Achievement of proper coordination: The management accounting leads to effective
communication between the employees as well as the management. This leads to enhanced
coordination between different departments of the company and thus coordinated efforts can
results in greater organizational growth.

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D1: Integration of management accounting reporting and management
accounting system within organization
The different types of management accounting reports can be integrated with the various
management accounting systems in the organizations like the UK based engineering company so
that useful insight can be gained with respect to the operations and functioning of the company.
For example, the integration of cost managerial reports can be made in the cost accounting
system so that the managers can have a complete view with respect to cost component of each of
the product and services delivered by the company (Hilton and Platt, 2013). Thus, the essential
decision for reducing the cost of products can be taken by making adjustment in the various
process of the company. The budget report can be integrated with the price optimization system
which helps in the determination of suitable price of the products.
This is because the budget report provides a complete analysis for the previous year incomes
and expenses and thus, future price can be set to increase the existing level of profit. Likewise,
the integration of job cost report can be made with the job costing system so that the organization
is able to achieve cost goals through adoption of a proper pricing strategy in respect to each
specific job (Kaplan and Atkinson, 2015). Lastly, the inventory reports are integrated with the
inventory management system so that the company can have effective inventory control which
leads to significant reduction in cost incurred over the management of stock and inventory.

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Part B: LO2
Annexure A: Question 3
Calculation of Absorption Rate:
Particulars Centre A Centre B Centre C
Budgeted overhead cost(A) 66000 75000 83600
Machine Hours (B)
Labor Hours
22000 15000
41800
Overhead Absorption Rate(A/B) 3 5 2
Calculation of Total Cost of Job 427 as per marginal costing
Particulars Amount (in
£)
Direct Material : (A)
Direct Material Requisitioned
26780
-Direct Material Returned to stores
780
26000
Direct Labor : (B)
Centre A (146*14.80)
2160.8
+Centre B (39*15.70)
612.3
+Centre C (279*16.10)
4491.9
7265
Prime cost 33265
Variable Production Overhead : (C)
Centre A (59*3)
177
Centre B (108*5)
540
Centre C (279*2)
558
1275

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Works cost (D) (A+B+C) 34540
Variable Administration Overhead (E) (10% of F) (W.N) 3838
Cost of production (F) 38378
Selling Overhead (G) (12% of selling price )
12% of 317200
38064
Marginal cost of sales (H) (F+G) 76442
W.N – Let cost of production be x , then admin. Overhead will be 0.1 x
34540+0.1x = x
X = 38378
Calculation of Profit / Loss as per marginal costing
Particulars Amount(in
£)
Sales (I) 317200
Marginal cost of sales (J) 76442
Contribution (K) (I - J) 240758
Less : Fixed Production overhead 5900
Profit 234858
The profit attributable to job 427 is £ 234858.
Calculation of Total Cost of Job 427 as per absorption costing
Particulars Amount(in

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£)
Direct Material : (A)
Direct Material Requisitioned
26780
-Direct Material Returned to stores
780
26000
Direct Labor : (B)
Centre A (146*14.80)
2160.8
+Centre B (39*15.70)
612.3
+Centre C (279*16.10)
4491.9
7265
Prime cost 33265
Production Overhead : (C)
Centre A (59*3)
177
Centre B (108*5)
540
Centre C (279*2)
558
Special machinery hiring charges
1275
5900
Works cost (D) (A+B+C) 40440
Variable Administration Overhead (E) (10% of F) (W.N) 4493
Cost of production (F) 44933
Selling Overhead (G) (12% of selling price )
12% of 317200
38064
Marginal cost of sales (H) (F+G) 82997
W.N – Let cost of production be x, then admin. Overhead will be 0.1 x
40440+0.1x = x
X = 44933
Calculation of Profit / Loss as per absorption costing