Management Accounting Report: Systems, Costing, and Planning Analysis

This report provides a comprehensive analysis of management accounting principles and practices, focusing on their application within KEF Ltd., a medium-sized manufacturing firm. The report begins by defining management accounting and its importance in internal reporting and decision-making, exploring various types of management accounting systems such as inventory management, cost accounting, and job costing systems. It then delves into different management accounting reporting methods, including budget reports and cost reports, highlighting their benefits in improving organizational performance and profitability. The report also examines the integration of management accounting systems and reporting, emphasizing how these elements work together to provide valuable insights for strategic decision-making. Furthermore, the report analyzes income statements prepared under marginal and absorption costing methods, providing a detailed comparison of their implications. Finally, it discusses the benefits and limitations of various planning tools like flexible budgets, and explores the application of different management accounting systems to address financial problems.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY...........................................................................................................................................3
TASK 1...................................................................................................................................................3
Management accounting and essential requirement of its types.....................................................3
Different method of management accounting reporting..................................................................4
Benefits.............................................................................................................................................5
Integration of management accounting system and reporting ........................................................5
TASK 2...................................................................................................................................................6
Income statement as per marginal and absorption costing .............................................................6
TASK 3...................................................................................................................................................8
Defining benefits and limitations of different planning tools............................................................8
Analyzing application of different planning tools............................................................................10
TASK 4.................................................................................................................................................11
Types of management accounting systems for resolving financial problems.................................11
CONCLUSION......................................................................................................................................13
REFERENCES........................................................................................................................................14

INTROUCTION
Management accounting is defined as a process of analyzing expenses of cost of
business thereby assisting in preparation of the internal managerial report. The report is
related to KEF Ltd. Which is a medium size manufacturing firm. This assignment will
provide understanding about the different management accounting systems. Moreover, it
consists of methods related to management accounting reporting which can be used for
preparation of report. It also evaluates the benefits of management accounting systems. It
will define planning tools which can be used for formulation of budget and to control it.
Also, it will assist in providing information regarding the management accounting systems
which helps in responding to the financial problems.
MAIN BODY
TASK 1
Management accounting and essential requirement of its types
Management accounting assists in preparing the internal report on the basis of which
the organization is able to make the decision for improving the future performance and
profitability. It assists in allocating the cost and identifying the ways in order to reduce the
cost for increasing the profitability of organization (Kaplan and Atkinson, 2015). The
management accounting is the way the organizations able to manage the internal accounting
of the firm and helps in reducing the cost in order to achieve the goals and objectives of
organization. With the help of identifying the cost of the process the management accountant
is able to provide the organization the reports on the basis of which the firm can take
decision which will be profitable for the business in the future. There are different types
which are as follows:
 Inventory management system: It is a practice through which organization
manage its inventory level which will helps in reducing the wastage and also
the cost of the organization will be reduced. It helps in identifying the level of
inventory which is required in the organization and can assist in providing the
firm with the benefits and cost of maintenance of the inventory is also
minimized.

 Cost accounting system: Helps in making estimate the cost of their product
in order to determine the level of profitability a control the cost for the future
which will help in increasing the profit margin (Quattrone, 2016). It helps in
controlling expense related to cost by allocating the cost in most effective and
efficient manner.
 Job costing system: It is the process of allocating the cost to the specific job
in order to identify the profit associated with that job. It helps in identifying
the cost of every job and the information regarding them.
Different method of management accounting reporting.
Assist in identifying performance and profitability of the firm on the basis of which
the organization is able to make decision for the future. This report helps firm in make
forecast for the future and can determine the strategies which are required to be formulated in
the organization for improving the profitability and performance in the future. The following
are the different reports which are being prepared by the management accountant:
 Budget reports: Are being prepared by the management accountants for predicting
future on the basis of which they are able to determine the future performance and
profitability of the firm and can also take the decision for improving the performance
and profitability. It consists of case budget report, operating budget report, sales
budget reports etc.
 Account receivable aging report: It is the reports which is prepared by management
accountant in order to know the customers that have taken credit for the amount
payable. It also assists company in taking the decision regarding limiting the credit
limit in order to reduce the bad debts which affect the credibility of the firm and also
the firm profitability is affected to a great extent (Otley, 2016). It helps in tracking the
customers and the balance which not payable by them. This report assists the firm in
making the effective decision for improving the credibility of the firm and receiving
the payment by customers on time in order to reduce the bad debts.
 Cost report: The cost report assist in allocation of the cost to the different product
produced. With the help of cost report KEF Ltd. able to identify the cost of different
product on basis of which they are able to minimize the expenses and identifying the

selling price of the product. The cost report helps in making the effective decision for
improving the performance and profitability of the organization.
Benefits
Management accounting system assist in improving internal system of the firm. KEF
Ltd. through the use of such system helps in making effective decision for the firm growth
and success. The following are the benefits of the different management account ting
systems:
Benefits of inventory management system
 It helps in managing the flow of inventory in the organization.
 It assists in reducing the cost of maintaining inventory for the disposal an also assist
in increasing sales and profit.
 It is also beneficial because it helps in achieving the efficiency and productivity in
business operations.
Benefits of cost accounting system
 Supports in estimating and allocation of cost for the products and services offered by
the firm.
 With the help of cost accounting system, the organization is able to reduce the cost of
the firm which will help in increasing the profitability and performance of the firm.
 It helps in improving the efficiency and measurement in KEF Ltd. Renz, 2016).
Integration of management accounting system and reporting
Management accounting systems and reporting are integrated because KEF Ltd.
follows management accounting system than the firm is able to prepare the reports which can
be helpful in making the effective decision for improving the performance and profitability
of the firm (Maas, Schaltegger and Crutzen, 2016). Management accounting system helps in
preparing the management accounting reports which assist the firm in order to prepare the
reports n the basis of which the organization will make the effective decision for the future.
The cost accounting system assist in preparing the cost accounting reports on the basis of
which the organization will be able to make the decision regarding minimizing the cost in
order to increase the profitability. Moreover, the job costing system helps in preparing the

job costing report which assist in identifying the profitability of business regarding the
specific job.
TASK 2
Income statement as per marginal and absorption costing
Cost per units
Sales prices 60 Production units 18000
Direct material (DM) 12 Sales units 16000
Direct labor (DL) 20 Closing stock 2000
Variables production o/h 8
Fixed production o/h 120000
Marginal costing
DM 12
DL 20
Variables production o/h 8
Cost per unit 40
Absorption costing
DM 12
DL 20
Variables production o/h 8
Fixed production o/h 6.67
Cost per unit 46.67
Calculation of total cost of production

Marginal costing
Sales revenue 960000
less: opening stock 0
production cost 640000
less: fixed production o/h 120000
marginal cost of production 200000
Absorption costing
Sales revenue 960000
less: opening stock 0
production cost 840060
Absorption cost of production 119940
Budgeted Marginal Income statement
Sales 16000*60 960000
add: closing stock 2000*40 80000
less: variable cost 8*16000 128000
Contribution 912000
Less fixed cost 120000 120000
Gross profits 792000
Budgeted Absorption Income statement
Sales 16000*60 960000
add: closing stock 2000*46.67 93340
Gross profits
less: cost of production 18000*46.67 840060
net operating profits 213280
Actual Marginal Income statement

Sales 19000*60 960000
add: closing stock 2000*40 80000
less: variable cost 8*16000 128000
Contribution 912000
Less fixed cost 120000 120000
Gross profits 792000
Actual Absorption Income statement
Sales 19000*60 1140000
add: closing stock 3000*46.67 140010
Gross profits 999990
less: cost of production 19000*46.67 886730
net operating profits 113260
From the above calculation it has provided information regarding the budgeted
income statement as per marginal and absorption costing and also income statement is
prepared as per the marginal and absorption costing. The actual net profit as per absorption
costing is 113260 and as per budgeted income statement is 213280 which show that the firm
is able to achieve their budgeted target (Hopper and Bui, 2016). The absorption costing and
marginal costing assist in determining profitability of KEF Ltd. on the basis of the budgeted
figures and comparing with that of the actual figures in order to identify the variances to
achieve the difference in the shorter period. There is other costing system which can be used
by the organization that I clued job costing system which helps in identifying the profitability
of the business related to the specific job.
Marginal costing – It is defined as a costing technique in which the cost of variable has to
be charged against units of cost whereas in case of fixed cost this amount for a specific
period is completely written off against contribution made.
Application of marginal costing
1. It helps the management of the company in their decision-making process thereby
providing internal report about the marginal cost and its treatment.

2. It assists in making reporting of cost amount along with its recording as well.
3. It enables management in making bifurcation of fixed as well as variable cost amount
and thus helps in controlling cost.
Absorption costing – It is a method as per which all the cost associated with the
manufacturing function has been assigned to number of different units produced. A costing
system which helps the company in making proper valuation of its present inventory level.
Application of absorption costing
1. It helps the company in recognizing overheads of fixed nature which are essential
from the perspective of production function
2. It assists in determining profitable selling price which covers each amount as incurred
for making a specific unit.
TASK 3
Defining benefits and limitations of different planning tools.
Flexible Budget –Is a budget which makes adjustment with change in business activity or
sales volume level. This budget helps KEF Ltd. In measuring actual revenues with the
estimated one and are recorded for an accounting period. The actual expenses are compared
with the actual revenues for assessing variances if any. Because of its changing nature&
adaptive feature in relation with adverse situations it benefits business in case of variations
taking place in the business.
Advantages Disadvantages
 Any change in the level of business
activities is monitored for maintaining
accuracy in results. This budget helps
taking corrective action against
variance evaluated.
 It helps in measuring performance level
of company as well as of the employees
as a whole at regular time period.
 This method of budgeting is considered
as one of the most difficult and
complex process as it includes the
changes (Ibrahim and Adamu, 2017).
 A time-consuming process as it
requires lot of time for preparing this
budget as it considers all the changes
while formulating the final budget.

 All the expenses and revenue amount
are adjusted on the continuous basis for
operating with current conditions.
 It does not facilitate comparison
between the actual and estimated
revenues, as both contains the same
number.
Fixed Budget- It doesn’t change with the increase or decrease in the volume of business
activity and does not change with change in other resources of business such as sales, units
produced etc.
Advantages Disadvantages
 This budget is considered as one of the
simple methods as it doesn’t get
influenced by any changes in relation
with the sales volume & turnover.
 Estimation of the tax amount by KEF
Ltd. can be done easily
 Flexible budgets are also known as
master budget as it helps KEF Ltd. in
analyzing data and forecasting.
 One of the disadvantages of this budget
is that there is no flexibility and any
change in expenses and revenue not
considered which results in unrealistic
budget.
 Sometime forecasting is not supported
as it becomes difficult due to lack of
actual changes with the changing
business environment.
Cash Budget –Cash budget allows KEF Ltd. In making estimates about cash requirements
of the business for carrying on future business operations. This budget also helps in
forecasting about the cash inflow as well as outflow from future business operations related
to a specific period of time.
Advantages Disadvantages
 Cash budget sometimes restricts the
amount of spending of business which
in turn reduces debt factor of KEF Ltd.
It helps in evaluating cash related
expenditure and incomes during the
specific period.
 The main disadvantage of this budget is
that it relies on estimates made.
Allocation made in previous year
related to the cash inflows and outflows
are used for making cash allocation to
all the items in the coming year budget

 It acts as a basis for making comparison
of the actual with the estimation made.
It also ensures that cash amount is
spend as per the budget or plan made
by the company.
 This assesses current liquidity as well
as solvency position of the company.
(Bogsnes, 2016).
 It affects the decision-making of the
business as all the decisions takes place
by assessing present cash position of
the business.
Analyzing application of different planning tools.
Planning tools Uses Application
Flexible Budget Can be used for making
estimates related to amount of
income and expense associated
with business operation and
profit planning. It also helps in
controlling cost and provides a
balanced approach for making
comparison. It is also used for
deciding its product and
service price and for setting
the future business quotations
(Mirgorodskayaand et.al.,
2017).
This type of budget is best
suited in organizations where
the business activity level
varies or changes at a regular
interval. For making future
estimates this planning tool is
very useful as it helps in
forecasting demand of the new
product and service.
Fixed Budget This budgetary planning tool
helps KEF Ltd. in measuring
performance level of both the
company and its employees for
making of final budget. It
provides better plan by
allocating a fixed amount in
relation with the business
operations like overhead cost.
This budget can be applied in
those business organizations in
which business activities are of
stable nature and operates in a
consistent environment at the
workplace. The main
application of this budget is by
Small business firms as
business activities do not

fluctuate much from one
period to another.
Cash Budget Is considered as one of the
most useful planning tools for
every business organization as
it provides detailed plan
related to cash allocation. It
can also be used to itemize the
budgeted sources and cash
uses in a future time period. It
helps in ascertaining the
liquidity and the cash position
of the company as well.
This budget is prepared and
applied to overcome the
position of the firm where it
holds excess of nonproductive
cash balances. With the help of
this budget, KEF Ltd. can
make proper use of available
cash amount for making more
profits and to improve business
performance.
TASK 4
Types of management accounting systems for resolving financial problems.
For overcoming financial problems of the business, KEF Ltd. Can use various management
accounting tools which are as follows-
Benchmarking - It is the business practice in which actual performance is compared with the
standard performance used by profit making companies is set as benchmark by KEF Ltd.
It helps KEF Ltd. At the time of framing of budget and financial plans (Li and et.al.,
2019). Companies for bringing improvement compare their own business processes,
products and performance with other companies considered as best in the same industry
to evaluate strategies used by them. It helps in making focus on goals for improving
their overall business performance. With the help of benchmarking KEF Ltd. Can
evaluate how their business department are performing on individual basis and thus
company as a whole.
Balanced scorecard - Balanced scorecard is another tool as used by company for achieving
the set defined business goals. It is based on comparison of performance of the four main
attributes present in the business viz. growth, process of business, customers and finance.