Management Accounting: Systems, Reporting, and Financial Analysis

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Management Accounting
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
Introduction....................................................................................................................................10
Part 1..............................................................................................................................................11
Marginal costing............................................................................................................................11
Absorption cost..............................................................................................................................11
Absorption cost calculation...........................................................................................................11
Margin cost calculation..................................................................................................................13
Statement of income under marginal costing................................................................................13
Statement of income under Absorption costing.............................................................................15
Part 2..............................................................................................................................................17
Balance sheet of Aviva..................................................................................................................17
Analysis.........................................................................................................................................23
Analysis of the financial statement of the Aviva...........................................................................25
Conclusion.....................................................................................................................................27
References......................................................................................................................................28
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Introduction
The purpose of studying on this report of management accounting is to find the importance of its
systems and reporting within the organization and also find the suitable methods or tools for
planning which helps the firm in applying in the business for the improve their decisions or make
better in quick time. In this report discuss the system and reporting how both are integrated with
each other and how it helps the organization to overcome the financial problems of the company.
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Task 1
Part 1
A MANAGEMENT ACCOUNTING AND ITS SYSTEM
Management accounting can be defined in various words by different authors according to they
understand. A simple definition of management accounting is a process for analyzing the cost of
business and operations for the purpose of preparing records, financial reports and accounts for
the organization. This is the internal activity which is done by the internal management of the
company. This provides benefit to the managers as it helps management to make the decisions
after getting the financial and statistical information from the accounts and reports prepared by
the company management. In simple words, it facilitates internal management to make better
decisions by seeing the analyzing presentation of various business activities (Alaeddin, and
Thabet, 2018).
In the organization of Aviva, following management accounting systems are used within the
organization of Aviva. The purpose of using the below systems of management accounting is to
analyze each system and get benefit regarding the finance-related for making a decision at a
good level.
COST ACCOUNTING SYSTEM:
The Aviva Company used this system for management accounting to find the estimated costs of
the services which are being provided to the general public. The purpose of using this system is
because the organization wants to know the cost so that the management can evaluate and
analyze the profit for the future period so that the company prepares its future budgets
accordingly. Through the use of this system, Aviva company management can able to measure or
compare their actual input with the actual output, this is done due to mainatin record cost of each
service separately (D'Onza, et. al., 2016). After comparing the output with the inputs
management of the organization enable to identify whether the services are being provided is
benefit to the company as it was able to generate income (profit) or not. Hence it will provide a
way to improve those areas of business where the profit cannot be generated or activity is in a
loss.
INVENTORY MANAGEMENT SYSTEM:
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Inventory is an essential part of every organization such as Aviva Company. This is because the
profitability of the company and fulfill the demand on time is entirely based on the inventory
which is held by the company. So it is important for the Aviva Company to manage its inventory
in the proper way so that it may eliminate any misused of inventory from the business. There are
various tools or methods which aid in the management and control the inventory across various
business branches/departments like bar code reader inventory software and others (Bauer, et. al.,
2012). The aim of manage stock is to fulfill the market demand so that customers of the company
cannot think over changing the organization if they change then it’s directly impact company’
profitability and its inventory which is already in stock but used for further process. With the
proper control over inventory management of the organization can take their future decisions as
well as current.
PRICE OPTIMIZATION SYSTEM:
This is also a system of management accounting which is used by the Aviva organization in
order to determine the reaction of customers if the prices of the services change at the various
levels through the use of various channels for this. It is based on the market research and thus it
aids in fixing the price of the product/service after analyzing the various factor of market trend
and preference of the customer. The price of the product or service is basically depending upon
the customer taste and the need for the product for that particular area (Joy, 2014).
JOB COSTING SYSTEM:
This method provides the guideline of how manufacturing or production cost can be allocated to
each separate unit or batch individually in order to find the exact overhead cost of each product
without creating a situation of over and under-valuation of stock. This is used for those
companies like Aviva where it finds the actual cost of the service being provided for a particular
order. The purpose of this system is accumulating the indirect cost such as labour cost, material
cost, and overhead cost. When the product is produced on order then each product is treated as a
job. It also considered the services which are rendered by the Aviva Company. For example,
Aviva Company considers the creation of a financial plan by a certified financial planner as a
particular job.
B Different methods used for management accounting reporting:
In the business of Aviva Company, it uses various reports for the smooth running of its business
activity effectively and efficiently. Following are the reports which are used by the management
of the company for the various purposes which are to be explaining.
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BUDGETS REPORTS:
A budget report stated the company budget for a particular period of time say it can be a year,
month, quarter or even week-wise. Budget is prepared for each department of the company for
achieving their departmental objective in the line of attaining the entire organization goals which
are mainly to earn the profit. By the use of this report, Aviva Company constructs or prepared
their budgets for achieving the goals as per the plans so that error in achieving goals can be
removed. By the creating of the budget report, management can easily make decision reading
business in the interest of the company within a short time as its future income and expenditures
areas are categorized. It also aids to remove the earlier mistake in the process of preparing a
budget and in achieving budgeted targeted by comparing the resultant outcome with the
budgeted figures (Neal, 2019).
PERFORMANCE REPORTS:
This report is defined in general words as a report based on the performance of something. It is a
statement in detailed that help in measuring the results of the business activity in terms of the
success of activity over a particular period time frame. This report includes both details financial
and non-financial and it is used as a supportive document in a case when a company wants to
raise funds due to it contained company entire business performance throughout the accounting
period. This report is beneficial to both parties (the company as well as another interested party
like a lender). In reference to the company, it is important due to because the organization can
improve its business activity any analyzing its performance reports and match with the actual
result. In the case with the party, it oversees the company's report in which all the business
affairs throughout the year like raise funds already and invested in other can be seen and
according to this, it lends money to the company (Neal, 2019).
COST REPORT:
This is the report related to the cost of the product or services. It helps in identifying the cost of
the product or services by the process of analyzing this report. It also aid managers to make the
decision on quick time regarding the profitability of the product or services whether the services
are able to generate any source of income which is rendered by the Aviva Company (Taylor, et.
al., 2018). The purpose of making this report is to inform about the cost to the client (party).
C ADVANTAGES OF MANAGEMENT ACCOUNTING SYSTEM
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Job costing system Costing system Price Optimization
system
Inventory
Accounting System
The biggest benefit of
this system, enable to
identify the actual
cost of the product or
services/ batch
individually.
As this method aid in
the distribution of
overhead cost in the
product or service,
thus it will enable to
identify the real cost
of the services which
is allocated into the
service.
As this system is
based on the market
situation, it will aid
management to fix the
prices according to
the actual worth of the
service of the
company and it
should be reasonable
so that customer can
buy their services.
By using this
management
accounting system
within the business of
Aviva organization it
helps in tract the flow
of inventory by using
Last in First Out and
First in First Out
method.
It is a simple and easy
method as the cost can
be calculated simple
steps and find the
related cost.
This system enables
managers to compare
the outcomes with the
planned inputs (Wan,
et. al., 2019).
According to this
system, it is
depending upon the
market it provides an
advantage to
determine the taste
and preference of the
customers and
accordingly it
provides such
services.
This is also proving
an additional
advantage reading
inventory like it aid in
finding the estimated
budgeted inventory
for the future in which
required for further
production.
D
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Working of management accounting and its report together within the organization
Here the report reflects about the Aviva’s management accounting types and its budget reports
which works together within the organisation.
 Job costing system
Aviva need the job costing system to run the bookkeeping system for that the company needs to
hire an accountant for the accounting needs who states that the job costing system is the most
efficient accounting method which will help the company to keep noticing about the expenses
and which items requires less or more time for maintaining, with the help of this system Aviva
can run the bookkeeping system in a smooth manner.
 Price optimization system
Here the Aviva uses this system by optimizing the desired unit and defining the required input
and the output, then analysis about the prices keeping in mind the past data prices, volumes,
variable and fixed costs, prices determined by the competitors. It sets the guidelines and the
strategies for the optimizing process then revises the optimization process and start the decision
making process and finally observes the result and upgrade the data towards successful process.
 Cost accounting system
Here Aviva uses this system as it works by keeping in notice the manufacturing goods as they
goes through the stage of production and to the last stage of becoming the finished good. During
the production stage this system collects the details about the use of the raw materials and then
makes the manufacturing account in which credit the manufacturing account and debit the
process account. There are many works in the process account of the Aviva because many of the
goods go through the process before the process of the finished goods.
Part 2
DISCOUNTED CASH-FLOW METHOD (DCF):-
It is a valuation method used by the Aviva Company to estimate the value of an investment
based on the company future cash flows for the period. It helps the company to analyze the
present value of future cash flows by applying the discount rate. This rate can be change or same
for the investment project. If the value of the investment project is higher than the company's
cost of capital (CoC) after using the discounted rate then the project is acceptable otherwise it
should be rejected on the basis of the non-profitable investment project (Kaufman, 2018).
BENCHMARKING:-
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It is the process by which the Aviva Company compares its business performance with the set of
standard which is set by the influence industry. It means (influencing industry) who has the
power to influence the market situation/ or condition. Thus it helps in determine the variances in
performance between the company and the market conditions. The comparison is made on the
basis of taking a specific base such as cost or any other factor of production or service so that
comparison can be made between two variables. It will also assist Aviva Company to improve
the area where improvement needed after finding or identify the different area of business. This
is done by the used of four types of benchmarking system viz. functional, competitive and
generic and internal.
ABC (Activity-Based Costing):-
This is the method of a management accounting system that aid in finding the cost and then starts
the process of assign into the overhead activities and after then assigns it to the related product
costs. This system recognizes the relationship between the product or service, costs, and
overhead activities and with this relation; it will help to assign the indirect costs to the services
rendered by the Aviva Company. It also aids in finding the difference between n the fixed and
variable which is a key element of the product or services regarding the obtained true cost of the
product or services (Kaufman, 2018).
From the above three systems, DCF method found the simple and easy method and it is useful
for the company because it determines the entire cash flows after the payback period is
completed which is important for the business to make their future plans accordingly. For the
purpose of investment, a profit of the investment (cash inflow) is more important instead of
accounting profit (Wan, et. al., 2019).
Hence the DCF method is more suitable over the rest of the management accounting system.
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Introduction
This report demonstrates about the understanding of the system of management accounting and
different types of this system. It also explains about the comparison of methods used to make the
accounting reports as well as evaluating the advantages of the accounting system and use of their
application in the organization. Report deals with the working of the accounting system and
accounting reports together within the organization processes. It also shows the analysis of the
planning tools and explains about these tools such as the benchmarking, cash flow budgeting,
breakeven analysis etc. and finding out which is the most effective planning tool.
This report reflects about the financial analysis of a business by the estimation of the statement
of the financial statement of the company and by the calculating the income statement by the
principle of marginal and absorption costing. Report showcases the financial report of a company
with help of the ratio analysis.
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Part 1
Marginal costing
It is an added cost to the more than one unit
which is produced. It is estimated with the
help of the variable expenses of a particular
period of time and no fixed cost is included
for the give period with the change in the
output. It is calculated as relationship
between the change in output and changes
in the total expenses of the given periods.
Absorption cost
It is kind of costing method which gathers
the expenses related with the process of
production and dividing them in the
individual department of product, this type
of costing is very helpful in creating the
valuation of the inventory which is
required by the standards of accounting and
that is stated in the balance sheet of the
organization. In this type of costing it
absorbs the fixed and the variable cost.
Following is the Eyemen ltd marginal and
absorption cost estimation for the month of
May and June:-
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Absorption cost
calculation
Selling price per unit 10.5
Total units produced 400000
Particulars Amount
Direct material 550000
Direct labor 750000
Fixed overhead 600000
Total cost 1900000
Absorption cost 4.75

Statement of income under
marginal costing
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Margin cost
calculation
Outpu
t
Variable
cost
Fixed
cost
Total
cost
Marginal
cost
400000 1300000 600000 1900000 0