Management Accounting Report: Systems, Methods, and Income Statements

This report provides a comprehensive overview of management accounting practices within R.L. Maynard Limited, a construction company. It begins by explaining different management accounting systems such as cost accounting, price optimization, stock management, and job costing, and their significance for the company. The report then describes various methods used for management accounting reporting, including accounts receivables ageing, budget reports, stock and manufacturing reports, and job cost reports. Furthermore, the report includes the preparation of an income statement using both marginal and absorption costing methods, highlighting the differences between the two. It also explores the advantages and disadvantages of planning tools under budgetary control and discusses how the organization can respond to financial problems by adopting a management accounting system. The report concludes by summarizing the key findings and emphasizing the importance of management accounting in making informed business decisions and ensuring sustainable growth.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explaining different systems of MA considered by accountant of R.L. Maynard Limited...1
P2 Describing several methods which are taken into account for MA reporting at the
workplace of R.L. Maynard Limited...........................................................................................3
TASK 2............................................................................................................................................6
P3 Preparation of income statement on the basis of marginal as well as absorption costing.....6
Difference between both the MA techniques which are marginal and absorption.....................7
TASK 3............................................................................................................................................8
P4. Explaining advantages and disadvantages of different types of planning tools under
budgetary control........................................................................................................................8
TASK 4..........................................................................................................................................12
P5. Different ways by which organisation can respond to financial problems by adopting
management accounting system................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management Accounting or Managerial accounting is a management tool that provides
basis to small business owners and managers for the preparation of management reports and
accounts. It helps in providing accurate band timely internal information to managers about the
organisation that in turns enable them in taking various future economic decisions along with
evaluating performance of the company.
Unlike financial accounting, management accounting does not provide annual reports.
Instead, it provides interim reports that are for the use of internal users only and not for external
users. However, reports of managerial accounting facilitates annual reports of business. Present
report discusses management accounting system and its benefits to R.L. Maynard Limited. It is a
small sized company from construction industry. Different types of systems and reports that can
be used by cited firm are explained along with producing its income statement using two
different techniques of costing.
Both the techniques treat costs differently that is also explained. Further, management
can use different planning tools under budgetary control and so the same are discussed with their
advantages and disadvantages. An organisation faces different financial problems in its day to
day activities, in order to respond to such problems, it can also use management accounting
system and can lead to sustainable growth.

TASK 1
P1 Explaining different systems of MA considered by accountant of R.L. Maynard Limited
Introduction
MA is a method in which various plans prepared which are related to financials and after
that executed as well as evaluated at the workplace. When a firm considered this procedure then
able to become more financially sound in the respective industry. Reason behind this is that, it
supports to prepare financial plans where adequate level of decisions can be taken easily. In the
present business report, systems of MA are explained which applied by R.L. Maynard at the
working place. Along with this, essential needs for considering such approaches are also
presented at here.
Systems of MA
Illustration 1: Systems of MA
(Source: Jansen, 2011)

Cost accounting: For every company of any sector, cost is one of the crucial part which must be
lower at the workplace. To manage as well as reduce total expenses, it is necessary to know
overall cost incurred for constructing the buildings. With the help of this particular system of
MA, accountant of R.L. Maynard Limited able to determine costs associated with the business
for constructing the buildings as well as houses. Once this required data derived at the working
environment then management easily able to make pricing decisions in fruitful manner. Further,
it is basically needed for assessing costs which is occurred in production, administration and
selling the products (Baldvinsdottir, Mitchell and Nørreklit, 2010). Another requirement to
consider this system is that, R.L. Maynard able to identify costs by classifying in different parts
like fixed, variable and semi-variable. In addition to this, it consists of target, standard,
throughput, activity based costing etc. by which the manager able to take effectual level of
business decisions.
Price optimisation: Apart from the costs, pricing factor also has pivotal role at the workplace of
each organisation. The reason is that, attraction level of customers and profitability position of
business both depended on this specific element. If higher prices charges by R.L. Maynard, then
buying behaviour of people towards it will be declining where capability of construction firm for
generating income will be affected negatively. While operating in the cited industry, the
company charges different price level from people within specific period of time. Further, with
the help of price optimisation system, manager of cited firm able to decide one particular price at
where huge numbers of customers purchased products and services from it (Jansen, 2011).
Therefore, able to maintain and improve profit of the entire firm and market share as well in
construction sector of UK.
Stock management: In the business of R.L. Maynard it is necessary to manage stock available in
the business. The reason is that, when inventory is not managed as well as declined from the
company then create negative impact on sales revenue generation capacity up to a higher level.
This stated system is supportive for managing along with utilising inventory in proper and
optimum manner respectively. Once the available stock is utilised effectually then enhance
efficiency as well as productivity of the selected organisation. Further, it is essentially needed for
manage stock and boost up inventory turnover ratio at the end of accounting period (Inventory

Management, 2013). For performing valuation of stock basically three methods are considered
by R.L. Maynard which include LIFO, FIFO and weighted average.
Job costing: The company producing or constructing different kinds of products like houses,
offices, buildings, bungalows etc. Further, it is mandatory to determine that in which kind of
products how much level of costing is incurred. On the basis of thus, decisions for charging
prices are easily taken by manager of R.L. Maynard. In short, this system is considered by the
firm for calculating expenses associated with different goods constructed in each job. It is
beneficial to assess costs and take pricing decisions so that, huge customers will be attracting
towards it.
Conclusion
Hereby, it can be pertained that R.L. Maynard uses basically four aspects of management
accounting for making several internal business decisions. Cost accounting and price
optimisation systems are used to assess total cost of production and opt profitable or attractive
price of buildings respectively. Apart from this, stock management is supportive to boost up
inventory turnover ratio while job costing is undertaken for determining cost of products
produced under each job.
P2 Describing several methods which are taken into account for MA reporting at the workplace
of R.L. Maynard Limited
Introduction
A method under which small reports considering financial transactions are prepared and then
formulated final accounts at the end of fiscal period is known as MA reporting. Under the current
report of business presented to general manager of R.L. Maynard, method of this reporting are
described. Apart from this, importance of such reports is also discussed through the present
report.
Significance of management activity reports
Documents prepared related to management activity shows about the incomes as well as
expenses occurred within one year in the company. On the basis of this, company can determine

that firm able to generate revenue and profit up to which extent (Cooper, Ezzamel and Qu,
2017). Apart from this, such reports are important to make proper record of all the financial
transactions come into consideration within R.L. Maynard. So that, financial statements like I/S,
B/S, cash flows etc. will be formulated easily as well as appropriately.
Illustration 2: Methods of MA reporting system
(Source: Otley and Emmanuel, 2013)
Accounts receivables ageing report: This method includes all the amount at which R.L. Maynard
sold goods and services within one year on credit. Further, it shows payment or sum of money
which will be generated by the selected company at the end of next year. It is highly considered
report by which firm able to assess amount at which credit sales is generated within one financial
period. Once this report is completely prepared by the accountant within workplace then total
amount treated in books of financial position's statement. In that account, it is to be entered in
current assets side in form of debtors which will be received in the upcoming financial period
(Burritt and Schaltegger, 2010).
Budget report: A statement or report which is prepared for estimating financial information for
next accounting period is referred as budget. It is to be formulated by considering different
methods along with taking base of past financial statements. Under this, incomes or cash inflows

as well as payments or cash outflows are estimated for upcoming year. So that, cash position is
to be determined in current accounting period where corrective actions and strategies are applied
in R.L. Maynard, if needed. This report or method is basically considered in order to assess
business performance and make targets of financials. At the end of next year, actual data
compared with budgeted which supports to assess performance.
Stock and manufacturing report: Another method is stock where information related to this
specific aspect are recorded in an effectual direction. This is helpful for accountant of R.L.
Maynard in order to know stock remained at the end of year. On the basis of this, decisions for
producing or constructing buildings are taken that how many goods are required to construct in
next year (Otley and Emmanuel, 2013). In addition to this, another report i.e. manufacturing
reflects, how much production is completed at the end of year and how much is needed to
construct in next period.
Job cost report: According to this method of MA reporting, costs as well as expenses incurred at
the time of producing products in each job are to be recorded. Along with this, transactions
related to incomes generated by goods sold of every job are also mentioned in this particular
report. On the basis of this, R.L. Maynard able to determine total expenditures come into
consideration for manufacturing such items. Therefore, easily able to determine that, which job
products are highly effective and help to generate huge profits. Under this report, if it has been
found that particular product incurring more costs as compared to incomes, then corrective
actions are to be taken into account (Van der Stede, 2011).
Conclusion
Considering to the above analysis it has been articulated that, R.L. Maynard implements
some important and key methods in order to complete process of MA reporting. It uses accounts
receivables ageing report which reflects amount of debtors which will be gained in next year.
Apart from this, stock, manufacturing, job cost as well as budget reports are also prepared by
accountant of the construction company

TASK 2
P3 Preparation of income statement on the basis of marginal as well as absorption costing
An account which shows sales revenue as well as profit generated within one financial
year is referred as income statement. It is one of the widely considered method which gives clear
outline of profit situations. Further, to prepare this account R.L. Maynard considered two
methods i.e. marginal and absorption. Moreover, such statements are stated below:
P&L based on marginal costing:
From the above stated P&L account it can be seen that, R.L. Maynard has capability of
earning revenue worth of 17500 GBP. In order to make this much turnover, it sold 500 units in
the fiscal year at price of 35 GBP. Net profit or contribution occurred at this position is worth of
4300 GBP which is at the average level. Moreover, this specific profitability condition of R.L.
Maynard is neither high nor low in the construction sector. This account is prepared on the basis
of marginal method where only variable costs are taken into account rather than fixed expenses.
P&L based on absorption costing:

When looking at the P&L account formulated considering absorption costing then it has
been visualised that, revenue is same as the above earned by R.L. Maynard. However, level of
profit differs which is 6600 GBP in this case. When an accountant prepares income statements
on the basis of these both the techniques then profitability conditions differ up to a greater extent.
The reason is that, one method consists of only variable costs while second tool is comprises
with fixed and non-fixed both kinds of expenditures (Zimmerman and Yahya-Zadeh, 2011).
When level of expenses differ at the workplace then obviously profit will also change at the same
revenue earned by R.L. Maynard.
Difference between both the MA techniques which are marginal and absorption
Marginal costing Absorption costing
This specific method is considered as tool for
taking various business decisions at the
workplace in a profitable direction.
It is one kind of appointment of responsibility
centre where manager of cost centre plays a
major role to determine total cost of
production.

Income generated in P&L account on the basis
of marginal costing is identified as contribution
of every product or building constructed in
R.L. Maynard.
The same value in this stated method is terms
as gross income generated at the end of
financial year. Further, the expenses are
considered as cost of sales only at here.
Costs of overheads in this technique of MA are
segregated in only two parts which are like
variable as well as non-variable.
At here, overhead expenditures incurred at the
workplace of cited firm are classified in three
portions which include production,
administration and selling & distribution
(DRURY, 2013).
When profit generated by the company then
termed or valued in form of profit volume ratio
at the fiscal year ending.
On the another side, due to changes occurred in
stock level, profitability position of R.L.
Maynard fluctuated up to the certain extent.
Valuation of stock in marginal method is
considered in terms of fixed cost of the
organisation.
Herein, stock and its related costs are
considered in form of production expenditures
of the construction company.
While making accounting treatments of stock
in P&L at here, any kind of standards, theories
and principles are not required to consider by
the accountant.
At the time of formulating P&L considering
absorption method, it is mandatory to follow
IAS 2 for treating stock.
TASK 3
P4. Explaining advantages and disadvantages of different types of planning tools under
budgetary control
Budgetary control is a technique of management control which helps in comparing actual
spendings and income with the budgeted spendings and income. Before this, it is important to
prepare budgets for different activities and functions of organisation. There are different tools
that can be used for the preparation of budgets under management accounting (Garcia and et.al.,

2016). These tools helps in planning for future events which includes taking decision regarding
how many resources are to be allocated to various functions to achieve desired targets. R.L.
Maynard Limited can use following planning tools for the purpose of preparing budgets and
planning for future events:
Incremental Budgeting:
This is a traditional method of budget preparation. Under this method current years
budget are used for making budgets for next year by adding a certain percentage or increment in
order to arrive at new budget (Groot and Selto, 2013). It is the easiest method among all the
budgeting methods. For example, if the monthly budget of small business is $5000 and allowing
for inflation and other business expenses means there is a need to add another 5% to respective
budget and then new budget will be $5250. This method does not evaluate business activities
and just provide further resources to the existing ones whenever required.
Advantages:
It is a stable budget and changes under this are gradual.
Highly skilled professionals are not required to undertake the process of incremental budgeting
as this can be done by any employee with nominal knowledge of accounting.
The impact of change can be seen instantly just after providing incremented resources.
It is am economical method of budgeting as preparation costs are low (Hickman, 2016.).
Since all the departments have same amount of money to spend and which reduces employee
conflicts.
Disadvantages:
Using this method may not provide correct resources to departments as it cannot be said entirely
accurate method.
It is rigid in nature and does not allow changes whenever needed.
Incentives are not provided to employees for reducing cost and increasing profit and productivity
of organisation.