Comprehensive Report on Management Accounting and Financial Strategies

This report delves into the core principles and practices of management accounting, emphasizing its crucial role in providing internal stakeholders with the financial insights necessary for informed decision-making. It begins by defining management accounting and contrasting it with financial accounting, highlighting the essential requirements of different management accounting systems, such as inventory management and cost accounting. The report then explores various reporting methods, including budget reports, accounts receivable aging reports, and performance reports. Furthermore, it provides a detailed analysis of cost accounting, including the preparation of income statements using both marginal and absorption costing methods. The report also examines the advantages and disadvantages of planning tools and concludes by demonstrating how management accounting systems can be leveraged to resolve financial problems within an organization. The report aims to provide a comprehensive understanding of management accounting and its impact on achieving organizational goals.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P 1 Management accounting and their essential requirements for different types of
management accounting system..................................................................................................1
P 2 Different method which is used for management accounting reporting...............................3
LO 2 ................................................................................................................................................4
P 3 Preparation of income statements on the basis of marginal and absorption cost..................4
LO 3.................................................................................................................................................9
P 4 Advantages and disadvantages of planning tools.................................................................9
LO 4...............................................................................................................................................11
P 5 Resolving Financial problems with the help of MA system...............................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting refers to the process of preparing the report and accounts to
provide accurate information to the management to take the effective and efficient information.
The aim of management accounting to support the decisions of management team. The report
highlights the meaning of management accounting and the different types of management
accounting system in the organization. It explains the various types of methods used by the
company in reporting like budget report, account receivable report, account payable report etc.
The report also explains the different kind of cost such as marginal cost and absorption cost to
prepare the income statement of the company. It also highlights the different advantage and
disadvantage of planning tools to control the budget and provide a comparison of management
accounting system to solve the financial problems. The aim of the report is to provide a brief
knowledge about the management accounting and its role in the organization to achieve the
organizational goal and objective.
LO 1
P 1 Management accounting and their essential requirements for different types of management
accounting system.
Management accounting
It is a procedure which provides access for internal management of an organisation for
analysing the financial statements which is necessary in decision making for a period of business
sustainability (Chenhall, and Moers, 2015). The management accounting includes effective
planning and to select next b est alternative action for a business. In addition to this, the control
is also executed by evaluation and interpretation of performance.
Financial accounting
The financial accounting is that accounting branch that execute track on financial
transaction of business. In this process of financial accounting, the day to day transactions are
recorded at first in journal and at the end of month ledger accounts for the same prepared by

accountants. Then comes financial statements at the year end which includes balance sheet and
income statement.
There are different types of management accounting system which are expressed as follows :
Inventory management system – The inventory management system makes track on
inventories through chain of supply in their operations. The inventory management includes
production, warehousing, shipping and retail activities within an organisation. Also, it includes
supervision of inventories as well as stock.
The LIFO, FIFO and Weighted average are methods which are followed under inventory
management. First in first out method is most popular method which is adopted by many
companies including Barry house. This method is based on assumption of cash flow in which
inventory cost is removed at the time of their purchase. Last in first out is also a good method in
which stock at current cost is in income statement within sales. The last inventory is to be first
delivered under LIFO. On the other hand, weighted average is assignment of production cost. In
this, the inventory management assumes to sell their inventories simultaneously. The inventory
management system is helpful for company Barry House in minimising the cost which enable
them to attain customer satisfaction by lowering down their cost of products.
Cost accounting system – The cost of action analyse the profit, valuation of inventory
and cost control (Jasinski, Meredith, and Kirwan, 2015). The accounting system provides access
in defining the effective cost of different division of production. The accounting entry of raw
material purchase till production in Barry house is also done in cost accounting system. It records
these items by credit the raw material account and debited the goods in progress.
The cost which is related with goods and service production is direct cost. Also, the
labour cost and cost of distribution is included with the product cost. In addition to this, direct
expenses includes production cost of materials by which cost can be easily determined by cost
department. This system is beneficial for Barry house to provide a guide for price reduction and
also helps them in segregating unprofitable and profitable activities.
Job costing systems – This method includes the procedure of information in which
production and service cost is associated within it. Also, there are three types of information
which is needed are overhead, direct material, direct labour. This system is helpful in

determining the accuracy in estimation system of company. The system of job costing helps
Barry house in tracking team as well as individual performance in respect to efficiency, cost
control, productivity, etc.
P 2 Different method which is used for management accounting reporting.
Managerial accounting reports is a kind of report which brings forth by the managers for
producing reports for the help of internal users. This report is helpful in effective planning,
organising and decision making of an organisation.
The managerial report is prepared by companies are of many types. Some of these
methods will be discussed below as :
Budget report – This report provide access in measuring performance of business and
also set budget for the report for which it is prepared. This budget report enables to distribute
appropriate budget within different department of an organisation (Ren, Wang, and Lin, 2016).
For Barry house company, it provides aid in measuring and comparing the actual performance
with the planned. All the incomes and expenses are handled in Barry house according to the
budget report.
Advantages
 The budget report enables to measure the performance of business and helps them by
taking corrective measures.
 Also, it leads an organisation for ascertaining the risks and provide access for company in
deciding future investment.
Account receivables Ageing reports – This reports measures the credit amount offered to
customers for the exchange of goods and services in a specific time. The account receivable
ageing report assists the managers of companies like Barry house for identify the defaulters.
These defaulters are the people who are unable to pay back the money and can lead to
organisation towards losses. The company Barry House by getting knowledge about list of
defaulters to alter and transfer their policies which is related to credit in their business.
Advantages

 The internal users like managers is able to make decision by this report and also they able
to ascertain the period of collection need by customers by the credit availed by company. Also, it is helpful for managers in restructuring credit policies of company to improvise
the profitability.
Performance report – Under this report, performance of business is reviewed and
analysed. The promotions and appraisals of employees working in company Barry house is
wholly depend on this report. This report is perfectly fit for large organisation as there are many
employees working within it. In addition to this, the management becomes tough and it is not
possible for management personnel to handle performance of every employee without this
report.
Advantages
 The performance report us helpful for Barry house managers in comparing performance
of every employee with an ease.
 Also, by properly analysing it the company is able to conduct training for development of
required skills for the employees.
LO 2
P 3 Preparation of income statements on the basis of marginal and absorption cost
Absorption cost : Absorption cost refers to include all the cost which relate to the
production activities. It includes the various types of cost such as direct material cost, direct
labour cost, fixed manufacturing overhead and variable manufacturing overhead. It is required by
the organization for the income tax reporting and financial reporting. It used the generally
accepted accounting principle to evaluate the performance of the company.
Income statement using absorption costing method
particulars Amount Per unit
Normal level of 11000

production
Fixed overhead cost 99000
Fixed production
overhead 9
Total production cost
variable cost 25
Fixed cost 9
Total 34
Per unit production cost = direct material + direct labour + Direct production head
Marginal costing : It is the cost occur on producing one additional unit. It helps to allocate the
resources in the organization and evaluate them to get the effective output. It is used to determine
the price of the product. Mainly marginal cost method is used by the organization when the
customer demand the lowest possible price for the products.
Under marginal costing
Cost per unit
Direct Material 18
Direct Labour 4
Variable O/H 3
Marginal cost per unit 25
Selling price 50
-Marginal cost per unit -25
-variable selling price -5.00
Contribution per unit 20.00

Per unit production cost = direct material + direct labour + direct production overhead + total
fixed production cost
Income statement by using marginal cost in November and December Month
Profit and loss statement by using marginal costing method
Novembe
r
Decembe
r
particular
s unit price unit amount
net
amount unit price unit amount
net
amount
sales 50 10000 500000 500000 50 12000 600000 600000
less cost
of sales 25 2000 50000
variable
cost of
productio
n 25 12000 300000 25 10000 250000 300000
Less
closing
stock 25 2000 50000 250000
less
variable
cost of
productio
n 5 10000 50000 50000 5 12000 60000 60000
200000 240000
less fixed
variable
productio

n cost
productio
n 99000 99000
Selling
price 14000 14000
administr
ative 26000 139000 139000 26000 139000 139000
61000 101000
Income statement by using absorption cost for November and December month
unit price unit amount unit price unit amount
sales 50 10000 500000 500000 50 12000 600000 600000
less cost
of sales
opening
stock 34 2000 68000
productio
n cost 34 12000 408000 34 10000 340000 408000
34 2000 68000 340000
gross
profit 160000 192000
adjustmen
t for fixed
and under
absorptio
n 9000 9000
169000 183000

2. Material variance
3. Inventory ledger record by using the LIFO and Weighted average method
Inventory management by weighted average methods
Date Basis
openi
ng
purc
hased sales
Balan
ce
unit
per
unit Value unit
per
unit Value unit
per
unit Value unit
per
unit Value
1 may
openi
ng 40 3 120 40 3 120
12
may
purch
ase 20 3.6 72 60 3.2 192
15
may issue 36 3.2 115.2 24 3.2 76.8
20
may
purch
ase 20 3.75 75 44 3.45 151.8

23
may sales 10 3.45 34.5 34 3.45 117.3
27
may sales 25 3.45 86.25 9 3.45 31.05
30
may sales 5 3.45 17.25 4 3.45 13.8
Valuation of inventory
Inventory valuation by LIFO method
date Basis
openi
ng
purc
hased sales
balan
ce
unit
per
unit Value unit
per
unit Value unit
per
unit Value unit
per
unit Value
1
May
openi
ng 40 3 120 40 3 120
12
May
purch
ase 20 3.6 72 40 3 120
20 3.6 72
15
May issue 20 3.6 72 24 3 72
16 3 48
20
May
purch
ase 20 3.75 75 24 3 72
20 3.75 75
23
May sales 10 3.75 37.5 24 3 72
10 3.75 37.5
27 sales 10 3.75 37.5 9 3 27

May
15 3 45
30
May sales 5 3 15 4 3 12
LO 3
P 4 Advantages and disadvantages of planning tools
Planning tools help the company to achieve the target by applying the effective plan in
the organization. There are various kinds of planning tools which help the company to run the
business effectively and regulate the activities of the organization.
Budgetary control : It refers to the process of utilization of budget in the company to
monitor and control the cost and expenses of the company to achieve the goal and objectives. In
budgetary control system the company compare the actual cost with the standard cost to analyse
the performance by estimating the variances (Mubarak, 2015). Barry house use the budgetary
control system to control the cost and operating expenses of the hotel and fulfilling the activities
under the associated budget (Miller, 2018).
Sales budget : It helps the manager to estimate the future sales of the organization. It helps to
estimate the earning of the company and forecast the requirement of production by analysing the
demand and supply of the company. By analysing the actual and estimated sales budget an
organization can find the variances and the reason behind the increasing and decreasing of sales
in particular accounting period (Berezina and et.al., 2016).
Advantages
 It helps the company to estimate the sales of the company and help them to control the
different expenses such as selling and distributing expenses.
 It helps the organization to achieve the objective and goal of the company by estimating
the budget and analyse the different variances which affect the business.
Disadvantage

 Sales budgeting is a time intensive process. It requires different kind of information to
estimate the sales budget such as market trend, demand and supply of the material, taste
and preferences of customer, competition in the market and competitor pricing strategies. The disadvantage of sales budget is the manipulation of the data by the internal
management. The internal management team manipulate the data to increase the sales to
present higher profit which affects the accuracy of the company information.
Master budget : It is the combination of all small budget in the organization to provide the
holistic view of organization finance (Marble, Fulcher, and Toman, 2016). It includes the various
activity such as the customer services, marketing, sales, production, distribution expenses etc. to
create a single budget. The medium and large sized organization use the master budget to align
the manager and employees and achieve the company target and aims.
Advantages
 It helps the company to get the overall budget and provide an overview of different
expenses and earnings of the company.
 The master budget helps to identify the issues of different department and focus on each
department activity to overcome problems.
Disadvantage
 The disadvantage of master budget is that it does not specify the cost or expenses of each
activity because it is the collective sum of all the expenses and earning of different
departments. It is difficult to understand overall budget because of the extensive description and charts.
Cash flow budget : It refers to prepare the budget for the company to predict the total cash
inflow and outflow in the company (Reichard and van Helden, 2018). It helps the company to
plan the cash transaction and estimate that whether a company is able to meet the cash expenses
or not.
Advantages
 Cash budget helps to identify the potential deficits of the company. It helps to provide the
correct actions to write off deficits.

 It helps to communicate the true financial position of the company by estimating the cash
inflow and outflow in particular accounting period (Lasek, Cercone and Saunders, 2016).
Disadvantages
 Cash flow budget use the historical data to estimate the cash budget of the company
which always not present the true and accurate position of the company.
 It limits the spending power of the company because of the less use of cash in business
transaction.
LO 4
P 5 Resolving Financial problems with the help of MA system
Different tools to identify the financial problems in the company
Benchmarking : It is the process of measuring the performance of the company by
setting the various standard and benchmark. It helps them to compare the organization
performance with the benchmark. Benchmark may be the outstanding performance of another
company in same industry. The comparison of actual performance with the setted benchmark
provides the different variances (The Benefits of Benchmarking, 2019). The favourable variances
reflect the sound position of the company but the adverse variances force them to identify the
reason behind the variances.
Benchmarking tool is used to identify the financial problems in the organization.
Variances help to address the different issues in the organization. It helps to identify the internal
opportunity to improve the performance of the company. Barry House use the benchmarking
system to identify financial problem like decreasing sales, increasing selling expenses,
maintenance expenses etc. in their hotel (Duan and et.al., 2016).
Key benefits of benchmarking
 Benchmarking helps to identify the performance of the organization in the market and the
various issues related to the organization performance.
 It helps to identify the area of improvement by analysing the variances and evaluate each
department activity (Jung and et.al., 2016).
Key performance indicators : KPI system is used to measure the performance of the
company. It helps to achieve the organization objectives and goals by evaluating the

performance. The high level KPI focus on the overall department function whereas low level
KPI focuses on the each department activities. By analysing the each department activities
company is able to find the area of improvement and the various financial problems. It helps to
measure that how well a company is able to achieve the objectives and goal.
KPI is technique commonly used by the organization to measure the performance of the
company and help them to identify the financial problems such as decreasing profit, increasing
expenses, etc.
Variance analysis : It is the process of identifying the difference between the actual
performance and the expected performance. The measurement of the variances help the business
to identify the problems. It also helps to control the cost and improve the organizational
performance and efficiency (Variance Analysis – Overview, Budgeting, Benefits, 2019). Variance
analysis can be used by the different department and projects to identify the financial problems.
However, it can be identified that Barry house uses the benchmarking method to identify
the financial problems in the company. Benchmarking method a suitable way to compare the
performance of the employees and organization to the competitive company performance in
market. Along this Barry house can also analyse the performance by setting or preparing a
benchmark. On the other hand Penta consulting company use the variance analysis method to
identify the financial problem by comparing the actual and expected performance. But variance-
analysis is based on expectation of the user rather than to facts. Benchmarking is the best method
to identify financial problems by comparing with the market performance and getting the real
issues.
Measures to solve the financial problems
Financial governance : Organization use the financial governance to collect, monitor,
measure and control the financial information. It is the process of identifying the financial
transaction and manage them to get the objective and manage the performance of the company. It
is used by the organization to regulate the financial data and measure that the information
provided by the manager is accurate and up to date. Financial governance provides the internal
audits to resolve the financial problem and provide the different measure to improve the
productivity and profitability of the organization (Shanmin, 2017).

The aim of financial governance to provide the accurate data to the manager to estimate
the performance. The sound financial governance help to prepare the budget, plan and forecast. It
helps to identify and resolve the financial problems. Good financial governance improve the
transparency, accountability and efficiency of the data (Alatassi and Letza, 2018). It monitors the
activities of each department and evaluate them to improve the organization performance.
CONCLUSION
The report summarizes the purpose of management accounting and the different types of
management accounting system like job costing, inventory management, cost accounting, price
optimization etc. The different reporting methods such as account receivable report, budget
report and performance report help the organization to control the cost. The absorption and
marginal cost are used by the company to prepare the income statement. It can be concluded
from the report that the LIFO and FIFO method help to maintain the inventory level and order
the purchase quantity by regulating the inventory in the organization.
The report also summarises the various accounting tools for budgetary control such as
sales budget, master budget, production budget etc. and the different accounting system to
identify and resolve the accounting problem like reduction in profit and sales, increase in cost
and expenses of the organization etc. Benchmarking, key performance indicator and variance
analysis help to identify the financial problems and financial governance help to resolve the
financial problems.

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