Management Accounting Report: Costing, Reporting, and Systems Analysis

This report provides a comprehensive analysis of management accounting practices, focusing on their application within R.L. Maynard Limited, a UK-based property construction company. It explores various management accounting systems, including traditional cost accounting, lean accounting, transfer pricing, and inventory management, highlighting their benefits and requirements. The report delves into different reporting methods, such as cost reports, job cost reports, sales reports, payroll reports, budget reports, and accounts receivable reports, explaining their significance in financial management and decision-making. Furthermore, the study includes the preparation of financial gain statements using both marginal and absorption costing methods, comparing their outcomes and emphasizing the impact of different cost considerations on profitability. The report underscores the importance of management accounting in reducing expenses, aiding business decisions, and increasing return on investments, offering a practical perspective on financial management within a business context.

MANAGEMENT
ACCOUNTING

REPORT
From: Management accounting
To: General Manager
R. L. Maynard Limited
Date: 20th April 2017
Subject: Management accounting and its systems along with various costing as well as reporting
methods implementation in the workplace.
INTRODUCTION
In the business environment, it is very necessary to manage financial resources in order to
make the firm more profitable within industry. In context to this in the accounting and financial
world, there are different types of methods, tools and techniques which are helpful for
entrepreneur for manage accoutring transactions in proper manner. In the present report R.L.
Maynard Limited company is chosen which is located in UK and operates in property
construction segment. The company has 24 employees in the organisation and generates sales
worth 10.00 GBP. The report shows different methods and importance of management
accounting informations which helps to the firm up to greater extent. Along with this it shows
income statement as per the absorption and marginal costing methods as well as difference
between both the methods. Further, the study emphasises on benefits and limitations of various
kinds of planning tools uses in management accounting along with examples. At the last, current
report describes about management accounting systems by which the firm able to resolve
financial obstacles or problems.
TASK 1
P1 Different types of management accounting systems which are require for R.L. Maynard
Limited
Accounts which are made for managerial purpose are comes under management
accounting. These are used for internal affairs which provides timely information regarding
financial status of the company on daily basis. This helps in decision making by the
departmental managers for short term. Management accounting is a combination of accounts,

finance and management (Kaplan and Atkinson, 2015). It contains all kind of information
related to each subject or activity like strategy of business, financial accounts, etc. It is very
helpful for small businesses.
Benefits of management accounting:
Reduce expenses:It is considered as essential firms to reduces their expenses on operation by
analysing the cost of economic resources.
Help in making business decisions: it provides a quantitative analysis to the owners about the
cost of goods and services that helps in making effective decisions to enhance profitability.
Increase in return on investments: It provides forecast to the firms about the consumer
demand, potential sales and effects of prices on customers by which they can take effective
measures to increase their profitability.
R.L. Maynard Ltd. which is a property construction company, it follows management
accounting system in their company. Through this they are running their company very
effectively and efficiently. Management accounting is to be done on daily, weekly or monthly
basis for the company's internal people like functional or departmental heads, board of directors,
operational officers.
The necessary requirements of various management accounting systems which are
followed by the R.L. Maynard Ltd.:
The cost which is related to the manufacturing of goods and services of the organization
covers in the management accounting (Ward, 2012). The most commonly systems of
management accounting involves are as follows:
 Traditional cost accounting
 Lean accounting
 Turnout accounting
 Transfer pricing
 Price optimisation system
 Cost accounting system
 Inventory management system
 Job costing system

The description of the above mentioned accounting systems are discussed below: Traditional cost accounting: In the traditional cost accounting system, the cost of
production overhead is to be allocated to the products which has manufactured in the
company. This traditional method also called as Conventional method. Mostly
traditional method of cost accounting is to be adopted by the manufacturing companies
like RL Maynard Ltd. It distributes the indirect costs of the manufacturing unit on the
produced units. This is to be done on the criteria of quantity or volume of the produced
units, direct labour over-head, production over-head. Traditional method of cost
accounting includes Job order costing and Process costing. This costing is applicable
where cost can be easily identified for individual project in case of big or large projects
(Strumickas and Valanciene, 2015). Since the homogeneous products are move on
various processes, so it become difficult to allocate cost individually on them. Process
costing is used for allocating cost on the basis of number of processes on which the
homogeneous products have gone through.
 Transfer pricing: Transfer pricing generates when goods are transferring from one
department to another department and from ownership organization to the subsidiary
firm. The moving or transfer of goods from one place to another added little part of cost
to it with each and every step for transferring. Generally the costs which are to be
generated in transfer pricing are variable cost and opportunity cost. Variable cost
depends on the production unit. And opportunity cost shows the amount of money that
the company would bear in case of outsourcing of products to the outside firm. The
benefit of transfer pricing is its flexibility in the system (Suomala and Lyly-Yrjänäinen,
2012).
 Price optimisation system: It is considered as a mathematical analysis, which is used
by business firms to understand response of customers in different possible prices. It is
also used by firms to adopt the best possible prices for their products to influence more
customers.
 Cost accounting system:Suitable framework utilized by entities to analyse the cost their
products to determine the profitability (Melnyk and et.al., 2014). Also, considered as
effective method to control the cost, expenses to increase the profitability of firm.
 Inventory management system:Continuous process of handling the parts and products

of company. System used to manage the inventory of firm and providing information
about the availability of products within the firm.
 Job costing system: Most effective system that is used to calculate the manufacturing
cots of each products. Firms that are regulating in production of goods and services
utilize this method to determine the overall cost of manufacturing products (Chenhall,
2012).
P2 Explanation of various methods which are useful for the reporting of management accounting
 Cost report: It is a process in which they provide the cost related information to the
management that helps in controlling the cost in future. Thus, it also assist in making
decisions as they provide the internal report system and it is used to determine the unit
cost of those products that are manufacture. This will facilitate them to report the cost of
goods on the firm's balance sheet as well as Cost of goods sold on the P/ L account. Thus,
these accounting will helps the management by provide them transfer pricing, variance
analysis, standard costing and activity based costing etc.
 Job cost reports: The job cost report in which there is a overall statement of a firm's in
terms of profit and loss that are specifically given for each job that are assigned to
individuals. It helps the R.L. Maynard Ltd to make changes in the future with proper job
cost report and it is easier to get cost data relate to job that provides greater efficiency for
the long period of time (Kokubu and Kitada, 2015). Along with that, direct cost and
allocate overheads cost relate to the job all these are record in the ledger a/c and it is
summarise in the trail balance that also help the management to prepare the batch
manufacturing statement.
 Sales report: The report indicate the company's sales increase or decrease that helps the
manager to know those areas where the market opportunity to increase the sales. The
report that shows the firm's actual sales made by over some specific time period this will
also help the management that time framework is more significant for them. Therefore,
management required these type of management report to know the customer's buying
behaviour relate to product or any services as they not analyse the firm's turnover but also
the discount offer of the clients.

 Payroll report: The report is regard to employee's compensation salary that show the
management to know the financial position of the organization (Klychova, Faskhutdinova
and Sadrieva, 2014). Thus, it show the company reputation and it help the manager to
evaluate the individual's performance through the increase in the number of bonus and
increment in the salary. Therefore, the report are generate automatically through the
software that are update with the legislative changes as it also save cost for a long time
period to the organization.
 Budget report: The report is a internal part that are used by the firm's management to
make comparison the estimate performance with the actual to know the achievements
over the period. The R.L. Maynard Ltd helps in make comparison on those sales data so,
they can make various decisions regard to the firm. It is important for the to control the
activities and also make relevant decisions regard to financial resources so, they can run
the functions smoothly and effectively. The management can make out the deviation
through the budget report and also find out the cause and effects.
 Account receivables report: Most important tool used by the firms to keep record of
invoices of unpaid customers and unused credit memos. It is most important for firms to
identity the amount which the firm has to take from debtors. It also used by the
management to determine the collections functions and credit.
 Job cost report:From the analysis, it has been analysed that this report involves the
accumulation of expenses made by the firm on raw materials, labour and overhead for
manufacturing specific product. It utilized by firms to analyse and control the cost of
manufacturing products and services for increasing the profitability of firm.
TASK 2
2.1 Preparation of financial gain statement on the basis of costing method such as marginal and
absorption costing
Income statement is one of the most and widely used statement form all the financial
statements which shows firm's profitable situation at the end of specific period of time. In
context to this, the statement is prepared on the basis of two methods such as marginal as well as
absorption costing method (Drury, 2013). On the basis of both the methods and income
statement is prepared and stated below:

Income statement under the marginal costing method:
Table 1: Income statement on the basis of marginal costing
Income statement under the absorption costing method:
Table 2: Income statement on the basis of absorption costing

The above table shown that income statements it can be interpreted that company is able
to generate better net profit at the end of month. Further, it can be seen that there are different
value of net profit comes in both the statements such as marginal and absorption methods. As per
the marginal costing method net profit earned by company is worth of £12600 while on the basis
of absorption costing net profit is worth of £9300. Very main cause of arising such difference is
that both the methods consider different types of costs. In the profit and loss account of marginal
costing total expenses are worth of £1800 because it considers only variable costs of production
which are incurred in production process. On the other side in the absorption profit and loss
account total expenditures are £5100. The reason is that it considers variable as well as fixed
both type of expenses.
In addition to this, most of the companies relies on second method i.e. absorption costing
because it covers all the expenditures incurred in the firm such as fixed and variables ( Drury,
2013). When the company relies on first method then it able to cover only variables costs of
production. Absorption method gives clear and appropriate financial performance of the
company in terms of profitability at the end of specific period of time.
Difference among both the management accounting methods
Both the techniques of calculating and analysing net profit at the end of specific period
are different which is described below:
Marginal costing method Absorption costing method
The technique in which only variable and direct
costs are used which are comes into
consideration within production process is
identified as a marginal costing.
Method of costing in which all the costs and
expenses which are incurred in the firm are
used for derive net profit is known as
absorption costing.
In the marginal costing stock amount or value is
to be considers as a total variable expenses of
production cost. Due to this it not carries
forward in upcoming financial year.
In the absorption costing method stock which
remains at the end of financial year in
supposed to carry forward in next accounting
period. The reason is that inventory is values
as total cost of production at the end of FY

(Manohar, M., 2012).
When the level or amount of stock will be
decrease then the net profit will be increase in
the marginal costing method because here such
amount is not carry forward.
In this when amount of stock enhances then
net profit as well at the end of FY due to carry
forward.
The respective method is used by the company
in order to take better and effective business
decisions (Drury, 2013 ).
Here the company is able to take better
business decisions as well as treatment of
inventory is to be done on the basis of
international accounting standards 2.
The technique or costing method is used by
management for the purpose of internal
reporting system.
The absorption costing method is used by
management for the purpose of external
reporting system.
In this method amount of net profit is higher
compare to another costing method.
As per the respective costing system net profit
is comparatively low due to considering all the
expenses and costs.
TASK 3
P4 Explanation of advantages and drawbacks of different kinds of planning tools
In the accounting systems there are various types of tools and techniques are available by
which management able to control over the disposals. Further, by such tools the firm helpful up
to greater level in the budgetary control systems. The organisation such as R.L. Maynard using
several planning tools to generate high amount of profit at the end of accounting period in overall
construction industry of UK (R.L. Maynard Limited, 2016). Among various tools the firm uses
mainly three methods or techniques which are such as budget, capital budgeting methods as well
as ratio analysis. Benefits and limitations of such tools are describes as below:
Budget: It is one of the most important technique used in the firm for managing accounts
and financial resources as well. As per the budget the R.L. Maynard able to know future
accounting and financial performance of business. Here the management forecasts that within

specific period of time the company will generate how many incomes and disposals. There are
different budgets are prepared by R.L. Maynard which provide future informations such as cash,
production, sales, purchase etc. and examples of them are given as below:
Cash budget
Table 3: Cash budget
Particulars Amount (in GBP)
Cash inflows
Sales 900
Bank loan 350
Cash from debtors 550
Total cash inflows (A) 1800
Cash outflows
Rent on property 450
Insurance premium 200
Maintenance cost 250
Interest amount 180
Miscellaneous expenses 120
Total cash outflows (B) 1200
Net Cash balance (A-B) 600
Production budget
Table 4: Production budget

Particulars Product Z
Estimated sales items 1350
Add: Desired stock at the end of month 130
Number of items required 1480
Less: Stock available at the beginning of month 50
Items required to produce 1430
Sales budget
Table 5: Sales budget
Particulars Product Z
Estimated sales items 1350
Selling price of each item 20
Total sales for next month 27000
Various advantages and limitations are given as below:
Advantages:
 The R.L. Maynard able to make effective financial plan on the basis of monthly,
quarterly or yearly.
 It helps to allocate financial resources to every organisational function in an adequate
manner.
 By this management prepare effective business strategies for attract more number of
customers (Agarwal, R., 2016).
 In addition to this, R.L. Maynard can know that which activity takes higher cost and
expenses.