Management Accounting Report: Costing, Budgeting, and Analysis

This report provides a detailed analysis of management accounting principles and techniques, focusing on their application within R. Robson & Son Ltd. It begins with an introduction to management accounting, its different types, and their importance, including cost accounting, inventory management, and job costing systems. The report then delves into specific management accounting reports such as budget reports, accounts receivable aging reports, job cost reports, and inventory and manufacturing reports. The benefits of management accounting systems, including increased efficiency, profit maximization, goal setting, planning, and organizing, are also discussed. The report critically evaluates the integration of management accounting systems and reporting within R. Robson Ltd., highlighting its strengths and weaknesses. Furthermore, the report explores costing methods, including absorption and marginal costing, with calculations of net income using each method. It also includes break-even analysis and a financial report on management accounting techniques. Finally, the report examines planning tools for budgetary control, their advantages and disadvantages, and their application in preparing, forecasting, and analyzing budgets. It concludes with a comparison of R. Robson's management accounting system with other companies in the same industry and addresses planning tools to resolve financial problems.

Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A) Management Accounting .................................................................................................1
B) Types of management accounting reports and importance ..............................................2
C) Benefits of Management Accounting Systems..................................................................3
D) Critical evaluation of the integration of management accounting system and reporting in R.
Robson Ltd.............................................................................................................................4
TASK 2............................................................................................................................................5
A1. Absorption Costing and Marginal Costing Methods.......................................................5
A2. Calculation of net income as per abortion and marginal costing method.......................5
B & D. Calculation on Break-even analysis...........................................................................7
C. Financial report on management accounting techniques to General Manager..................9
TASK 3............................................................................................................................................9
A. The advantage and disadvantage of planning tools of budgetary control.........................9
B. The application of planning tools for preparing, forecasting and analysing budgets......11
C. Comparing the management accounting system of R. Robson with other company in same
industry.................................................................................................................................12
D. Management Accounting Techniques.............................................................................13
E. Planning tools in order to resolve financial problems in business..................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16
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INTRODUCTION
Management accounting plays a significant role in the survival and growth of a business
organisation. In today's competitive business environment, organisation needs to have a proper
management accounting system to ensure efficient running of the financial needs of company.
An effective management accounting information system will provide accurate financial
information to the management to make planning and decisions regarding investment and
enhancing organisational performance. The present report will help in understanding different
management accounting systems and techniques. Further, the importance of different
management accounting reports will be discussed. Study will help to understand different
systems of costing including absorption and marginal by calculating net income through each
method. A financial report is also included in the report.
The report will also address cost volume profit analysis. Present study will demonstrate
the planning tools for budgetary control. Report will also address the significance of planning
tools to solve financial problem of organisation to sustainable success.
TASK 1
A) Management Accounting
To,
The General Manager
R. Robson & Son Ltd.
London, United Kingdom
Date: 25-09-2018
Sir,
Management accounting is the process of examining costs and operations of business for
preparing financial report, records and account that help managers to make decisions for
achieving R ROBSON & SON LIMITED's goals. It helps management in performing functions
like planning, organising, staffing, directing and controlling. In other words, it relates to make
financial and costing data with translating the same into useful information for management
within an organization (Otley, 2016).
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The different types of management accounting systems are as follows:-
 Cost Accounting System: It is a framework that is used by the firms in order to estimate
value of their products for analysing its profitability, inventory valuation and cost control.
Cost accounting is a key concept of management accounting because it offers various
analytical tools such as marginal, operating, standard and budgetary and inventory
control. The two main cost accounting systems are job order and process costing. Thus,
having a proper cost accounting helps the company to analyse the profitability of the
individual products and services or jobs and different departments as well as operations
of R ROBSON & SON LIMITED. Hence, cost accounting helps the selected company to
cover the cost and generate the level of profit accepted.
 Inventory Management System: It combines the application of consumables, stock,
goods and supplies. Its goal and objective is to know current inventory level and it
minimizes the situation of overstock and under stock. Its benefits are improvement of R
ROBSON & SON LIMITED's bottom line, workflow and inventory accuracy. Thus, this
system aims to provide an efficient interface and calculates the amount of usage for
specific set days. The user of the selected company do not have to calculate the usage
manually but the system does everything.
 Job Costing System: It is a process of accumulating information about costs associated
with the service job (Fullerton, Kennedy and Widener, 2014). It is applied when goods
processed are different from each other. It is required to accumulate information related
to direct labour, materials and overhead costs. Thus, job costing is suitable in deriving the
cost of constructing the custom machine, the software programme designed or
manufacturing limited batch of products.
 Price Optimising System: It refers to the mathematical programs that are used to
calculate variations in demand at different levels of price by combining that data with
information on costs and inventory level to improve profits. Thus, this system helps the
quoted company to determine initial pricing, promotional and discount pricing and helps
to set the temporary prices to increase the sales of the items.
Thanks and Regards
Management Accounting Officer
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B) Types of management accounting reports and importance
To,
The General Manager
R. Robson & Son Ltd.
London, United Kingdom
Date: 25-09-2018
Sir,
Hereby enclosing the details about different management accounting reports that
company can use along with their importance.
 Budget Report: It is one of the most important reports of management accounting as it
helps small business owners in analysing performance of their company and managers in
examining performance of their department for controlling costs. Budget report is
important to R ROBSON & SON LIMITED as it is used by both; manager as well as
owner for providing incentives and bonuses to its employees (Cooper, Ezzamel and Qu,
2017). Budget report is important to rectify errors, revise budget and for taking remedial
action without any delay.
 Accounts Receivable Aging Report: It is a critical tool that is used in managing the flow
of cash. It also includes separate columns for those items that are 30, 60 and 90 days late.
This report is used by the managers in order to find problems that are related to collection
procedure followed by R ROBSON & SON LIMITED. Its importance is that customers
come to know that late payment is not accepted (Suomala, Lyly-Yrjänäinen and Lukka,
2014). Thus, aging report helps company to understand the outstanding receivables and
their quality and it is also used to determine the value of receivable portfolio.
 Job Cost Report: It shows the total cost incurred by a single project as compared to their
expectations to evaluate the profitability of job by estimating its revenue. It is also
essential for examining the expenses when project is in progress so that waste can be
controlled. With the help of this report, leaders can evaluate various financial gains of
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jobs and focus on those jobs which are the most profitable. It leads to profitability, proper
management decision and financial reporting (Melnyk and et.al, 2014). This report helps
the management to provide information about each and every job so that review can be
made about greater transparency
 Inventory and Manufacturing Report: It includes items such as inventory waste,
labour and per-unit overheads costs involved in the process of production. This report is
useful for those companies which maintain physical products or inventory (Types of
Managerial Accounting Reports, 2018). It is important for highlighting the areas of
improvement and offering bonuses to the best one. The importance of inventory and
manufacturing report is to keep records of various things like inventory change, purchase
order, multi stock location, etc. (Gibassier, 2017). This report is important for the
manager as it includes accurate record of cost of goods sold and the cost involved for
manufacturing goods.
Thanks and Regards
Management Accounting Officer
C) Benefits of Management Accounting Systems
Management accounting system is helpful for business, advantage of this are given as below:
 Increases efficiency: Management accounting systems helps R ROBSON & SON
LIMITED in increasing its efficiency for performing various operations by eliminating
various kinds of wastages and defectives. It motivates employees to give better
performance and receive rewards in the form of promotions.
 Maximization of profits: Management accounting helps to compare actual performance
with standard budgets to analyse deviations. If deviations are found then management is
required to take corrective actions for maximising profits (Flamholtz and et.al, 2016).
 Goal setting: Management accounting helps managers at the time of setting goals and
making adjustments in order to motivate employees for achieving the ultimate goal. It
helps in improving relationship between management and labour.
 Planning: Management accounting focuses on planning for future which includes
information of specific products, market reach and regional information. These
information are obtained from budgets, surveys and competitor analysis. For proper
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planning, the information are rearranged in accordance with departments, products and
sections (Macinati and Anessi-Pessina, 2014).
 Organizing: Management accounting plays an essential role in organizing business. It
assist management with help of internal audit and internal control, performance appraisal
and executing overall control of business activities. It helps for proper organizing the
work in R ROBSON & SON LIMITED.
It provides both qualitative as well as quantitative information for measuring operational
and financial performance. Management accounting is used by managers, employees and owners
within R ROBSON & SON LIMITED. Continuous improvement helps in improving the
effectiveness of process, systems and quality of various goods and services. Also it helps in
reducing the wastage of time, efforts and materials which ultimately helps in increasing its
productivity.
D) Critical evaluation of the integration of management accounting system and reporting in R.
Robson Ltd.
Management accounting system is an integral part of R. Robson ltd. Management
accounting helps to guide and advice management at every step. It helps in increasing the
efficiency of company. Management accounting system helps management of R. Robson Ltd. In
making efficient decisions for achieving sustainable success of organisation. Several techniques
in management accounting system like budgetary control helps in analysing the performance of
R. Robson Ltd. Management Accounting System helps R. Robson Ltd. in tracking cost and
expenses that involves in manufacturing processes and product sale. These accounting systems
have made it easier for R. Robson Ltd. to conduct day to day business activities in effective
manner.
Management Accounting Reports enabled R. Robson ltd to analyse business performance
and to estimate yearly budgets of company. Implementing accounting reports in R. Robson Ltd.
is able to make manufacturing processes more efficiently. Management Accounting Reports
helped R. Robson Ltd. in providing information about various levels of management, which
helps the management to make effective decisions regarding budgeting and operations of
organisations. Management accounting reports helps in providing information to the higher
authorities of R. Robson Ltd.
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However, there are some criticism on management accounting system as both financial
and cost accounting information are used in the management accounting system. The accuracy is
dependent on the accuracy of financial and cost record and these records determine weaknesses
and strengths of management accounting (Suomala, Lyly-Yrjänäinen and Lukka, 2014). So, it
would require by Nisa to maintain accuracy of these records in order to maintain management
accounting systems. Personal prejudices and bias of an individual can also affect the objectivity
and effectiveness of the conclusions and recommendations. These systems will only be providing
Nisa with data to solve the problem before the management.
TASK 2
A1. Absorption Costing and Marginal Costing Methods
Absorption Costing: It is a technique which assumes both fixed and variable costs as the
product costs. Costs per unit gets affected by changes in opening and closing stock. It is used for
determining cost of each unit. It shows the accuracy and fair treatment of product cost. In this
profits gets reduced since fixed costs are considered in product costs. It is required to be
presented or used for the purpose of financial as well as tax reporting. Under absorption costing,
the expenses or overheads are divided into production, administration and selling and
distribution. Fixed costs are included in product costs as compared to variable costs. Also cost
data is presented in a traditional way and profit is determined after deducting fixed costs with
their variable costs (Otley, 2016). The differences between opening stock and closing stock will
show effects by either increasing or decreasing the cost per unit. As we take all the cost in
absorption costing then our profit will increase but if fixed or variable costs is not considered
then it will result in reduced profit.
Marginal Costing: It is a technique of decision making which assumes variable costs as
product costs and fixed cost is assumed as cost of product. It is used to determine the cost of next
unit. The cost per unit does not get affected by changes in opening and closing stock since its
emphasis is on next unit (Suomala, Lyly-Yrjänäinen and Lukka, 2014). It emphasis of
contribution is shown in product cost. It is useful in decision making process and simple to
operate. The cost data is presented in order to outline total contribution of each product. The cost
per unit of output is not influenced by the variations in opening and closing stock. It
distinguishes overheads as fixed overheads and variable overheads. The fixed costs are charged
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against the profits of the year in R ROBSON & SON LIMITED. It can be expressed as
contribution per unit.
A2. Calculation of net income as per abortion and marginal costing method
Net income as marginal costing:
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Net income as per absorption:
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B & D. Calculation on Break-even analysis
Break-Even analysis
Particulars Formula Figures
SPU (Selling price per unit) 40
Variable cost (per unit) 13
Contribution (per unit) SPU - variable cost per unit 27
Fixed cost 6000
BEP (in units) Fixed cost / CPU 222
BEP (in value or monetary terms) BEP in units * SPU 8888.89
Units need to sell for attaining desired profit margin
Particulars Formula Figures
Fixed expenses 6000
Desired profit 10000
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CPU 27
Number of units required to sell
(Fixed cost + desired profit
margin) / CPU
592.59259
25926
Margin of safety
Actual sales – Break-even point
/ Actual sales
0.72
Interpretation:
Break even analysis is a calculation of a point called breakeven point where, revenue
from a product is equal to the expenses of production of that product. From the above calculation
of breakeven analysis, it can be interpreted that the number of product to be sold to reach the
breakeven is 222. The breakeven point in terms of sales revenue is 8888.89 pound. From the
above calculation it can be said that to make profit of at-least 10000 pound, the number of
products IS 25926. The marginal safety at 800 products is .72.
C. Financial report on management accounting techniques to General Manager
To,
The General Manager,
R. Robson & Son Ltd.
London, United Kingdom
Date: 25-09-2018
Sir,
This report is to inform the higher authority of R Robson & son Ltd about implementing
the management accounting techniques of both marginal and absorption costing method. As per
the calculation above, it can be said that the organisation should choose absorption costing
method above marginal costing in determining net income of business concern. Absorption
costing considered both fixed as well as variable cost in evaluating the final product cost.
While, marginal costing considered only variable cost in determining product cost assuming
fixed cost as constant. Calculating net income through absorption method will give higher net
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