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
1

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).
1

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
2

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
3

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
4

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.
5

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
6

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:
7

Net income as per absorption:
8

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
9

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
10

income as shown in calculation above. The net income of R Robson & son Ltd as per
absorption costing is 17700 pound which is higher than marginal method which gives 17500
pound of net income. The management of R Robson & Son Ltd should choose absorption
costing method to evaluate the final product cost and net income of organization.
Thanks and Regards,
Management Accounting Officer
TASK 3
A. The advantage and disadvantage of planning tools of budgetary control
An organisation prepare a budget to estimate revenue and expenditure for a specific
period of time for a particular plans or objectives of business. Budgetary control is the process
which compare the actual performance with the budgeted figures to find any differences. The
budgetary control helps the management to find the reason in differences and takes remedial
steps in order to strength the business performance.
Planning tools are the techniques to control the budget of business performance.
Following are the two planning tools for budgetary control:
Zero Based Budget: In zero based budgeting (ZBB), all expenses of each activity are estimated
and budgets cost are allocated as per the need and performance of that activity (What is Zero
Based Budgeting (ZBB)?, 2018). In ZBB, budgets are created without looking at prior year's
budgets. Budgets are prepared by checking each and every activity of new period without any
reference of previous year budgets.
Advantages and disadvantages of Zero based budgeting:
 It helps in identification and eliminating the wasteful activities of business.
 ZBB assist in allocating cost benefit resources to the worthy activities of business. Hence,
better utilization of resources.
 Operational efficiency is enhanced in budgeting process.
 In gives new idea, technologies and methods to make proper budgets to encourage the
organisational process more successful.
Limitations of Zero based budgeting:
11

 Many decisions has to be taken for preparing ZBB which increases the expenses of
company. Zero based budgeting is a time consuming process as all activities need to be checked.
Activity based budgeting: It is a process in which all activities are being recorded and analysed,
and the activity which are most productive to the business (Warren and Jones, 2018). The budget
for each department will be made on their performance and allocation of cost will be done
accordingly. Activity based budgeting helps in increasing the efficiency of the productive
activities of business.
Advantages of Activity based budgeting:
 It helps in reducing expenses of companies by allocating cost to meaningful activities of
the business.
 Management can take the quality decisions as each and every activity is being checked in
activity based budgeting.
 Activities based budgeting helps in management on focusing the value adding activities
and eliminate non-value adding activities.
Disadvantage of Activity based budgeting:
 Activity based budgeting is major task to implement, and requires huge cost to maintain
the system.
 It requires high operational work from employees as every activities of organization are
to be considered.
 ABB data can easily be misinterpreted and management needs to have a relevant
information before making any decisions for business.
B. The application of planning tools for preparing, forecasting and analysing budgets
It helps the firm in allocating cash in future, and assist in determining cash surplus and
deficit for the ensuring months and enables proper utilisation of cash in organisation. Cash
budgets indicates company about the future needs of the cash, so that the company can arrange
cash to meet the needs of cash in operations.
Preparation of cash budgets are:
Particulars January
Februar
y March April May June
12

Cash inflows
Op. cash inflow 12000 12720 13483.2
14292.19
2
15149.72
352
16058.70
69312
Revenue 20000 22800 25992 29630.88
33779.20
32
38508.29
1648
Other sources 10000 11000 12100 13310 14641 16105.1
Total cash inflows 42000 46520 51575.2
57233.07
2
63569.92
672
70672.09
85792
Cash outflows
Material 150 153 156.06 159.1812
162.3648
24
165.6121
2048
salaries 450 450 450 450 450 450
Other costs 200 206 212.18 218.5454
225.1017
62
231.8548
1486
operational costs 300 315 330.75 347.2875
364.6518
75
382.8844
6875
Total cash outflows 1100 1124 1148.99
1175.014
1
1202.118
461
1230.351
40409
Cash deficit / surplus or closing
cash balance 40900 45396 50426.21
56058.05
79
62367.80
8259
69441.74
717511
C. Comparing the management accounting system of R. Robson with other company in same
industry
The management accounting system that R. Robson Ltd implementing to solve its
financial problem is key performance indicators. Key performance indicators are necessary part
of any business that helps in solving financial or management problems as well leads the
13

company is aiming for success. It is a value that helps in measuring efficiency of a company in
achieving key business objectives (Wild, 2015). KPI helps in evaluating the performance of
various levels and departments like sales, profit, customer satisfaction, return on investment and
cost control etc. these indicators helps the company to show the bottom line indicators and helps
the management in solve cost allocation problem by setting micro-bench marking like sales
points, distribution channels etc. Key performance indicators helps in setting a target which helps
the management to work in achieving those targets. These accounting system will help the
management to solve efficiently the financial problem as compared to other companies in same
industries.
The other competitive retail sector company Nisa Ltd. is using balance score-card as its
management accounting system. Balance score card is used in identifying and improve various
internal functions of organisation. But balance scorecard system requires a huge amount of
investment to implement and maintain this accounting system, which will affect the revenue of
Nisa ltd. Balance score needs employee efficiency and use of high tech software purchasing and
maintain them.
For example- Management accounting helps in preparing the cash flow statements,
income statement reporting, budgeting, calculating changes and preparing taxes for organisation.
Thus, the task are break down between the financial accountant and managerial accountant. The
management accountant is assigned only by budgeting the tax.
D. Management Accounting Techniques
Management accounting techniques are helpful in resolving issues related to accounting
transaction and financial problems. If the entity is facing issue related to funds then through
management accounting it can make financial Planning that would support in resolving fund
related issues in R ROBSON & SON LIMITED The first and most essential objective of any
business organization is maximising the profits. In order to achieve this objective, organizations
are required to have proper and sound financial planning (Flamholtz and et.al., 2016). It involves
both long term as well as short term financial objectives that organization is required to achieve,
formulation of financial policies and development of financial procedure to achieve the desired
objectives. Therefore, it is considered as a best tool for achieving objectives of business.
For instance: if firm is unable to generate profit them through management accounting
techniques it can analysis Financial Statement and can find out cause of issue. This would
14

support in resolving financial problems in R ROBSON & SON LIMITED (Macinati and Anessi-
Pessina, 2014). Profit and Loss account and Balance Sheet are important financial statements
that needs to be analysed for different period of time. This analysis is done by comparative
financial statements, ratio analysis, trend analysis and cash flow statements which business
executives, creditors and investors to present information.
Budgetary Control: It is an important technique used for directing business operations in a
desired direction for achieving satisfactory return on investment. It is used for estimating future
needs for finance and controls the financial performance of business (Melnyk and et.al., 2014). It
involves the comparison of actual results with planned or desired ones and then takes the
corrective measures.
Statistical Techniques: A variety of statistical and graphical techniques are used for
removing management problems by making more meaningful information so that it will help
management in their decision making process. The techniques used are least square, master
chart, chart of sales and earnings, investment chart, linear programming, regression and
statistical quality control, etc. (Cooper, Ezzamel and Qu, 2017).
Revaluation Accounting: All the fixed assets are revalued in accordance to this method so
that capital can be represented properly in R ROBSON & SON LIMITED and accurately with
values of assets. This technique guarantees to maintain and preserve capital of enterprise and
helps in finding out fair return on capital employed. It impacts changing prices while preparing
the financial statements (Otley, 2016).
E. Planning tools in order to resolve financial problems in business
There are various planning tools such as zero based budgeting, activity based budgeting
etc. that are helpful in minimising financial issues in R ROBSON & SON LIMITED.
Zero-Based Budgeting: It forces managers to examine all spending and need to justify
expense of every item. It allows the companies to again design their structures of costs and
improve its competitiveness. It is used to analyse that which activity is to be performed at what
level. Its advantages are it ensures efficient allocation of resources by finding cost effective ways
for improving activities (Fullerton, Kennedy and Widener, 2014). It finds opportunities of
outsourcing and reduces wastage of operations. It increases communication and coordination
within organization. It also increases motivation among employees by giving them initiatives and
responsibility to take part in the decision-making process. Besides this, there are certain
15

disadvantages like it is time consuming and exhaustive process in respect to decision-making
about investment. It requires knowledge and manpower (managers) for justifying details. It is
necessary to train managers at all levels in organization as they are responsible for decision
making and communication in entire process (Gibassier, 2017).
Activity Based Budgeting: This method of budgeting has been designed to provide more
transparency to budget process. It is that budgeting method in which income generated from
instructional and research activity is directly allocated to responsible unit of the activity. It
creates incentives for units for effectively managing resources as well as expenses. It sets
priorities and develop new activities with includes mission and goals of R ROBSON & SON
LIMITED. The process of activity based budgeting involves following three steps:
 Determining number of units related to each and every activity which is baseline for its
calculations (Macinati and Anessi-Pessina, 2014).
 Describe number of units for required activity level
 Calculate cost per unit of activity
CONCLUSION
From the above report, it can be concluded that management accounting helps an
organisation in its decision making process. Management accounting helps in preparing reports
and accounts which assists in taking decisions every day. There are various tools and techniques
which R. Robson Ltd uses for measuring the performance of business and make effective
decisions to achieve set targets. The above report has concluded different type of management
accounting system like job costing system, cost accounting system. Job cost reports helps in
providing information to the higher authority in order to make effective decisions. Thus, it can be
said that report is based on the management accounting techniques that will help in solving the
issues related to accounting transactions and financial problems.
16

REFERENCES
Books and Journals
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-
1025.
Flamholtz, E. G. and et.al., 2016. Overcoming Management Accounting Myopia: Broadening the
Strategic Focus. In Advances in Management Accounting (pp. 73-121). Emerald Group
Publishing Limited.
Fullerton, R. R., Kennedy, F. A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices.
Journal of Operations Management. 32(7-8). pp.414-428.
Gibassier, D., 2017. From écobilan to LCA: The elite’s institutional work in the creation of an
environmental management accounting tool. Critical Perspectives on Accounting. 42.
pp.36-58.
Macinati, M. S. and Anessi-Pessina, E.U.G. E. N. I. O., 2014. Management accounting use and
financial performance in public health-care organisations: Evidence from the Italian
National Health Service. Health Policy. 117(1). pp.98-111.
Melnyk, S. A. and et.al., 2014. Is performance measurement and management fit for the future?.
Management Accounting Research. 25(2). pp.173-186.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
Management accounting research. 31. pp.45-62.
Suomala, P., Lyly-Yrjänäinen, J. and Lukka, K., 2014. Battlefield around interventions: A
reflective analysis of conducting interventionist research in management accounting.
Management Accounting Research. 25(4). pp.304-314.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Wild, J., 2015. Financial accounting fundamentals. McGraw-Hill Higher Education.
Online
What is Zero Based Budgeting (ZBB)?. 2018. [Online]. Available through:
<https://www.myaccountingcourse.com/accounting-dictionary/zero-based-budgeting>.
Types of Managerial Accounting Reports. 2018. [Online]. Available through:
<https://smallbusiness.chron.com/types-managerial-accounting-reports-58384.html>.
17