Management Accounting Report: Analyzing F&F Performance & Strategies

This report provides a comprehensive analysis of management accounting principles and their practical application within the context of a small business, specifically Food for Friends (F&F). It begins by explaining the requirements of different management accounting systems, including price optimization, cost accounting, job costing, and inventory management, highlighting their advantages, disadvantages, and applications. The report then delves into various methods used for managerial reporting, such as budget reports, accounts receivable aging, job cost reports, and inventory and manufacturing reports, emphasizing their role in decision-making. Furthermore, the report explores the computation of cost and profit using marginal and absorption costing systems, and discusses the benefits and drawbacks of different planning tools for budgetary control. It concludes by comparing how different management accounting systems can be used to respond to financial problems, providing a holistic view of how F&F can leverage these tools for improved financial performance and strategic decision-making.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
P1 Explaining the requirements of different types of management accounting in the
business context.....................................................................................................................1
P2 Presenting different methods that can be used for reporting purpose...............................4
P3 Computing cost and profit by using marginal and absorption system..............................6
P4 Stating the benefits and drawbacks of different planning tools that can be used for
budgetary control...................................................................................................................8
P5 Comparing the manner in which different management accounting system can be used
for responding financial problems.......................................................................................11
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................14

INTRODUCTION
Management accounting may be served as a process of analyzing, interpreting and
presenting accounting information for decision making. In order to pursuit organizational
goals and developing sound framework manager requires appropriate input for decision
making. In this regard, management accounting tools and techniques are highly significant
which in turn provides manager with timely financial and statistical information for short
term or day to day decision. Aspects of financial and management accounting are highly
differ to a great extent. MA is the most effectual tool that helps in making assessment of
operational performance and gives indication regarding improvement. Thus, field of MA
helps in improving financial performance and meeting the expectations of stakeholders to a
great extent.
On the basis of given case situation, Food for Friends (F&F) has been selected which
offers dinning services to the customers. It comes under the category of small business
segment whose turnover is not exceeding £500000. In this, report will shed light on the
different MA systems and its requirement for business unit. Along with this, it will provide
deeper insight about managerial reporting and its contribution in decision making. Further,
report also entails the manner in which different planning tools help in making optimum use
of monetary resources.

P1 Explaining the requirements of different types of management accounting in the business
context
Different types of management accounting system: MA system lays high level of
emphasis on tracking cost which is associated with the production or offering of goods or
services. Main accounting system that concerned business unit can undertake for managing
cost include inventory management, job costing and price optimization system. MA systems
consider operational data and thereby assist in developing informative reports for decision
making (What is A Management Accounting System, 2017). Thus, by using MA systems
manager can get timely as well as accurate information and thereby become able to take
decision pertaining to operational items such as cutting cost, enhancing production time,
inventory on-hand & marketing budget. Main MA systems are enumerated below:
Price optimization: By taking into account such MA business entity of restaurantl unit
can assess the manner in which customers will respond to different prices. Thus, through
undertaking the system of MA firm can determine suitable prices of products or services that
can meet the goals of business unit and customers. Moreover, now customers are price
conscious in nature and prefer to purchase quality products at suitable prices. In this regard,
by using the system of price optimization business organization can evolve high level of
satisfaction among the customers (The benefits of price optimization, 2017). Besides this, the
main motive of company is to enhance customer satisfaction, productivity and profitability.
On the basis of such aspect, by setting suitable prices firm can maximize operating profit
margin and meets organizational goals and objectives. Thus, it can be said that such system
helps firm in improving profit margin to the significant level.
Cost accounting: Such accounting system assists in identifying and evaluating the
cost of products, processes, projects etc. Determination of suitable cost is highly required
for business unit. Moreover, without having information about cost business entity cannot
suitable price and profit margin. Thus, by using cost accounting system firm can capture
the company’s cost of production to a great extent. On the basis of such aspect or
accounting system, by adding both fixed as well as variable expenses business unit can
determine the cost of offerings. Further, by dividing total expenses from number of
offering business entity can assess per unit cost.

(Source: Faÿ, Introna and Puyou, 2010)
Job costing: This method implies for recording cost that is highly associated with the
manufacturing of job. Such MA method involves accumulation of cost such as material,
labour and overhead. In this, by dividing total cost from number of jobs per unit price can be
determined easily. Further, job costing system also assists in tracking financial expenses and
helps in assessing whether cost can be reduced in later jobs or no t (Job costing, 2017). Thus,
job costing may be served as a monitoring system that assigns manufacturing cost to each
product and enables manager to track the same.
Inventory management: It is highly associated with the process of ordering, storing and
using company’s stock such as materials, components as well as finished products. In the
context of business unit such as restaurant unit, firm needs to lay emphasis on using suitable
system such as EOQ, JIT etc. Moreover, ordering and storage expenses places direct impact
on cost and influences level of profit margin. Thus, through ensuring effective management
of stock firm can meet organizational goals and objectives.
Advantages and drawbacks of different accounting system
Price optimization
Advantages: By using price optimization system of MA company can assess and
evaluate the sensitivity of clients. It enables manager to set suitable prices and thereby get
high profit margin. Such system also assists in doing competitive management analysis and
aid in effective decision making.
Disadvantages: Price optimization system does not provide high level of assistance
in evaluating the responses of each type of customers at varied price level. The rationale
behind this, some customers assume that high quality products are usually expensive. On the

other side, some customers are seeking for quality products available at affordable price
level.
Cost accounting
Advantages: It helps in eliminating waste, losses and inefficiencies that contributes in
cost reduction as well as enhancement of profit margin. Further, cost accounting system also
gives indication to the firm whether they need to produce in-house and buy. Cost accounting
system assists in controlling expenditure and price fixation.
Disadvantages: Under cost accounting system, past information’s are available,
whereas the main objective of management team to take decision about future. Moreover,
cost of current and past year is not same so such data set is not highly useful for taking
decisions. Along with this, under cost accounting system, expenses are absorbed at
predetermined rate which in turn leads under or over absorption of overhead.
Inventory management (IM)
Advantages: By managing inventory organization can save both cost and time.
Through employing the system of MA firm can minimize loss and enhance margin.
Disadvantages: It has found from assessment that sometimes orders are placed at
irregular time period. Further, sometimes reorder points occur on a irregular basis because
item cannot be grouped and ordered at a time.
Job costing
Advantages: Under job costing, profit earned from each job can be identified
separately. It facilitates trend analysis, budgetary control, cost plus contracts and pricing of
each job.
Disadvantages: Job costing system is highly expensive in nature and during the
inflationary period it becomes meaningless (Advantages and Disadvantages of Cost
Accounting, 2017). In this, there is no possibility of control of costs because correction
actions are taken after incurring expenses. Thus, such aspect closely limits the significance of
such method and thereby impacts decision making.
Application: In the context of F&F, business entity is required to lay emphasis on the
adoption of cost accounting and inventory management system. By using cost accounting

system firm can determine unit cost and thereby profit margin. Along with this, through using
the system of inventory management business entity can ensure smooth functioning of
operations and thereby maximizes both productivity as well as profitability. Moreover, EOQ
method provides deeper insights about the inventory level needs to be maintained within the
firm. In this way, by using both such MA systems firm can attain goals and objectives.
Conclusion: From the above assessment, it has been concluded that MA system aid in
the growth and success of firm. As it helps in tracking as well as controlling cost and thereby
enhances profitability significantly. Besides this, it can be presented that through using
different MA systems business organizations can set suitable prices and thereby gain
competitive edge over others. Thus, it can be depicted that F&F can improve stock
management system to a great extent through undertaking the technique of wither JIT or
EOQ. Further, it is advised to F&F to focus on employing the system of cost accounting
which in turn helps in setting suitable price of the offerings.

P2 Presenting different methods that can be used for reporting purpose
Introduction: In this, different types of managerial reports are presented that owner of
small business unit can prepare. Concerned business report will help manager of restaurant in
understanding the significance of managerial reports in decision making.
TASK
Managerial accounting reports are highly effective which in turn provides high level
of assistance to small business owners and manager in monitoring company’s performance as
well as growth. Reports which are related to MA are prepared frequently by the manager
throughout the accounting period as per requirement. On the basis of type of project and time
sensitivity owner or manager may request for report on weekly, monthly as well as quarterly
basis. Thus, for the purpose of decision making manager is required to prepare below
mentioned reports:
Budget report: This managerial report helps manager of restaurant store in analyzing
company’s performance and controlling cost. Budget report contains information about the
deviations take place in departmental income and expenses. Moreover, in this, evaluation or
comparison of actual performance and standards are recorded. Besides this, accounting
personnel also record the causes of deviations. By considering the same, manager can take
corrective action for improvement and thereby aid in organizational growth. By using budget
reports manager can set suitable financial framework for upcoming time period. Besides this,
it also helps manager in providing incentive to employees (Faÿ, Introna and Puyou, 2010).
Referring all such aspects it can be said that budget reports furnish highly valuable
information and helps in developing competent framework.
Accounts receivable aging: Such managerial report helps manager of the company in
managing cash flows. Aging reports entail information about the time period for which credit
is given to customers. Hence, by undertaking such report manager of the business unit can
identify problem associated with collection process. Moreover, such reports clearly exhibit
that customers are unable to pay their balances. Thus, by taking into account such aspect firm
can take decision whether they need to extend credit to their customers or not. Hence,
business entity can improve working capital to a great extent through using accounts
receivable aging reports.

Job cost reports: By doing evaluation, it has assessed that job cost report presents
expenses which associated with specific projects. Under job cost reports, revenue is
compared with predetermined standards for making evaluation of job’s profitability. Job cost
report helps company in analyzing or identifying high earning areas and thereby gives
indication in relation to making focus on highly profitable projects rather than less one
(Kaplan and Atkinson, 2015). In addition to this, such report also helps in analyzing and
monitoring expenses while project is carried out or working. Thus, through the means of such
report manager can assess suitable areas of waste before the cost escalate.
Inventory and manufacturing reports: Company can make manufacturing process
highly efficient through using inventory and manufacturing reports. Concerned report
contains information about wastage, hourly labour cost and per unit overhead. Such report
also enables manager in comparing different assembly lines within the company (Fullerton,
Kennedy and Widener, 2014). This in turn helps manager in assessing department which is
performing better and helps in offering bonuses to them. In this way, inventory reports assist
manager in appraising the personnel and raising their motivational aspect of personnel.
Conclusion: It can be concluded from overall evaluation that managerial reports offer
input for decision making. Besides this, it can be stated that manager of the firm can set
suitable policies and strategies with the help of job cost, budget , receivable aging and
inventory reports.

P3 Computing cost and profit by using marginal and absorption system
Marginal costing (MC): This costing system helps in assessing increase or decrease
in total production cost if output inclines by one more unit. In the case of marginal costing
system variable cost is considered or recognized as product cost. Further, as per marginal
costing system finance manager considers only variables cost for the purpose of evaluation
(Ward, 2012). Along with this, in MC decision making of the firm is highly based on
contribution which in turn presents revenue generated over cost. MC method is free from the
issue of under and over absorption of overhead it excludes fixed expenses from product cost.
Absorption costing: Such method of costing is known as full cost method which
includes both fixed as well as variable while determination of cost. Hence, it accumulates all
the costs which are associated with production process and apportion the same into individual
products. Accounting standards also place high level of emphasis on such method for
inventory or stock valuation because it considers both fixed and variable cost. Along with
this, under absorption costing system, profit entails difference exists between sales revenue
and total cost (Difference between marginal and absorption costing, 2017). However, under
absorption costing system, fixed costs are highly related to product. In this regard, cost is
apportioned over the products arbitrarily which in turn sometimes lead the issue of under and
over absorption of overhead.
Net profit calculation by using absorption costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: Cost of goods sold 9600
production (700 * 16) 11200
Closing stock (100 * 16) 1600
Less: Over absorbed fixed
overhead
100
Gross profit (GP) 11500
Less: indirect expenditure 1900
Variable sales overhead 600
Administration cost 700
Selling cost 600

Net profit 9600
Income statement on the basis of marginal costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: COGS 7800
production (700 * 13) 9100
Closing stock (100 * 13) 1300
Less: Variable sales
overhead
600
Contribution 12600
Less: fixed expenses 3300
Production overhead 2000
Administration cost 800
Selling cost 600
Net profit 9200
Interpretation: The above depicted tables of marginal costing shows that actual and
budget net margin accounts for £10600 & £6450 significantly. On the other side, in the case
of absorption costing system net profitability aspect of F&F is £9620 & £5300. The main
reason behind decreasing margin, in absorption costing, is that such method considers both
fixed and variable cost while making evaluation of profitability. By taking into account all
such aspects it can be stated that absorption costing method is highly realistic in nature and
presents fair view of net margin. Thus, F&F should employ and focus on absorption costing
which will prove to be more profitable for firm.

P4 Stating the benefits and drawbacks of different planning tools that can be used for
budgetary control
Budgetary control may be served as a system on the basis of which actual income and
expenses are compared with planned earnings as well as expenditure. Such system of MA
helps in assessing deviations that take place in different areas and gives indication for
undertaking corrective or strategic measure (Kaplan and Atkinson, 2015). In this, it is highly
required for the manager of F&F to develop competent financial framework. Hence, by using
below mentioned planning tools owner of F&F can draw suitable monetary plan and thereby
become able to compare performance prominently.
Traditional method
Incremental budget: In this, manager makes some addition in previous year
framework thereby develops the new one. Hence, it can be said that budget used for the
current fiscal year considered as base for forthcoming year’s allocation. Moreover, such
method assumes that all the departments will continue to operate their current level of
expenditure (Simons, 2013). Benefits and drawbacks which are associated with such
budgeting system are enumerated below:
Advantages: Incremental budgets do not involve any complex evaluation and facilitates easy
implementation. In this, impact of changes can easily be seen or monitored by the manager of
concerned restaurant store. Such budgeting method is suitable for the companies where
funding requirements are fixed.
Disadvantages: Incremental budgets assume slight changes in budgetary allocation as
compared to prior period. This in turn leads lack of innovation and incentive for managers in
relation to reducing cost. This type of budgets lead unnecessary spending because due to easy
availability manager spends more money.Under incremental budgeting system, manager
makes changes in previous year budgets as per estimation (Fullerton, Kennedy and Widener,
2014). However, in the recent times, structural changes are seen more frequently in the
context of company, economy and industry.
Modern method: In the recent times, each and every aspect is changing with the very
high pace. Due to this, preferences of business units are shifted from traditional tools to