Analysis of Management Accounting Techniques for Qbic Hotel's Success

This report examines the role of management accounting (MA) in decision-making, focusing on Qbic Hotel. It explores MA tools such as job costing, cost accounting, inventory accounting, and price optimization systems. The report assesses the use of managerial reporting, including budget reports, job cost reports, and accounts receivable aging reports, for effective decision-making. Furthermore, it provides a detailed comparison of marginal costing and absorption costing methods, calculating income statements under both approaches. The report also analyzes the advantages and disadvantages of planning tools used in budgetary control and compares how different organizations adapt MA to address financial challenges. The conclusion emphasizes how MA techniques contribute to sustainable business success and how planning tools suitably respond to financial problems. The report emphasizes the importance of MA in helping businesses achieve goals and gain a competitive advantage.

Management Accounting

Table of Contents
INTRODUCTION .....................................................................................................................3
LO1.............................................................................................................................................3
P1 Explaining management accounting along with their essential requirements ................3
P2 Assessing the use of managerial reporting in decision making .......................................5
LO 2........................................................................................................................................6
P 3 Calculation of Income statement under Marginal costing and Absorption costing
method....................................................................................................................................6
LO 3..........................................................................................................................................12
P 4 Advantages and Disadvantages of planning tools used by budgetary control...............12
LO 4..........................................................................................................................................14
Comparison between different organizations regarding how they are adapting management
accounting for dealing with their financial problems...........................................................14
Managerial accounting leads business enterprises towards sustainable success..................15
Evaluation of how planning tools for accounting respond suitably for solving Financial
problems to lead organizations to sustainable success.........................................................16
CONCLUSION........................................................................................................................16
REFERENCES.........................................................................................................................18

INTRODUCTION
In the context of business, management accounting (MA) plays a significant role in
decision making. Now, managers lay focus on tracking business performance with the motive
to develop suitable or competent strategic framework. This in turn helps firm in attaining
goals and gaining competitive position over others. The present report is based on Qbic hotel
which offers accommodation services to the customers. In this, report will provide deeper
insight about MA tools which business units undertake for reporting purpose. Besides this, it
will shed light on the manner in which MA report aid in profitable decision making. It also
depicts the use of costing system namely absorption and marginal in the assessment of cost
and profitability aspects. Report also presents MA tools that can be used by Qbic for planning
purpose. It also entails how MA techniques assist in responding financial problems.
LO1
P1 Explaining management accounting along with their essential requirements
Management accounting may be defined as a process which lay focus on analyzing
business cost and operations for preparing internal financial report.
“Management accounting is the discipline which deals with the gathering, sorting, and
processing of financial, and non- financial information in order to produce reports that add
value to the business, and provide insight to the managers who make decisions based on these
reports aiming to concrete the organization’s strategic steering”. This provides managers with
suitable framework for decision making and contributes in goal attainment (Cowton, 2018).
There are several management accounting systems which Qbic can undertake for ensuring
smooth functioning of operations from both monetary and non-monetary perspective such as:
Job costing
In MA, this system is highly important which emphasizes on capturing or tracking
cost associated with each task. It presents cost of material, labor and overhead associated with
production aspect. Thus, by summing up all the expenditures total cost of job can be
identified. By dividing total costs from number of units, CPU can be assessed prominently.
Advantages Disadvantages
 Offers detailed information about  Expensive and time consuming

cost regarding material, labor and
overhead
 Profitability of job can be gauged
using this system
 Prevents duplication of work
 Helps in evaluating quality of work
(Job costing: advantages and
disadvantages, 2019)
exercise
 Lack of standardized process

Cost accounting
This system of MA may be served as a framework which firm’s undertake with the
motive to make appropriate estimation about product price and performing profitability
analysis. Cost accounting system includes fixed, variable, direct and indirect expenditure
incurred by the firm. Profit attainment is the main motive of an organization for the purpose
of survival and gaining competitive position. In this regard, using such system charge per unit
can be assessed by the manager of Qbic using this accounting system. Hence, by adding
profit margin in per unit charge manager of Qbic can set price for the products or services
offered.
Advantages Disadvantages
 Assist in identifying cost per unit
and price
 Facilitates better monitoring and
controlling of labor costs
 Ensures profit maximization by
eliminating waste, losses and
inefficiencies (Cost accounting:
advantages and disadvantages,
2019)
 Leads problem in relation to under
or over absorption of overhead
 Focuses on past performance,
whereas management is concerned
about future
 Imposes more expense due to high
maintenance associated with the
installation of cost accounting
system
Inventory accounting
This system of MA includes several tools which help in taking appropriate decision
about stock such as LIFO, FIFO, economic order quantity (EOQ), just in time (JIT) etc. In the
context of business unit, effectual inventory management is highly required for controlling
cost and enhancing profitability aspect (de Campos and Rodrigues, 2016). Thus, Qbic should
employ EOQ which clearly entails stock that need to be maintained within the firm for
meeting customer’s requirements. By using this tool firm can avoid unnecessary cost
associated with holding and ordering aspects.

Advantages Disadvantages
 Helps in reducing cost and
improving profitability
 Ensures better stock management
 Time consuming exercise
 Requires detailed assessment
Price optimization system
This system or software enables Qbic to evaluate customer’s responses at different
price level pertaining to the services offered. By this, manager of Qbic can set suitable price
of the services and thereby would become able to attract large number of customers. Hence,
such system of MA helps in setting competent pricing framework and thereby ensures
competitive advantage (Malina, 2018).
Advantages Disadvantages
 Facilitates price fixation
 Helps in building and sustaining
competitive position
 Imposes cost in front of company
regarding maintenance, training &
development of personnel
 Requires highly skilled personnel for
such mathematical analysis
P2 Assessing the use of managerial reporting in decision making
Managerial reports include budget, job cost, accounts receivable aging, inventory etc
which provides information about departmental performance. In the recent times, managerial
reports are highly significant from the perspective of decision making in relation to trim cost,
rewarding best performing employees as well as resources. There are several managerial
reports which can be undertaken by Qbic for the purpose of decision making such as:
Budget report: Manager can make assessment of departmental performance using this
report. Moreover, it clearly exhibits deviations which take place in departmental
performance. Hence, considering this report manager can assess reasons behind deviations
and thereby would become able to take corrective measures on time (de Campos and
Rodrigues, 2016). In other words, budget report helps Qbic in making appropriate estimation
about income & expenses pertaining to proposed budget. Further, with the help of such report
manager can provide employees with suitable incentives. Through this, training &
development need of personnel can also be assessed.
Job cost report: This report provides high level of assistance to the manager in
evaluating profitability. In this, actually generated revenue is compared in against to the

actual one. By this, manager of can Qbic identify areas where resources should be used
instead of wasting time and money on low or unprofitable projects.
Inventory report: Manager of Qbic can make manufacturing process more efficient
by using stock report. Moreover, such report provides information stock wastage, hourly
labor and overhead cost etc. Thus, referring this, different assembly lines can be compared
effectually and best performing departments identified (Managerial accounting reports,
2019).
Accounts receivable aging report: By taking into account this report hotel unit can
manage its cash flow more effectually. Moreover, such report gives clear indication to the
firm that whether credit should be extended to the customers or not. It clearly highlights
customer balances and thereby helps in assessing amount they owed. Through this, manager
of hotel unit can track days within which debtors are making payment. By using this
company can find out problems exist in cash collection process. In the case of high defaults,
firm should tighten its credit policies. Referring all the aspects it can be stated that account
receivable aging report helps in assessing or evaluating company’s debt level.
LO 2
P 3 Calculation of Income statement under Marginal costing and Absorption costing method
Cost can be defined as the total expenses incurred by the company in order to know
the cost incurred in the production of goods. The cost consists of various expenses such as
raw material cost, labor cost and overheads cost (Pearce, 2016). Cost analysis relationship is
defined as the relation between cost of input by company and output of goods.
On the basis of level of activity cost can be divided in two parts i.e. Fixed cost and
variable cost. Fixed cost remains at every level of activity in the company and does not
change with the change in the level of activity (Nas, 2016). Variable costs are defined as the
change in the variable costs with the change in the level of activity in the company. Normal
costing can be defined as the actual cost occurred in the company at the time of production of
goods. Standard costing is the method of setting up set targets by the management in order to
achieve those budgets and then compare with the actual cost of the company.
Meaning of Marginal costing and Absorption costing

Marginal Costing can be defined as the method in which only variable expenses are
charged at the time of calculation of marginal costing per unit (Yu, 2016). For the valuation
of net profit or loss all the variable costs are deducted to calculate contribution and then all
the fixed costs are deducted in order to know the net profit or net loss of the company.
Absorption costing is the method in which fixed cost per unit and variable costs per
unit are accounted at the time of calculation of absorption cost per unit. Closing inventory is
valued at the absorption cost per unit (Mussati, and et.al., 2016). All the fixed and variable
production is deducted to calculate gross profit or loss for the company. Net profit or net loss
is calculated by deducting all the fixed and variable selling expenses from gross profit.
Calculation of Net profit and or net loss under marginal costing
Under marginal costing
Particulars Workings Amount (£) Cost per unit
Direst Material 8
Direst Labour 5
Variable O/H 3
Marginal cost per unit 16
Selling price 50
-Marginal cost per unit -16
-variable selling price -2.50
Contribution per unit 31.50

Particulars Workings Amount (£) May
Sales (300*50) 15000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Variable o/h (500*3) 1500
8000
-Closing inventory (200*16) -3200.00
-4800
10200
-Variable selling cost -750
Contribution 9450
-Fixed costs -10000
Actual Net profit/(Net Loss) -550

Particulars Workings Amount (£) June
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*16) 3200
Material (380*8) 3040
Labour (380*5) 1900
Variable o/h (380*3) 1140
9280
-Closing inventory (80*16) -1280
-8000
17000
-Variable selling cost -1250
Contribution 15750
-Fixed costs -10000
Actual Net profit/(Net Loss) 5750
Under Absorption Costing
Particulars Cost per unit
Direst Material 8

Direst Labour 5
Variable O/H 3
Fixed o/h 10
Total absorption cost per unit 26
Particulars Workings Amount (£) May
sales (300*50) 15000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Fixed o/h 10000
Variable o/h (500*3) 1500
18000
-Closing inventory (200*26) -5200
-12800
Gross Profit/Loss 2200

-Variable selling cost -750
Actual Net profit/(Net Loss) 1450
Particulars Workings Amount (£) June
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*26) 5200
Material (380*8) 3040
Labour (380*5) 1900
Fixed o/h 10000
Variable o/h (380*3) 1140
21280
-Closing inventory (80*26) -2080
-19200
Gross Profit/Loss 5800
-Variable selling cost -1250
Actual Net profit/(Net Loss) 4550
Company is having the higher net profits under absorption costing than the net profits
under marginal costing in the month of May. It is because of calculation of closing inventory
under absorption costs considers fixed cost per unit whereas marginal cost account total fixed
cost. In the month of June, net profit under marginal costing method is higher than the net

profit under absorption costing. It is because of low closing inventory which leads to lower
costs under marginal cost and higher profits.
Calculation of Actual performance of the company with the budgeted performance of
the company
Budgeted and Actual cost of metal generating the Product “A”
Budgeted material cost per unit of the product 2 kg at 10£/ kg
Actual Output 1000 units
Actual material purchased and used 2200 kgs
Actual material cost £20,900.00
Budget of Production
Actual output in units 1000
Kgs Budgeted per unit 2
Cost in £ per unit (each 2 kg. ) of material 10
Actual material purchased and used in £ 20900
Total cost of material a budgeted in £ 20000
Actual Costs in £
20900
Total variance
-900