Management Accounting: Costing, Reporting, and Budgetary Control

This report delves into the realm of management accounting, specifically tailored for a small business like Unicorn Grocery. It begins by defining management accounting and its essential requirements, exploring various systems like traditional techniques, inventory management, and cost accounting. The report then evaluates the benefits of implementing a management accounting system, emphasizing its role in reducing expenses, improving business decisions, and forecasting future financial needs. It further explains different methods used for management accounting reporting, including financial planning. The report then transitions into practical applications, detailing cost calculation techniques like marginal and absorption costing, and the application of these techniques to financial reporting. The report also discusses different types of planning tools used for budgetary control, evaluating their advantages and disadvantages. Finally, the report analyzes how Unicorn Grocery can utilize management accounting methods to manage financial stability, providing actionable insights for the organization.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explanation of management accounting and essential requirements of different type of
management accounting system ............................................................................................3
M1 Evaluation the benefits of management accounting system and it's application in the
organisation............................................................................................................................5
P2 Explanation of different methods used for management accounting reporting ...............6
D1 Critical evaluation of management accounting system and management accounting
reporting is integrated with in the organisational process......................................................8
TASK 2 ...........................................................................................................................................8
P3 Calculation costs using appropriate techniques of cost analysis to prepare an income
statements of marginal and absorption costing......................................................................8
M2 Accurately application of a range of management accounting techniques and produce
appropriate financial reporting documents...........................................................................11
D2 Financial report of the organisation with accuracy and proper interpretation of data related
to business activities ............................................................................................................11
TASK 3..........................................................................................................................................11
P4 Explanation of the advantages and disadvantages of different types of planing tools used
for budgetary control............................................................................................................11
M 3 Use of various planning tools.......................................................................................14
D3 Evaluation of planning tools for accounting respond appropriately to solving financial
problems to lead organisation to sustainable success...........................................................15
P5 & M4 How can Unicorn Grocery can utilize management accounting methods to manage
financial stability..................................................................................................................15
CONCLUSION .............................................................................................................................18
REFERENCES..............................................................................................................................19

REPORT
From: Management Accounting
To : General Manager
Subject: To write a report to GM covering management accounting and management accounting
system together with different costings techniques and reporting to enable the organisation to
implement them.
INTRODUCTION
Use of managerial theories and models of financial accounting in a business model which
can increase their productivity and as well as their output by which they can attain targets
effectively (Kaplan and Atkinson, 2015). Financial methods can help to a company to attain a
financial stability in their trade and financial activities, which can increase their grip on the
market. Managerial theories can improve the management grip on the employees. These
techniques and methods are having the potential to provide stability in the market by gaining
revenues. Planning is an important factor to run a business successfully so organisation have to
make proper budget to allocate their financial resources according to expenditures. The below
presented report is based on the Unicorn Grocery which are having total turnover under
£500,000 and less than 50 employees are working in the organisation. It is a grocery store which
is working in the retail sector and it's owners are managing employees in the organisation. In this
report, it is having details on the different type of management accounting methods and system
which can use by the Unicorn Grocery. Calculation is an essential part for the owners to with
using of appropriate techniques to analyse the cost of products, owners have to be focused on the
effective cost management. Organisation can use different types of planning tools which can help
them in to budgetary control (Macintosh and Quattrone, 2010). At the last this report is having
content on the adaption of management accounting system to resolve their financial problems
and issues.
TASK 1
P1 Explanation of management accounting and essential requirements of different type of
management accounting system
Management accounting is related to the use of financial data in to the management
theories which can improve the managerial decisions which are take by the management.

Mixture of the management principles and financial accounting can help to the Unicorn Grocery
to improve the management and as well as the financial decisions. It can help to the organisation
to make a proper allocation of the funds, as they are having limited funds and scope because they
are a small business enterprise so it is essential for them to manage their business ( Simons,
2013). As an organisation haves a different teams which supports to the company to attain their
business objectives by their combine efforts. These financial data helps to the management to
analyse that which team is performing better according to the expenditure and investment on
them. It can help to the management and leaders analyse the potentials of the team which are
working in the organisation and as well as to know what kind of improvements and changes they
have to made in that team to manage expenditures according to the budgets (Ward, 2012). It can
helps to the company to enhance their annual profits and revenues. It can increase the
effectiveness of the teams which are working in the organisations which can helps to the
managers and leaders to increase the profitability. Financial management is based on the
budgeting which emphasise on the allocation of the financial resources in the teams which are
working in the company. As the Unicorn Grocery is a small scale business entity, they are having
limited scope to generate revenues and as well as they are having limited resources of finance so
it is essential for them to keep their expenditures and business activities as per the budget.
Budgeting methods are having the potentials for estimate and forecast the future business
investment and operations which can be profitable for them. By this management can easily
estimate their business needs and as well as input cost which can increase their profits after a
time of period (Renz, 2016). Business decisions which have to be taken by the owners in the
Unicorn Grocery can be effective by using management accounting and budgeting system.
Management accounting is divided in to different types which helps to the organisation to
select a suitable type for them. These management accounting systems are having their different
types of requirement which are described under here;
Traditional accounting techniques: It is related to the traditional method of accounting which is
based on the cost which is associated with the productivity of the different teams which are
working in the organisation. Expenses which are related to the team have to be calculated on the
reliable basis. It is used by the business entities which are having small structure in the
organisation and as well as which has less financial generators. It has a requirement job order

costing which can be a base for the organisation to make an estimate for their future projects
which are having a need of huge investment.
Inventory management: This is an accounting method which is used in to managing stock in the
organisation. This management accounting techniques supports in maintaining an appropriate
level which can help to accomplish demands of customers. This can help to the grocery store to
identify the needs of store in their different products.
Cost Accounting: It is an accounting system which works on basic cost of products and expenses
which helps to the organisation to determine the actual cost of the product which is consider in
the pricing. It helps to measure the inputs to results which can help to make an analysis of the
process of the organisation.
Price optimisation – Small firms like Unicorn grocery face problem in deciding right
price of an item. Sometime they keep price of a product so high that customers refuse to buy it
while other time they keep price too low that company fail to earn decent amount of profit. This
management accounting system help in ascertaining a price which can provide best revenue to
cited company and customers also accept the price tag of a product.
M1 Evaluation the benefits of management accounting system and it's application in the
organisation
Some of points are here which describes and evaluate the benefits of the management
accounting:
Reduce expenses: Management accounting has it's focus on those factors which are taking an
extra cost according to their financial results, so it reduce these factors from the business and
improve profitability in the organisation. But it creates a limitation on the teams which are
having potential to perform better but not getting charged by the management. It will help to the
Unicorn Grocery to identify to those points which are consuming a huge cost and also it will help
to the company to analyse how they can reduce operational overhead in their store which can
help to them to improve their profits.
Business Decisions: Management accounting system emphasis on the decision making process
which is an essential factor and having impact on the whole organisation. It encourage to use
accounting data which is related on a particular issue to make a decision on it, it creates a
liability on the managers to analyse their decisions on the financial aspects and take an effective

decision accordingly (Scapens and Bromwich, 2010). But on the level of managerial decision it
can decrease the faith and trust of the employees which are working in the organisation. By this
company can take better decisions regarding to their operational overheads which can help to
them to make a better change in their organisational process.
Management accounting system can be implement by the management by using a master
budget which can help to the company to manage their annual expenses. Accounts department
has to use cost accounting, inventory management which can help to them to minimise their
expenses.
The utilization of management tools in the cited firm assists in framing best strategies
that is capable of acquiring organisation setted objectives. Such tools aids the corporation in
effectively running the operations which are contributing in attaining the objectives of enterprise.
The main aim of management accounting in the cited firm is to assist in competitive decision
making by gathering, processing and conveying information that aids in management plan,
control and evaluation of business procedures and strategies of company. Some of the other use
of management accounting are listed below:
 Help in forecasting the future : It deals in making decisions of future like should the firm
invest in more equipment.
 Forecasting cash flow : It states various cash flows decisions like how much corporation
should invest in future and will the turnover increase or decrease in upcoming days.
Increase revenue – Techniques like price optimisation provide great assistance to
company because it help in ascertaining best price. Company can earn high revenue and at the
same time grab a decent amount of share in the market.
P2 Explanation of different methods used for management accounting reporting
Management accounting reports are based on the performance of the organisation as per
their financial targets and as well as it has it's focus on the performance of the teams which are
working in the organisation. Mostly it is used by the small scale organisation which are working
with the limited financial scope and sources. It is made by the management accounts officers in
the accounting periods and as per the needs of the organisation. It produced by the company to
show organisational performance and total operational cost. It helps to determine the extra cost
of the company which can help to them minimise it. So as it is related to the related to the small

scale enterprises, Unicorn Grocery have to adopt it to increase the profitability of the company.
Report which is made by the accounts officers are depends on the type of projects and time-
sensitivity of the information. It can be made on weekly, monthly and quarterly basis if the
owners and managers demands (Cinquini and Tenucci, 2010). It has different methods of use
which provides a benefit to the management and owner to increase their financial visions;
Financial planing: It can used by the owners of the Unicorn Grocery to make a financial plan
for their future projects as the company is working for the limited profits, but in the future if the
owners wants to increase their criteria to improve their annual business revenues so it can use by
them to make a financial plan. It can helps to the owners and managers to find out those financial
sources which are having potential to fulfil their financial needs for long time and as well as to
find out those resources which is profitable for them (Fullerton, Kennedy and Widener, 2013).
By this company can find out those financial resource which puts less financial obligations on
them. The financial management accounting reports contains all the financial data which is based
on a particular duration of time so which helps to analyse them which factors are making a down
fall in the profits.
Analysis of financial statement: It is essential for the management and owner to analyse the
financial statements which helps to them to make better decision according to the needs and
demands of the company. It can used by the Unicorn Grocery to increase their financial profits
by analysing their statement, it helps to them to analyse that which particular is taking a high
consumption of the finance as per the outputs.
Analysis of the fund flows: It is related to the financial funds of the business entity which can
decrease and increase the productivity of the business (Qian, Burritt and Monroe, 2011). It helps
to the managers and accounting officers to analyse about the sources where they are getting
funds to execute their business activities and as well as it can helps to the company to analyse
those factors on which they are expanding their funds.
Ratio Analysis: It is based on the mathematical formulas to analyse the impacts on a particular
change on a particular things. It can be used by the Unicorn Grocery to make an analysis on the
points which are affecting on the business. This type of analysis can helps to the company to
manage their business activities as per the standard ratio. It can be used by the managers to
identify the capabilities of the organisation according to their debts.

Cash Flow analysis: Flow of cash on those activities which are making by the organisation, as
unicorn Grocery is a small scale organisation, it can used by the management accountant to
increases the cash flow form the output sources (Luft and Shields, 2010). It can divide in to the
three parts which are operating activity, investing activity and finance activity.
Job cost reports: It is containing relevant cost to the sales in the Unicorn Grocery, as company
is working in the grocery retail sector so this job cost report can help to them to identify people
involved in the process of selling to measure the actual cost of sales.
Inventory management: It is process which can help to the company to manage storage of
products in their store. It can help to them to keep a profitable quantity of each type of product in
the stock which can help to them to accomplish the demands of people.
Performance Reports: Employees are significant in the company and it is essential for the
Unicorn Grocery to manage their employees in appropriate manner which can help to them to
enhance their performance. This is method which supports to keep each employee's performance
to make a comparison with their targets. By this employee can analyse weak employees and
they can work on them.
Operating budget report: It is report to measure the revenues and expenses of the company
against to estimated budget. It is concluded report which is based on several types of budget like;
marketing, financial, human resource and master budget. Management can measure their
performance against it.
D1 Critical evaluation of management accounting system and management accounting reporting
is integrated with in the organisational process
Management accounting system and management accounting reporting helps to the
management and accounts of the Unicorn Grocery to analyse those factors which are reducing
their performance but regular use of the management accounting reporting decrease it's
consistency to perform in the competitive market.
TASK 2
P3 Calculation costs using appropriate techniques of cost analysis to prepare an income
statements of marginal and absorption costing
Income statement according Absorption costing

Working notes:
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
0
11200
(1600)
21000
(9600)
11400

Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
600
700
600
(100) (1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
0
9100
(1300)
2000
1300
21000
(7800)
13200

Net Profit
600 3900
9300
Unicorn grocery has to adopt absorption costing which can help to them to earn more
profits £9600. as compare it to marginal costing it will provide just £9300 which directly shows
that company will face a loss of £300 by using this.
M2 Accurately application of a range of management accounting techniques and produce
appropriate financial reporting documents
Planning and budgeting, project decision making and performance measurement are
some techniques which can be used by they Unicorn Grocery. Planning and budgeting
techniques can helps to the company to estimate the future projects of the company (Garrison
and et. al., 2010). It can increase the company vision and value of projects. Project decision
making techniques can increase the value of the decisions. Management accounting systems like
planning tools provide various information and data, it can be collected from internal or external
resources. They provide great assistance in financial reporting by providing both expected and
actual figures.
There are various management accounting techniques that are utilised by the venture so
that they can make satisfactory financial reporting documents. Some of the management
accounting techniques used by the cited company are financial accounting, past cost accounting,
investigation of financial statements, standard costing and so on.
D2 Financial report of the organisation with accuracy and proper interpretation of data related to
business activities
Financial reports are having data related to the organisation's profits and losses which
describes the growth and downfall of the company. The financial report is provide a detail
financial position of the company in their competitive market by using of their resources
(Weißenberger and Angelkort, 2011). The Unicorn Grocery is having net profit of £ 7500 as per
the marginal costing method and £ 10800 in contribution. According to the absorption costing
method they are having £ 6700 profit.

TASK 3
P4 Explanation of the advantages and disadvantages of different types of planing tools used for
budgetary control
Budgetary control can be defined as the method by which managers can optimize the use
of budget or capital of the organization in order to accomplish the set goals. it is a process where
decision maker set some standards related to performance and the cost to be incurred for such
performance to keep check at the end of the year (Lukka and Modell, 2010). It is basically
monitoring and controlling the cost in a given financial year by comparing the returns and cost
incurred with the set standards. Planning tools that are used for control are variance analysis,
responsibility accounting, adjustment of funds, zero base budgeting.
Cash flow budget – This budget is made for finding the right amount of cash that should
be kept in the organisation. Its main advantages is that a company can find the debtors who are
not paying their dues in right time. They can tighten their credit giving policy in order to reduce
bad debts. This budget also assist in making provision relating to unexpected expenditure. It also
has many disadvantages, most of the managers raise question about accuracy of this budget
because they believe that there is no possible way expecting amount of money which company
will need in future.
Master budget – It covers all the areas of areas and department of an organisation.
Planning is done for every task that enterprise is going to perform in forthcoming time. It main
advantage is that it reduce confusion between manager of various departments by synchronising
their work. Its main demerit is that it is very expensive so small firm cannot use this planning
tool.
Variance Analysis : In this technique , firstly budgets are forecasted for each department
of an organization in the beginning of a year, every department has to function as per the set
standards throughout the year and in the last all cash in flows and outflows are compared. The
difference between the actual and estimated is called variance.
Advantages:
 This technique help managers to have full control and monitor over every expense that
are incurred and if any variance found, necessary actions can be taken for rectifying it.
 It also helps in reducing cost as it creates cognitive state in the mind of people of
organization.