Management Accounting Report: TECK (UK) Ltd - Costing and Budgeting

This report provides a comprehensive overview of management accounting principles, focusing on costing and budgeting techniques within the context of TECK (UK) Limited. It begins with an introduction to management accounting, outlining its concepts, essential requirements, and its distinction from financial accounting. The report delves into various costing methods employed to compute net profitability, including job costing, batch costing, and contract process costing. It examines different types of budgets, their advantages and disadvantages, and the use of budget planning tools. Furthermore, the report explores the balance scorecard approach for analyzing financial problems and critically evaluates potential solutions to overcome financial issues. The report includes an analysis of financial statements and the importance of management accounting reports in decision-making processes, offering valuable insights for improving business operations and financial performance.

Management Accounting:
Costing and Budgeting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting concept and essential requirements of MA system .....................1
P2: (A) Different types of managerial accounting report............................................................4
B(II): Importance of management accounting report..................................................................5
M1: Benefits of using management accounting system..............................................................5
D1: Critically evaluate management accounting reporting system.............................................5
TASK 2............................................................................................................................................5
P3: Various costing methods which is used in computing net profitability................................5
M2: Use of management accounting techniques........................................................................8
D2: Data interpretation collected from income statements.........................................................8
TASK 3............................................................................................................................................9
P4: Different types of budgets and their advantage and disadvantage........................................9
M3: Use and analysis of budget planning tools........................................................................11
TASK 4..........................................................................................................................................11
P5: Balance scorecard approach ...............................................................................................11
M4: Analysis of financial problems..........................................................................................13
D3: Critically evaluate solution to overcome financial issues..................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
In every business organisation, management accounting is a key competent that would assist
the managers to record and analyse their financial transactions is systematic format. The primary
role of an organisation is to maximise their profit through producing large amount of products
and services during the year. To manage and control day to day expense and costs of the
company they required a well organise systems which would help them to record data in an
effective manner. The project report is providing valuable information about “TECK (UK)
Limited” daily operations (Schaltegger and Burritt, 2017).
Essential requirements of management accounting system and reporting are discuss under
this specific report. Some effective costing methods are used which is helpful in evaluating total
net profits for the company. Understanding of various kinds of budgets and their merits and
demerits to increasing efficiency of the company. Further, this report is examined financial
problems and effective measure to resolve them to get better outcomes for an organisation.
TASK 1
P1: Management accounting concept and essential requirements of MA system
In order to generate more effective results for the company. The managers required to
make sure of accounting systems in more effective manner. Management accounting is a
systematic format of recording, summarising, communicating and evaluating overall condition of
the company. The primary motive of using such kind of reporting system is to provide valuable
information to manager and owners of the company to make sound decision. The objective is not
to combine with external demands such as increase dividend, but rather than capturing crucial
information that can be utilised by TECH Ltd in near future (Hilton and Platt, 2013). It is helpful
to describe modern concepts of accounts as effective tools of management in respect to
conventional periodical data series. The object is use to expand the financial and statistical data
so as to bring light on every stage of activities of TECH Ltd. It evolves a systematic plan of
accounting that lays maximum emphasis on the strategies of future forecasting.
Difference analysis:
Basis Management Accounting Financial Accounting
Subject Matter Under this, the maximum attention is In this accounting, the enterprises
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directed towards different parts of
business organisation which work on the
combination of various aspects.
are operating as a whole toward
increase performance of an
organization.
Nature In case of management accounting, it is
concern with future plans and policies.
Financial accounting is related
almost with exclusively with
historical data of Tech Ltd.
Characteristics It provides maximum emphasizes on
those aspects which will increase the
value of data in wide variety of uses.
It places wide stress on those
qualities in data which can rely on
universal confidence such as
validity and objectivity.
Types of data Only quality data is being analysed
under this accounting system.
Financial accounting makes sure of
crucial information to make sure of
data which is measure in
quantitative and monetary term.
Importance of management accounting in decision making process
In every business organisation, it has been seen that management always search of getting
more effective results by using data of the company. This would assists them to make use fo
accounting systems in well organise manner so that chances of getting better results can be
enhances in future. There is some crucial significance of using accounting systems which is
being discussed underneath:
It is use for future forecasting: As decision making is done to make control over all
those aspects those are affecting the profitability of an organization. This will aid company to
make analysis of all those aspects those are associated with the company whether they are
getting valuable amount of return from their total capital investments (Importance of
management accounting, 2016).
Future cash flow forecasting: It is essential for the company to predicting cash flows
and make impacts of cash on the business. It consists of budget and trend charts and managers
those are using information to decide in order to allocate funds and resources to incurred the
estimated profit growth.
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Understanding performance variances: It is important to make understanding of
various aspects among total predication and actually what they are achieving from their total
investments.
Cost accounting system: It is one of the important accounting systems which is helpful for the
managers to determine their total cost incur during the production of products and services. It
summarises of various aspects those are directly or indirectly associated with a product. It a well
organise framework which is use by the firms to estimate total costs of their goods for gaining
profitability for the company. There are some other costs which are associated with them. Such
as:
 Normal: It is known as those costs which are normal paid or incur by the company
during manufacturing of a products.
 Actual: According to this costs which are mainly liable to the company with direct labour
and production overhead bases on predetermine overhead charges.
 Standard: It is related with standard costs which are associated with the cost of goods
sold and for valuation of stock.
Inventory management system: It is said to be one of the crucial methods which is helpful in
managing and controlling their stock position of the company. This will assists in recording of
opening and closing entries of data about inventory kept by Tech Ltd.
 FIFO: These are said to be inventories valuation techniques. The outcomes in deflated
net outcomes and lower ending balances in stock is compare to be FIFO.
 LIFO: It is an asset management and stock valuation techniques that assumes as assets
produced or kept by company would be used at initial stage.
 AVCO: This seems to use as calculation of ending stock and cost of product sold during
the period of time.
Job costing system: It is an effective system for assigning products costs to a single products or
group. Basically, the job order costing system is helpful in only those situation in which products
produce are entirely different from each other (Klychova and et. al., 2015).
 Batch costing: It is a form of particular order costing which is more similar to job
costing. Each batch are given some identical number units but are different from each
other.
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 Contract process costing: This seems to be one of the method of assigning costs to units
of products in companies that are producing wide amount of quantity for various
homogeneous products.
P2: (A) Different types of managerial accounting report
In every manufacturing business organization, it has been seen that a well organize
accounting system reporting is needed to make proper entries of financial transaction those are
being done in an accounting year. The reports are more crucial aspects for every business that
would present effective solution to organization problems. There are various sources from which
data is being collected from the purpose of making a systematic detail reports. The major sources
of data collection are taken from various departments such as HR, Marketing and finance
department. This is mostly prepared at internal level so that chances of getting more accurate and
reliable outcomes can be increase in easier manner. There are various accounting reporting
system which will be helpful in order to record financial transaction in more detail and
systematic mode. Some of them are discussed underneath:
Performance report: According to this particular report, every information related with
past and present financial performance is recorded in it. It is an important activity in any project
communication management system. It consists of collecting and presenting detail information,
utilization of resources and estimating for the future growth and sustainability (Bebbington,
Unerman and O'Dwyer, 2014).
Account receivable aging report: It is known as company’s more crucial report because
it provide vital information about total list of unpaid customers invoices and credit memos. The
primary tool which used by gathering personnel to examine which payment is overdue.
Operational budget report: According to this particular budget every crucial
information regarding total sales and production level are recorded accordingly. This would
assist in providing useful information about their total cost and expense incur during the time.
Job cost report: It is an effective technique to record total costs of a production job
rather than a complete process. By this, a project manager use to keep regular track of the total
cost of each job (Bennett, Schaltegger and Zvezdov, 2013).
Inventory management report: As per this reporting, it has been notices that every
stock record is maintained by using appropriate tools and techniques. Such as, ABC costing,
inventory turnover ratio and EOQ.
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B(II): Importance of management accounting report
It is essential for reporting that gives executives a clear picture of financial health of an
arrangement that used to provide an organization certain information through performing at on
operational level. Performance report is most effective reporting method that are used to analyze
performance of actual or standard one. While account receivable can assist them to examine total
list of unpaid customer invoices. Management reporting provides crucial information about
company total financial healthy condition. It does not provide all information which is essential
to assists them to find out the business is working at their operational level. This would help in
making vital capital investment decision regarding future objectives so that profitability can get
enhanced.
M1: Benefits of using management accounting system
It is crucial for the department to make use of accounting system that can be able to
generate more valuable outcomes for the company. The most important aspects of using
accounting systems to increase productivity of Tech UK Ltd. The another benefits of accounting
system us to maintain efficiency of Tech Ltd through using proper systems such as price
optimization, cost accounting and job costing system. There are various important accounting
reports systems and all of them are having equal benefits to an organization. Increase the bar of
profitability and simplifies the decision making in financial report of the cited company. Some of
them are cost accounting system that is liable to determine total cost and expenses that are incur
during the period of time. Inventory management inventory system used to track opening and
closing stock position of the company.
D1: Critically evaluate management accounting reporting system
According to the above mentioned various accounting system reporting, managers can
easily make their business more safe and profitable. There are various tools and techniques such
as account receivable and performance report which will always assists in generating more
crucial information about current position of Tech Ltd.
TASK 2
P3: Various costing methods which is used in computing net profitability
Cost is the value of money that is needed to get something. These are directly associated
with the production of products and services. In manufacturing business, the cost can be said that
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one of acquisition in which the amount of money is expended to get it. In accounting terms, it is
the cost which refers as the monetary value of expense for purchasing raw material for the
company. There are various costs which will be helpful in computing total profit for the
company. Some of them are mentioned underneath:
Absorption costing: It is known as those costs which is applicable to production process.
It consists of all variable and fixed costs. Because both the costs are taken into consideration so
this is known as full costing. For future decision making these costs are not taken best for
decision making. It is useful for accumulating the costs related with the production process and
apportioning them to individual products (Sisaye and Birnberg, 2012 ).
Marginal costing: These types of costs are said to be that costs which is applicable one
additional unit’s production. It only considered variable costs while calculating net profit during
the time. Most of the investors think that marginal costing is providing more accurate results as
compare to absorption. They consider this as primary method for making future decisions.
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the begining NIL
52500
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Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
30000
(7500)
15000
10000
(22500)
(7875)
22125
(25000)
Net loss -2875
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
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Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit using absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
M2: Use of management accounting techniques
In financial reporting, there are various reporting system those are helpful in delivering
more appropriate results for the company. In accordance with this, decision making techniques,
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marginal costing, standard costing and historical data costing tools are available. These
techniques are more suitable for making valuable decision in coming time. These are more
reliable in reconciling total net profitability of Tech Ltd which is collected out of their total
financial transactions.
D2: Data interpretation collected from income statements
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
In order to get positive results from the costing methods, managers of Tech Ltd has
decided to use two crucial methods such as marginal and absorption. The results are fluctuating
from both the methods. If they are going to use marginal costing they are able to generate net
loss of 2875. While with the use of absorption costing they are getting net loss of 375. The point
of this changes are arises because of the fixed cost treatments. The overall performance of the
company is not as suitable as in the month of September.
TASK 3
P4: Different types of budgets and their advantage and disadvantage
In every business, budget is an essential part by which company can control their costs and
expenses those are being going to be incur in near future. There are various types of budgets
which will be helpful in projecting their overall profitability. Some of them are mentioned
underneath:
Operational budgets: This kind of budget is more effective for the company at
functional level. There are some operational budgets such as sales budget, production budget and
raw material budgets. These budgets are made for controlling overall production ability of the
company.
 Advantages: These budgets are more effectively helpful in determining their regular
costs and expense which are incurred by the company during production process.
 Disadvantage: The main limitation of using this budget is too costly because, it is
prepared at continuous basis.
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