Management Accounting Report for Network Critical Solutions Ltd

This report analyzes management accounting practices within Network Critical Solutions Ltd, an IT hardware manufacturer. It covers key aspects such as management accounting systems (cost accounting, price optimization, inventory management, and job costing), and their benefits. The report details management accounting reporting (account receivable, budget, inventory and manufacturing, job cost, and performance reports) and their applications. It explores cost calculation techniques, budgetary control tools (with advantages and disadvantages), and planning tools for budget preparation. Furthermore, the report examines the responses of management accounting systems to financial problems, emphasizing the integration of these systems and their reporting in organizational processes. The analysis includes specific examples relevant to Network Critical Solutions Ltd, providing a comprehensive overview of management accounting principles and their practical application in a real-world business setting.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system and its types.......................................................................1
P2 Management accounting reporting and its types...................................................................3
M1 Benefits of management accounting system........................................................................4
D1 Integration of management accounting system and its reporting in organisational process. 5
TASK 2............................................................................................................................................5
P3 Calculation of cost using an appropriate technique...............................................................5
M2 Various cost accounting techniques.....................................................................................7
D2 Data interpretation.................................................................................................................7
TASK 3............................................................................................................................................8
P4 Budgetary control and planning tools with their advantages and disadvantages...................8
M3 Use of different planning tools for preparing and forecasting budgets..............................10
TASK 4..........................................................................................................................................10
P5 Responses of management accounting system to deal with financial problems.................10
M4 management accounting lead to sustainable success in responding to financial problems12
D3 Planning tools respond appropriately to resolve financial problems..................................12
CONCLUSIONS............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting refers to the process of analysing various events that happen in
and out of the organisation. It helps the managers to take an overview of business operations. It
is used by organisations to properly evaluate their execution activities. It provides various
informations to the internal stakeholders of the company, hence it help them to keep a track
record of business and its operational activities. In management accounting various reports are
generated that renders the accurate information of whole business to the managers and other
stakeholders of the enterprise. It ensure the optimum utilisation of available resources for
production process (Banerjee, 2012). The company chosen for this report is Network Critical
Solutions Ltd, it is an IT hardware manufacturer company and its head quarter is in UK.
Management accounting system and its reporting, various costing techniques, advantages
and disadvantages of planning tools used in budgetary control and various techniques to deal
financial problems that an organisation have to face are discussed under this project report.
TASK 1
P1 Management accounting system and its types
Management accounting is a tool which is used by various managers of the organisation
to plan, organise, control and direct business operations and individuals within the organisation.
It helps the managers and internal stakeholders to keep an eye on each activity of business.
Managers are liable to administrate the business by making strategic decisions. In Network
Critical Solutions Ltd management accounting helps to set goals and objectives for the
organisation and policies and strategies to attain the same (Bouten and Hoozée, 2013). With the
help of management accounting system a managers of Network Critical Solutions Ltd can
control the business in an effective way and analyse the cost and other expenses of the company.
It is also helpful while determining the outstanding amounts by different clients of the
organisation. The managers use four different systems, that can help them while controlling and
analysing activities of business. Those systems are explained below: Cost accounting system: It is mainly used by manufacturing companies to record all the
production activities. Main objective to use this system is to measure all the costs
involved in manufacturing process of a products. In this system managers measure and
record the costs first and then compare the input results to the actual to measure the actual
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performance of the company and output of various business activities (Figge and Hahn,
2013). In Network Critical Solutions Ltd managers use cost accounting system to track
the actual cost of their manufacturing process. It is very beneficial for the company
because it can facilitate the work of management to identify that where the funds of the
company are utilised. Price optimisation system: It is a tool which is used by various organisation to determine
the best price for their products that can attract customers and satisfy their needs and help
to achieve organisational goals such as profit maximisation (Fullerton, Kennedy and
Widener, 2013). Price optimisation system is used by the management of Network
Critical Solutions Ltd to record the behaviour of the customers for their price changing
strategies. With the help of this system managers get to know about the willingness of
customers to pay for their products. Various data is used in the process of price
optimisation such as inventories, operating and historic cost etc. It is very important for
the organisations because, it can provide the idea of the price which should be fixed by
the company for its products. Inventory management system: It is a system which is used to record the information of
stock of an organisation. It is mainly used to measure the location and quantity of
inventory. Managers of the organisations try to reduce the waste of goods with the help of
optimum use of available resources (Hiebl, 2014). In Network Critical Solutions Ltd
managers and accountants use inventory management system to keep a detailed record of
each activity which is related to the inventory. There are various importance of this
system to the management but the main importance of this system is that it is helpful
while tracking the inventory of the organisation. It can be divided in to three sub parts
such as LIFO, FIFO, AVCO. LIFO means last in first out, in this method the recent asset
will be recorded as it has been sold first. FIFO means first in first out, oldest inventory is
recoded in this method as it has been sold first. In AVCO the inventory is recorded on
average basis or weighted average basis.
 Job costing system: Management of an organisation use this system to determine the cost
which is involved in various activities of manufacturing process of products. This
information is very helpful while distributing cost to the each segment of the production
and assigning cost to the manufactured products for supply process. In Network Critical
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Solutions Ltd job costing system is used to find out information of direct material, direct
labour and various overheads related to the production. It is very helpful and important
for the manufacturing companies like Network Critical Solutions Ltd to control the use
on raw material, labour hours and other expenses.
P2 Management accounting reporting and its types
Management accounting reporting is a process of recording various information to the
reports that are prepared by the managers to analyse the performance and position of the
company and other factors that may affect the business execution activities. When a company is
facing losses from a long period than these reports may help them to find out the cause and
solution for this problem (Fullerton, Kennedy and Widener, 2014). Managers in Network
Critical Solutions Ltd generate management reports to get an insight of the organisation. These
reports contain informations like performance of business, cost of production, outstanding
amount by customers and budgeted figures of the company. Management of Network Critical
Solutions Ltd generate five different reports to analyse actual status of the business. These
reports are explained below:
Account receivable report: It is generated by the businesses who are offering credit to its
customers or clients. It provides the detailed information of such debtors who are unable to pay
their amount (Hilton, and Platt, 2013). In Network Critical Solutions Ltd these reports are
created to get the exact idea of outstanding amount by customers. Managers uses this reports to
identify the default in credit policies and services of the company. It is very important for the
company to collect owed amounts from customers by analysing the reports that consist
information of them.
Budget report: It is a very important report in management accounting, which is used by
managers to identify the monetary resources available in different department and set budgets for
them (Otley and Emmanuel, 2013). Management in Network Critical Solutions Ltd generate this
report to estimate future expenses, on the basis of past reports and current status of the company.
It also help to reduce the cost by identifying the areas where the managers can cut cost. It is
beneficial for the managers as well as owners of the organisation because it helps them to
understand and control cost across the business.
Inventory and manufacturing report: These reports are generated to get detailed
information of inventory and manufacturing process of various products. Manager can compare
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different assembly lines within the organisation with the help of this report. It contain
information of inventory waste, hourly labour rate and overheads that incur while producing a
product. In Network Critical Solutions Ltd managers use inventory and manufacturing reports to
make the production process more efficient and effective which help the company to maximise
profits. It is beneficial for the organisation to keep a track record of inventory and determine the
cost of a product.
Job cost report: These reports can help managers and leaders to identify the cost of
individual job. In Network Critical Solutions Ltd it is generated to analyse various tasks and
identify the most gainful job from them. It can provide the idea of the expense that the owner
have invested on a particular project to attain organisational goals. It is very important for the
business, because it helps to analyse expenses while a project is under process, so that managers
can modify the areas of waste before costs turn impossible to control.
Performance report: It is created to analyse the performance of whole organisation as well as
the individuals who are working in the organisation. These reports help the managers to look out
in those fields where improvement is required and form strategies to enhance the level of
performance. Managers of Network Critical Solutions Ltd generate this type of report to analyse
the result of activities of different operations. It is very advantageous to the company because it
helps the managers to find out the area where they can make modifications to ignore losses.
M1 Benefits of management accounting system
Management accounting system Benefits
Cost accounting system  Helps to record all the production related
activities.
 It facilitates the work of management while
identifying the fields where the funds are used.
Price optimisation system  It is very helpful for the managers to identify best
price for their products.
 Helps to identify the willingness of customers to
pay for a product.
Inventory management system  Major benefit of this system is that it helps to
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analyse the quantity and location of stock.
 Helpful to track the inventory in supply chain.
Job costing system  It is used to control expenses in business activities.
 It helps the managers to identify costs involved in
manufacturing process.
D1 Integration of management accounting system and its reporting in organisational process
Management accounting system and its reporting help the managers to analyse
performance and market position of the company. Various management reports help the
managers with valuable information which help to make strategic decision and form strategies to
lead the organisation toward success. Account receivable reports help managers to determine
owed amount by customers and to tighten the credit policies of the company. Inventory and
manufacturing reports are used by management of an organisation to determine actual cost
involved in manufacturing process which help them to reduce waste and costs where they may
cut the cost.
TASK 2
P3 Calculation of cost using an appropriate technique
Cost: Cost is a monetary evaluation of various expenses, that are incur in the production
process of an organisation. It is charged by the seller and paid by the buyer. If a company is
producing large number of products than, the cost will be minimised and the managers can plan
to set lower price to attract more and more customers. Low cost help to attain more market share
of the selected segment where the company is selling its products (Otley, 2016).
As Network Critical Solutions Ltd is a manufacturing company, hence it should set a low
cost as compare to its competitors, for the products to grab attention of the customers. While
buying a product a customer always try to find out the cost to make buying decision, whether it
is affordable or not.
Marginal Costing: It is a costing technique which is used to measure the additional cost,
known as marginal cost. It helps to identify the manufacturing ability and optimum production
quantity of an organisation. This techniques is used by Network Critical Solutions Ltd to Please
note this is your last chance if it
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happens again you will face disciplinary actidetermine the additional cost of extra production
unit. It also help in decision making process, whether it should produce extra units or not.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue 33000
Marginal Cost of goods sold: 9600
Production 12800
closing stock 3200
Contribution 23400
Fixed cost 5900
Net profit 17500
Absorption Costing: It is a method in which is used to identify the actual cost involved in
individual units of production and allocating them to the related units. These costs are absorbed
from the sales of same units to whom the cost is concerned (Parker, 2012).
Calculation of net profit by using absorption costing method:
Particulars Amount
Sales 33000
Cost of goods sold 14025
Gross profit 18975
Selling & Administrative expenses 3300
Net profit/ operating income 15675
Break even analysis: It is used to find out the point where total cost and revenues of a
company are equal. This point is called break even point, which means that the organisation is
neither earning a profit nor facing a loss, but recovering the cost from sales. This method is used
by the managers of Network Critical Solutions Ltd to determine the number of units to be sold
to recover the costs.
A Total number of products sold:
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
B. Calculation of break even point in accordnce to sales revenue:
Sales per unit 40
Variable costs VC = DM + DL 28
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Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
C. Calculation to reach desired profits of 10000:
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is used to determine the difference between break even sales and
actual sales. Managers of Network Critical Solutions Ltd use margin of safety to know the level
of decreased sales before the projects become unprofitable for the company.
D. Calculation of margin of safety when 800 units are sold:
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2 Various cost accounting techniques
Managers in Network Critical Solutions Ltd use three different techniques that are
standard, marginal, historical costing technique. Standard costing is used to identify the
difference between actual and forecasted budget and performance of the business. It helps to
identify the cause of differentiation among current and future position of business. Marginal
costing is used to analyse the cause the increased cost of production which is because of the
additional units. Historical costing is used to measure the actual price of assets or inventory at
the time of purchase.
D2 Data interpretation
As per the calculations The managers of Network Critical Solutions Ltd use marginal and
absorption costing methods to calculate net profits. While using marginal costing method the
profits are £17500 and for absorption costing it was £15675. There is a difference of £1825 in
profits. Break even sales of Network Critical Solutions Ltd was £20000 when the selling units
are 500. If the company is thinking to earn profit of £10000, it have to sale 1333.33 units to
attain this target. If the company is selling 8000 units then 37.5 will be the level of margin of
safety for the organisation.
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TASK 3
P4 Budgetary control and planning tools with their advantages and disadvantages
Budgetary control: Budget is a fianncial plan whihc is used to estimate future expenses
and incomes. It is used to distribute funds among departsments of the company. Budgetaty
control is a tool which is used by managers to set oprational and financial goals to compare
actual result to budgeted and enhance the performance quality of the company. It is a control
process of the organisation's operational activities by establishing standards and targets related to
incomaes and expenses (Budget and Budgetary Control, 2018). In Network Critical Solutions
Ltd budgetary control is used to monitor utilisation of available monetary resources and
business execution process. Budgets are designed to assess income and expenditures for a future
date.
The process of budgetary control is very easy and managers are suggested to follow the
process to utilize the assigned budget in an effective way. It includes establishing a targeted
performance, examination of actual performance, comparison of actual and forecasted
performance, calculation of variances, take an immediate action if it is required to enhance the
ability of performing operations of the company. Managers of Network Critical Solutions Ltd
use three planning tools in budgetary control. These tools are described below:
 Forecasting tools: This tools is used by companies to predict future conditions that are
based on past data and current market trends. It help the management while cooperating
with the uncertainty or any risk of future (Renz, 2016). In Network Critical Solutions Ltd
forecasting tools are used to measure the risk or good result of a business project. It is
based on manager's experience, cognition and judgement ability. It helps to plan budget
and forecast future growth opportunities for a business.
Advantages Disadvantages
Helps the managers to cooperate with risk and
uncertainty.
It is basically based on past data, so for the first
time it may show no risk and for second time it
may show high risk.
It helps to forecast budget and growth
opportunities for the company.
These tools are not totally trust worthy because
it is not possible for a person to forecast the
future accurately.
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 Contingency tools: It is used to analyse different factors that may affect negatively
toward business operations. It helps to identify an uncertainty that may occur in future. In
Network Critical Solutions Ltd contingency tool is used to determine unfavourable
possible events that may take place and affect the market image and performance of
business. It helps managers while making decision and budgets to to deal with future
risks.
Advantages Disadvantages
It help the managers to find various ways to
solve a problem.
Time involved in this tool is very high and it
may result in long time, which is not affordable
by small companies like Network Critical
Solutions Ltd.
It can facilitate decision making process of
managers to face an unfavourable event in
future.
If a plan is not implemented which is based on
the assumption of these tools, the sources
invested, will get waste.
 Scenario tools: This tool is used to examine a set of clearly assorted futures. It help the
managers to make different plans for future to maximise profits and achieve
organisational goals (Schaltegger, Gibassier and Zvezdov, 2013). In Network Critical
Solutions Ltd scenario tools are used to determine best and worst possible situation of
future and make strategies to face and resolve the same.
Advantages Disadvantages
Help the managers to form strategies to
increase profits.
There are various challenges such as
differentiate between best and worst plan for
the business, that the managers have to face
while integrating these tools.
It helps to identify best and worst situation for
the business operations.
It is mainly used for long term planning so it
cost high and Network Critical Solutions Ltd
can't afford high cost.
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