Management Accounting Report for The Ledbury Restaurant, UK

This report delves into the realm of management accounting, providing a comprehensive analysis of various systems and methodologies. It begins with an explanation of different management accounting schemes, including cost accounting, job costing, and process costing, highlighting their significance and applications within a business context, specifically referencing The Ledbury Restaurant. The report then explores different management accounting reporting methods, such as budget reports, job cost reports, income statements, and accounts receivable reporting, evaluating their advantages and disadvantages. Furthermore, it examines absorption and marginal costing methods, providing a comparative analysis of their impact on profitability. The report concludes by discussing the adoption of management accounting schemes to address financial problems, offering insights into how these systems can be leveraged to improve decision-making and operational efficiency. The report serves as a valuable resource for understanding and applying management accounting principles in real-world scenarios.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P.1.Explanation of administration explanation and essential necessitate of different
administration accounting schemes.............................................................................................1
P.2.Various methods utilised for administration accounting coverage.......................................3
TASK 2............................................................................................................................................5
P.3.Absorption and marginal costing method.............................................................................5
TASK 3............................................................................................................................................8
P.4.Advantage and disadvantage of using various planning instrument that can be utilised for
fund control at workplace............................................................................................................8
P.5.Adoption of administration accounting scheme to answer to financial problems..............10
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is the one of the field that have vast substance for the firms. It
can be discovered that it assists company in measuring its operational efficiency. In the recent
report different management accounting systems are explained in detail and along with this
reporting modes are discussed in investigation study. In mediate part of the report, marginal and
absorption costing is done and results are interpreted. At end if the report, different systems that
can be used to respond to financial is sues are discussed briefly. Through these research study is
passed and completed.
TASK 1
P.1.Explanation of administration explanation and essential necessitate of different
administration accounting schemes
To
The Director of The Ledbury Restaurant, London, UK. Date: 15th january 2018
Sub: Management accounting systems adoption and their significance
Management accounting is the field that helps company in estimating internal efficiency that is
in the business operation. Normally, corporations operating in manufacturing field aimed to
control cost at workplace. Focus need to be made on improving internal efficiency of the
business operations so that cost remain below ascertained standard extent(B Douglas Clinton
CMA, and CFM, 2012). Numbers of tools and techniques are present in the management
accounting that help firm to compare its performance against set criterion and recognising fields
where innovation require to be done in business operation. Several sorts of approaches like
variance analysis and budget etc. are accessible in mentioned discipline that helps managers in
making hard core business decision whenever required. All these approaches have done due
importance for the company because they help companies in working in right direction in
legitimate manner. Management accounting method have due significant with respect to
application of these methods. This is because management accounting system reflects relevant
manner in which data, information or facts could be stored in books of accounts. It is the
information that is produced by system which assists corporation in obtaining several results on
application of these approaches at workplace. Different management accounting system that re
available of corporations are give below: Cost accounting system: Cost accounting system is one of the most essential system that
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is usually used by the most of the business corporations. In this system usually, costs or
expenses are recorded on basis of fixed expenses, variable expenses and semi variable
expenses(Abdel-Kader, ed., 2011). Nature of all these expenses is totally different from
each other. It could be seen that in this accounting method, all expenses are recorded in
theses mentioned class. Number of advantages are connected with the concerned
accounting system because on the basis of obtained records, managers easily find out
that how much amount they spend on fixed, variable and semi-variable class. This assist
them in preparing a plan about cost control in the business and making adjustment in it
so that cost reduction task could be accomplish in the company. Thus, it can be said that
there is huge significance of cost accounting systems for the companies. The Ledbury
Restaurant can make use of this accounting system because this would assist it in
tracking rate at which variable disbursal are elevating in the company and steps required
to be taken to manage huge situation. Operational efficiency can be raised in the firm by
working on inputs that are furnished by the accounting methodology to the restaurant. Job costing systems: Job costing system is another methodology that is used by those
companies specially that re operating their business in manufacturing system. Several
times, companies have to acquire customised products in large amount for their clients.
Due to various specification obviously, costing would also be different and due to this
reason, it is very important to do costing of products separately(.Bebbington, Unerman,
and O'Dwyer, eds., 2014). Job costing technique assists corporations in accomplishing
its desired targets and under this, separate accounts books are made for each product line
and different form of expenses are recorded in them. It could be said that job costing
procedure is more suitable for the companies that re operating multiple product lines in
their business. The Ledbury Restaurant is one of the growing restaurant in the UK and
in short duration of time period, it gained huge popularity. It could be ascertained that in
this restaurant, broad variety of food products are served to the customers across
different price range. It is very essential to do accounting of expenses in these products
line separately so that better overview can be obtained about their costing and actions
can be taken in right path to make sure that expenses will remain in control in business.
 Process costings: This is also one of the methodology that is made by many companies
because it helps them in doing coasting of product lines more accurately. In method
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costing approach, usually costing of each form is calculated and then relevant cost is
added to recognise overall cost of each product line(Boyns, and Edwards, 2013). There
are numbers of advantages of using process costing approach because under this it could
be easily find out that for which production process stage cost is raising quickly and
need control on time so that cost could be managed in the company. It could be said that
deeper information about costing of product is collected by process costing techniques
than any other costing system. If The Ledbury Restaurant does not adopt this accounting
system in its business then also there is no issue because for manufacturing dishes long
time is not needed in order of different stages. Hence, it could be said that there is wide
necessity of process costing system for the company because due to limited length of
operations it does not too much require use of process costing management accounting
system at workplace.
P.2.Various methods utilised for administration accounting coverage
There are various approaches of management accounting reporting because varied
operations are performed in the company(Callahan, Stetz, and Brooks, 2011). In these different
variety of reports, company execution is measured in different way. Different approaches of
management accounting are explained below: Budget report: In fund reporting method, there are number of items that are covered and
with regard of this, standards are given in the table. Again these standards there are
effective results that are acquiring by quantifaying business performance(Christ, 2014).
On comparison of both value, information about company performance is acquired by the
managers. Thus, this report not only assist firm in examination its own performance in
order to standard but is also assists them in finding out that in comparison to past months
how much difference comes their performance. Hence, it could be said that budget report
has due importance for the companies as it assists it in measuring performance from
multiple regions. Thus, in perfect direction company endeavors going due to usage o
budget report in the business. The Ledbury Restaurant could make use of the budget
reporting system in the company as it is very simple to set up budget and for specific
individual need not to be hired that have strong technical background. However, one
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require to take care while making forecasting by approximation growth rate of sales
revenue and expenses in the firm. In terms of solve this problem, skilled person can be
given target to prepare budget for the business(Zimmerman, and Yahya-Zadeh, 2011).
Advantages are already explained above. One of the major disadvantage of using budget
report is that assuming is made in it and on the basis, standards are determined which
might be wrong in future time period. Usually, in a year prediction is made about future
time period in terms of growth rate of business and its expenses. These projections might
prove wrong for the company and in case this happened then it is possible that
corporation performance good but it is considered bad by the manager because actual
conclusion are not matching to the forecasted values. Thus, it is one of the big limitation
of budgeting process. Job cost report: It is another most essential reporting manner because under this in the
report cost for different jobs of business projects are prepared in the books and accounts.
This reporting method is utilized by most of business corporations at workplace(DRURY,
2013). In the job cost report for all product lines individually figures are calculated in
order to disbursal that are made in the business. Thus, it could be said that job cost report
gives more deep information about cost of product lines and due to this reason, most of
the companies preferred to make job cost report in the business. The Ledbury Restaurant
can also prepare job cost report for its different products lines because by using same, it
can better gain insights of its business. On single report, managers recognise that which
product line is in their control in order to expenses and which product line is out of
control in the company. Thus, it can be said that input is received about the product line
on which special attention required to be paid to increase the profitability of the
company. Income statement: Income statement is also one of the management accounting report
approach. Under this in depth of segregation of expenses is not done in the firm(Groot,
and Selto, 2013). One can see final value of all expenses that are made in the business.
Income statements of quarters are compared to each other in terms of find out that in
which fields firm perform good and in which areas it gives poor performance in the
business. Income statement also provide overall overview of the firm performance and
due to this reason, it is broadly used in the business for making decision. Only limitation
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of this method is that it does not show segregation of marketing expenses in the firm.
Hence, it cannot be recognised by looking at income statement that in marketing
expenses which firm if expenditure are highly made like expenses on social media and
public relations etc.
 Account receivable reporting: Account receivable reporting is another mode of reporting
as under this approach receivables are reported in the books of accounts and firm comes
to know that how many receivables can be turned into bed debts and how much could be
encased immediately in short duration(Herzig, and et.al., 2012). Cash management
strategy is better developed on basis of account receivable reporting method. Hence, it
can be assumed that there is high necessity of account receivable system. The Ledbury
Restaurant time to time prepare account receivable reporting in its business because
usually in business there are debtors. If debtors size increase at quick rate then there are
huge chances of the cash can be locked in bed debts. It is the account receivable reporting
that helps managers in making sure that on time debt amount is recovered from debtors in
the business. It depends on the Ledbury Restaurant that by using account receivables in
which manner it manages cash inflow in the company.
TASK 2
P.3.Absorption and marginal costing method
Table:1. Profit by absorption costing method
Amount Amount
Particulars 21000
Sales 9100
Cost of production -1300
Less: closing stock 7800
Variable cost 13200
Contribution
Less: Variable sales indirect expenses 600
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Less:Fixed cost, production overhead 2000
Administration expenses 700
Selling cost 600 3900
Net profit 9300
Table:2. Profit by marginal costing method
Amount Amount
Sales 21000
Less:Cost of production 11200
Less:closing stock -1600
9600
Less:Over absorption of fixed
production overhead
-100
Production cost of sale 9500
Gross profit 11500
Less:Variable sales overhead 600
Less:Fixed costs and administration
cost
700
Selling cost 600 1900
Net profit 9600
On the above analysis, it can be said that net profit amount is 9300 in case of absorption
costing method and value of same is 9600 in case of marginal costing method. It could be said
that both marginal and absorption costing methods display various amount of profitability. There
is high profit in case or marginal and absorption pricing method. There is difference between
both of these costing methods which are absorption and marginal costing method. Calculation
process in fact is that in case of marginal costing method only variable expenses are taken to
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account for computing overall cost of the products(Kokubu, and Kitada, 2015). Contrary to this,
absorption costing is completely opposite and under this fixed and variable expenses both are
taken into account to do costing of product. Thus, there is little difference but it conveys big
fluctuation in results. Marginal costing operation indicate more profitability than absorption
costing method due to non-financial of fixed expenses in the business. Before further discussion
these approaches is more detailed manner it is very essential to understand fixed expenses,
variable expenses and semi variable expenses nature. Fixed expenses are those that remain
unchanged and always remain stable in the business. On the other part, variable expenses are
those that never remain same and values are changing consistently in the company. Semi
variable expenses are those in which some portion remain fixed a some remain variable. In
different combinations, these expenses are made in the firm. Usually, in the company variable
expenses are made by the corporations by higher amount. While doing calculation always one of
the question comes in front of managers that which of approach they must use in their business
for calculation. In other word it can be said that it is hard for manager to recognise whether they
should use marginal and absorption costing method in their company(Lavia López, and Hiebl,
2014). There is importance of both costing method in the corporation. In case of absorption
costing fixed expenses are taken in to consideration along with variable expenses. It can be
observed that every year purchase of fixed asset is not done that directly make na important
contribution to entire production method. If same happened truly in case of any company then in
that case, it is better to make use of marginal costing in the business because inclusion of fixed
expenses in the company does not ensure. On other hand, in case of marginal costing one thing
can be considered which is that even fixed expenses are not incurred directly in relation to
production process it is the cost that is incurred in the firm and business have to cover that cost
out of cash flows. From this point of view if condition is taken into consideration then inclusion
of fixed expenses in the firm seems right. Thus, it can be said that both costing method must be
used in the firm. There is benefit of using this strategy because if marginal costing is only used
then in that case managers can easily recognise that what amount of profit is earned if only those
expenses are taken into consideration that are heavily contributing to production process. On
other hand, if absorption costing is used then it id recognised that how much profit is earned if
both expenses are taken into the account(ainun Tuanmat, and Smith, 2011). Hence, by doing so
effect of these expenses on company revenue is calculated and it can be said that analysis help
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managers in making decision more in appropriate way. It could be said that corporation must use
both approaches at workplace as there are few of positive and negative points associated with
these approaches. According to need these approached must be used at workplace and proper
evaluation must be done in the firm so that better decision can be made and operation can be
governed in appropriate way.
TASK 3
P.4.Advantage and disadvantage of using various planning instrument that can be utilised for
fund control at workplace
There are number of planning tools that are used by the companies in their business and
all of them have some advantage and disadvantages(Luft, and Shields, 2010). Different form of
planning tools that are available to the business firms are budget and capital budgeting
approaches. In class of budget classifications can be done. Cash budget: It is one of the most essential type of budget that is fitted out by all variety
of business corporations. In the cash budget estimations are made about cash inflow and
outflow and on that basis net available balance is recognised. By using cash budget
planning is done about expenditures that would be made in the company(Macintosh,
N.and Quattrone, 2010). In other words to could be said that efforts are made to make
expenses within determined limit and in this regard plan is made. On this basis it can be
said that cash budget is the one of the essential planning tools for the corporation. There
are number of advantages and disadvantage of the cash budget.
Advantage:
 One of the major advantage of cash budget is that by using same expenses can be
controlled in the business in proper manner(Otley, and Emmanuel, 2013). This would
lead to raise in profit in business.
 Second main advantage of cash budget is that it is easy to prepare it and there is no need
to hire specific talented person to prepare budget.
Disadvantage: Major disadvantage of using cash budget is that it is based on approximation and if
estimation wold be made wrongly then in that case wrong business decision cab be taken
on the basis of budget.
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 Fixed Budget: Fixed budget is another alternative that is available to the business firm. It
is totally inverse of cash budget as in this form of budget values of all elements of budget
is made invariant(Parker, 2012). Like cash budget there are some merits and demerits of
fixed budget.
Advantage
 One of major advantage of fixed budget is that its value almost remain same and never
get changed. Hence, firm manager do need to dedicate its special time for formulation of
budget for the company. Other main advantage of using fixed budget is that one just require to take a look at
budget to make sure that it could be used in the company even firm situation change
slightly.
Disadvantage One of disadvantage of using fixed budget is that in case business condition changed at
fast rate it is not possible to make use of fixed budget in the business(Renz, 2016). If it
would be used then in that case wrong decision can be taken in the firm. Zero based budgeting: It is slightly different approach because under this approach
simply no allocations are made to any department until manager present its own
department budget in front of senior managers. There are some of advantage and
disadvantage of zero budgeting which are given below.
Advantage One of major advantage of using zero based budgeting is that under this systematic
approach is followed to prepare budgeting for the company(Whittington, 2011). Hence, it
can be said that in zero based budget projections are highly appropriate to the business.
Disadvantage: One of the major disadvantage of using zero based budgeting is that its process is time
consuming and lengthy. Capital budgeting method: In this approach project evaluation is done and under this
project value method. Some of advantage and disadvantage of capital budgeting method
are explained below:
Advantage
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 Major advantage of using this approach is that projection is made about disbursal that can
be incurred in business project. Hence, planning goes hand in hand with passage of
project duration.
Disadvantage
 Major disadvantage of this approach is that with raise in duration project cost might
increase and it can be arduous task to set up plan in reliable manner which lead to
wastage of time.
P.5.Adoption of administration accounting scheme to answer to financial problems
Financial issues are faced by most of the business corporations and it is the management
accounting systems that are used to respond to financial problems(Scapens, and Bromwich,
2010). Some management accounting methodology that could be utilized to respond to financial
issues are as follows: Key performance indicators: KPI is the one of the most essential tool that is used to
respond to financial problems. Currently, The Ledbury Restaurant is facing financial
issue like less availability of cash in business. In terms of respond to problem KPI can be
used in which actual values can be compared to standards and on that basis it can be
recognised how big is financial issue. According to level of recognised issue steps that
can be taken to solve problem are identified in this firm respond to financial problem. Balanced scorecard: Balanced score card is one of the most essential point of view as
under this process there are four parameters where company performance is measured
and evaluated. These four parameters might be financial, customer and stakeholder,
internal process and organisational capacity(Suomala, and Lyly-Yrjänäinen, 2012). On
these four parameters some targets are determined and actual performance is compared
against targets. By doing so firm performance is evaluated and areas where focus need to
be made like improper management of cash are recognised. In this manners sore card
help firm to respond to financial issues.
 Financial governance: Financial governance is the specific approach to respond to
financial problems. In this approach rules are regulations are already determined and
same demand to be followed while performing task(Ward, 2012). In case someone that is
performing activities related to finance is facing specific problem and make mistakes in
company then in that situation that specific person would be held responsible for its
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mistake and it will response to financial issues. Such type of practice make sure that on
before performing any action will think about it ans will take right action which will
assist firm in solving financial problem that it is facing in its business due to change in a
condition or business performance.
CONCLUSION
On the basis of above communication it is concluded that administration accounting is
the one of the most essential domain that have significance for the firm. This is because in
management accounting there are number of methods that helps managers in measuring
company performance in proper way. It is also concluded that management accounting systems
must be selected by considering number of actors and according to suitability same must be
chosen. It is also concluded that varied reporting methods must be used in the business so that
decision can be made in the firm. Specific system must also be followed to respond to specific
financial problem in terms of manage condition.
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