Management Accounting Report for Agmet: Task 1, 2 and 3 Analysis

This report is a comprehensive analysis of management accounting principles applied to a chemical company, Agmet. It explores various types of management accounting, including job costing, inventory management, and cost accounting systems, along with their advantages. The report delves into the importance of management accounting reports, such as accounts receivable/payable aging reports and budget reports, and their significance in decision-making. It contrasts absorption and marginal costing methods, illustrating their application through profit and loss statements and break-even analysis. Furthermore, the report examines budgetary control techniques, compares Agmet's management accounting system with a competitor, and evaluates the use of planning tools in addressing financial problems. Overall, the report provides a detailed understanding of management accounting practices and their impact on business performance.

MANAGEMENT
ACCOUNTING L4

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Representing types of management accounting with its essential requirements...................1
B. Representing management accounting reports and their importance to management...........3
C. Representing advantages of mentioned system in A..............................................................4
D. Evaluating Integrated management accounting system.........................................................5
TASK 2............................................................................................................................................6
2.A Representing absorption and marginal costing method.......................................................6
2.B representing profit and loss statement on basis marginal and absorption costing................6
B. Calculation of break even point and Margin of safety...........................................................7
C. Representing significance of producing appropriate financial reporting documents.............8
D. Representing appropriate interpretation of data of business activities in above scenario......9
TASK 3..........................................................................................................................................10
A. Representing advantages and disadvantages of various types of planning tool for budgetary
control.......................................................................................................................................10
B. ..............................................................................................................................................11
C. Comparing the application of management Accounting system in Agmet and its
competitor British Chemical Product .......................................................................................12
D. Use of management accounting system for responding to financial problems....................14
E. Evaluation of planning tools to solve financial problems...................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting plays very vital role for every business entity as it helps in
organizational growth and to sustain in this competitive world. The present study will discuss
about its types along with essential reports. This report will be providing understanding on this
concept by considering a SME as Agmet (Chemical company). It will cover managerial reports
which are mandatory for organization to attain success. Further, it will represent application of
various range of techniques with their numerical analysis. This report will discuss about Break
even point and margin of safety for recovering its initial cost of investment or to earn profit. In
the similar aspect, various planning tools will be discussed for budgetary control with its merits
and demerits. It will elaborate application of planning tools for analysing, forecasting budget and
will give comparison on basis of approaches for responding financial problems. Last but not
least, it will provide appropriate evaluation of these techniques for attaining sustainable success.
TASK 1
A. Representing types of management accounting with its essential requirements
Accounting is referred as summarising, classifying and recording each transaction on
basis each financial transaction. Management accounting is one of the most important parts of
accounting and other one is financial accounting. It is the process of performing appropriate
analysis of business operations and costs for preparing internal financial report, accounts and
records which help manager in process of decision making to accomplish its business objectives.
In the similar aspect, financial accounting is a special branch of accounting which consists of
proper record of each transaction. It has an application of standard guidelines while recording,
presenting and summarising transactions in financial or report like statement of profit and loss
and balance sheet (Nuhu, Baird and Bala Appuhamilage, 2017). The types of management
accounting are stated as below:
Job costing system: It is the method of tracing specific cost of manufacturing job instead
of process. It is the methodology of accounting which is used for tracing expenses of producing
unique product. The forms of job costing consist of spaces such as direct material, labour and
overhead. Information on the basis of production and service job might be required for
submitting cost information to particular customer. The accuracy of estimating company's
system has been determined through this information. For instance: designing software program,
building construction and cost of manufacturing small batch of products.
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Inventory management system: It is the combination of procedure and technology
which oversees maintenance and monitoring products which are stored such as company assets,
supplies and raw materials are ready for passing it to vendors and end customers. A whole
inventory management system comprises for determining each component of inventory along
with its linked information like asset tags or barcode labels. The software of inventory
management gives central database along with point of reference to inventory gathered with
capability for producing reports, analysing data and to predict future demand. The process of
documenting, labelling and reporting are also included in this with important technique such as
First in First Out (FIFO), Just in time (JIT), stock review and many more.
Cost Accounting system: It is an internal reporting system which is used for the process
of decision making in business Agmet. This framework is used through organization for
estimating particular cost of products for the purpose of inventory valuation, cost control and
profitability analysis. It comprises of actual, standard and normal costing (Honggowati and et.al.,
2017). Actual cost: It is replicated as an actual expense which is performed for acquiring asset
which consists of supplier-invoiced expense along with delivering cost, testing and
setting asset. The approach of actual cost is unique with application of estimates for
deriving cost which might incur in the future.
 Normal cost: This cost is applicable for the valuation of manufactured products along
with actual direct labour and material cost as well as overhead of manufacturing is
predetermined on its rate.
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Illustration 1: Basic Cost System
(Source: Cost Accounting system, 2018)
 Standard cost: It is practice for substituting expected cost for actual on basis of
accounting records and traces variances of periodically which reflect difference among
actual and expected cost.
B. Representing management accounting reports and their importance to management
Management accounting reports are applicable for regulating, planning, measuring and
decision making about the performance. These reports are produced on continuous aspect
throughout accounting period according to its requirements. There is the presence of various
critical decisions which are fully dependent on authenticity of specific reports. It should be
analysed through reports for highlighting specific patterns and for conversing in useful
information for Agmet (Accounting reports, 2017). There are various types of reports which are
stated as below:
Accounts receivable ageing reports: This report is vital for business who is heavily
reliable on extending credit. The remaining balance has been broken for its clients in specific
duration where managers are allowed for determining its defaulters along with problems in
process of company collection (Novas, Alves and Sousa, 2017). In this scenario, there are
various defaulters and so, organization might need to fulfil transformation to tighten the policies
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of credit along with critical operations of Agmet. There is always some bad debt which must be
written off for owing. It helps in ensuring about presenting right information and in process of
decision making.
Accounts Payable ageing reports: It is referred as a specific tool which organizes
balance of business accounts payable which has been owed to vendors. The debt comprises
supplies, services and inventory which has been purchased for performing operations in Agmet.
It tracks information about creditors along with time and amount owned through debts. Debt
handling has been performed in the easiest and concise manner. This report helps in reducing
ambiguity and requirement of appropriate clarification.
Budget Report: This accounting report is a critical tool for measuring financial
performance of the organization. It might be generated on yearly, quarterly, half yearly or
monthly basis. Generally, these are produced department wise for big organization but Agmet is
a SME and so, it is formed on basis of whole entity. It is prepared on the basis of experience as
good budget always serves for unforeseen circumstances which might arise. Each source of
expenditure and earning has been listed in Agmet and tries for accomplishing its mission and
objectives to stay with specific budgeted amount. The main importance of this report is that it
guides managers for offering incentives to its employees and to cut cost with suppliers and
vendors as well.
C. Representing advantages of mentioned system in A
Cost accounting system
 The cost could be controlled with application of techniques like budgetary control and
standard costing.
 It helps in giving importance about cost to management for controlling, implementing
and planning.
 The cost reduction programs are implemented and introduced with this system.
 The total per unit cost of production has been ascertained along with fixing selling prices.
 The profitable and non profitable activities are disclosed which helps in enabling
management for substituting or to control activities of loss. It also develops and expand
marginal activities.
 The reliable information and data had been provided and comparison of cost among
period and processes are enabled (Ammar, 2017).
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 The accuracy of financial accounts had been traced with appropriate preparation of cost
reconciliation statement.
 It is beneficial for financial and investment institutions with proper disclosure about
financial position and margin where investment is intended.
Job Costing system
 It helps in proper allocation of cost to its separate operations and to extract profit margin
on each job.
 This system enables for assessing employees performance of Agmet. Sufficient
information has been given for evaluating data of individual performance in context of
efficiency, cost control and productivity.
 The expenses which are incurred on every job of Agmet had been accessed during
process of manufacturing chemicals.
 It is most flexible for extracting particular indirect cost like overhead of manufacturing.
 The most accurate system on basis of specific criteria which directs particular kind of
cost towards proper accounts (Job costing, 2018).
Inventory management system
 The inventory has been managed on active aspect helps in increment of sales.
 Information transparency is improved within organization.
 The practices of effective management of inventory helps in reducing outcome of
inventory write-offs along with cost of lower inventory holding.
 The update of real time inventory has improved flow of goods to its customers. In short,
delivery performance is improved.
 It helps in increasing inventory turnover, customer loyalty and employee efficiency.
 Effective inventory management provides accurate planning and stock out is reduced
(Benefits of effective Inventory Management, 2015).
D. Evaluating Integrated management accounting system
The process of disseminating information of finance and recording transaction has been
standardised with integrated management accounting system. The reporting activities of various
functional areas of business are interconnected like stores, point of sale, front office and back
office. The input and output of information is streamlined with functions of financial reporting
and management accounting. The speed, efficiency and accuracy has been enhanced with this
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specific adaption for processing financial information. In simple words, it simplifies
bookkeeping and accounts and substitutes complicated and tedious activities of reconciliation.
This system is basic necessity not choice as in this present scenarios, complexities are growing in
the world of modern business. There is huge demand of efficiency system for increasing the
performance of Agmet (Van der Stede, 2017).
TASK 2
2.A Representing absorption and marginal costing method
Absorption costing: This method could be stated as managerial cost method of expenses
related to cost of manufacturing of particular product. It engaged with application of cost of
direct and overhead on basis of product manufacturing on cost base. This is basic method which
is required by GAAP (Generally Accepted Accounting principles). Generally, it is absorbed
through generated units or it could be interpreted that cost of finished unit on basis of inventory
will consist of variable and fixed manufacturing overhead. It is fully contrasted with direct or
variable costing. With context of this costing, fixed manufacturing overhead cost is not assigned
with products which are manufactured. It is very important for process of decision making and
essential for income tax and external financial reporting.
Marginal costing: It is used for thorough understanding of various classes of cost on
basis of alteration in level of activities. This technique charges specific unit to cost as variable
while fixed cost for duration is fully written off from its contribution. This costing implies with
involvement of additional cost for generating extra unit of output as it could be reckoned through
allocation of total variable cost to single unit (Goddard and Simm, 2017).
2.B representing profit and loss statement on basis marginal and absorption costing
Income statement on basis of Marginal costing
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Income statement on basis of Absorption costing
B. Calculation of break even point and Margin of safety
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C. Representing significance of producing appropriate financial reporting documents
In the task 2, appropriate financial reporting documents are produced on basis of both
marginal and absorption costing method. With context of absorption method fixed cost are raised
with objective of production. The inclusion of these fixed cost for appropriate valuation of
ending stock is justifiable. The absence of fixed cost in inventory valuation, imaginary loss is
reflected in books of accounts when goods are not yet sold and replicated huge margin when
goods are sold. There is presence of fewer fluctuations in margin during constant production but
movement in sales. The cost and revenues are matched which is referred as proper match.
On basis of marginal costing, it's operations are very easy for understanding aspect. For
purpose of cost of production, fixed cost are not included which ignores misleading and
complicated statements (Lasyoud, Haslam and Roslender, 2018). Further, margins are not
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overstated because of absence of absorption of fixed cost on unsold inventory. The decisions
could be qualitative through management on basis of details of contribution. Fixed expenses are
not dealt out on arbitrary aspect.
In the similar context, Break-even is mandatory for perfect business plan as it identifies
cost structure and units which are required to be sold to recover its initial cost or to make margin.
The margin of safety is replicated as variation among break-even and actual sales. It reflects
about amount of revenue decreased will be giving outcome in break even. Generally, high MOS
decreases risk with context of business losses.
D. Representing appropriate interpretation of data of business activities in above scenario
The above business activities has been framed in generating financial reports on basis of
marginal and absorption costing. It has also justified break even and margin of safety on business
aspect. The net income from marginal costing has been extracted as 17500 and from as it had
classified cost in fixed and variable category. This technique has facilitated recording of cost and
reporting as well. Main issue is on basis of segregating semi variable cost in elements of fixed
and variable which could be overcome by adopting any other method in this context.
On its contrary, implying absorption costing method has extracted net income of 17700
which is higher than method of marginal. This process had signified process which consist of
overhead in total cost of particular product. The cost of product is combination of both fixed and
variable production cost. It is also known to management for preparing invoices, sending
quotations, determining margin and to plan for future for various other costing objectives. In this
calculation, fixed cost are considered for recovering it from its customers. Hence, there is more
production as compared to sales and huge margin is extracted in absorption costing because of
valuation of closing inventory consists of fixed cost portion of specific period and shifted in next
duration.
Further, its financial reports had stated break even point in units and sales as well. It must
sell 222 units for reaching to break even and its sale revenue is extracted as 8888.89. In the
similar context, to earn profit of 10000, it has requirement of selling 593 units. This report has
extracted MOS as 0.722 when 800 units are sold (Lindholm, Laine and Suomala, 2017).
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TASK 3
A. Representing advantages and disadvantages of various types of planning tool for budgetary
control
According to CIMA, Budgeting is referred as process for preparing detailed financial
statements which helps in recovering cost in specified duration in the future.
Operational budget: It is replicated as financial plan which is designed for helping to
accomplishing debt obligation of Agmet and to sustain growth over time. With creation of this
budget, it allows organization to observe spending of money and areas with huge requirement of
cash at most. The dependency of revenue figures of Agmet maintains particular budget as it
could be time consuming but inclined towards mistakes.
Advantages
 It keeps track of whole business which reflects spending and predicted money which is
going to be earned.
 The issues could be examined through managers about requirement of current or future
budget.
 This reports help in preparing financial responsibilities. It indicates monthly expenses for
business perspective as owner or manager has gained opportunity for recovering its
expenses.
 There are fewer chances about accurate budget for purpose of financial
misunderstandings.
Disadvantages
 There is presence of various complications about federal tax. In simple words, it provides
negative effect on Agmet at the time of paying taxes. Close attention has been paid to
through IRS at time of posting financial loss at each year.
 The information related to finance changes on monthly aspect as revenue projections are
accomplished through business or not. If operational budget does not alter in these
conditions for reflecting figures of new income or forecasts consist in operational budget
are inaccurate.
 The inaccurate projections might lead to shortfalls of cash and incapability for meeting its
financial obligations.
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