Detailed Management Accounting Report for Qbic Hotel (Unit 5)

This report provides a comprehensive overview of management accounting principles and their practical application within the context of Qbic Hotel. It begins with an introduction to management accounting systems, including cost accounting, inventory management, job costing, and price optimization. The report then delves into various management accounting reports, such as budget reports, accounting receivable aging, job cost reports, and inventory reports, evaluating their benefits and drawbacks. The core of the report involves a detailed analysis of costing methods, specifically absorption costing and marginal costing, including the preparation of income statements using both methods and the calculation of break-even analysis. The report also examines budgetary control, planning tools, and how management accounting systems respond to and analyze financial problems. It concludes with an evaluation of planning tools and offers recommendations for implementing management accounting techniques to address financial challenges, ultimately aiming to improve decision-making and financial performance within the hotel.

UNIT 5 Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Management Accounting and its different types of systems.............................................1
B. Management Accounting Reports.....................................................................................2
C. Evaluation of Benefits of management accounting system...............................................3
D. Evaluation of management accounting systems and management accounting reporting. 5
TASK 2............................................................................................................................................5
A.1 Absorption Costing and Marginal Costing methods......................................................5
A.2 Preparation of income statement as marginal and absorption costing method................5
B. Calculation of Break Even Analysis..................................................................................7
C. Apply the range of management accounting techniques and produce appropriate financial
reporting documents accurately..............................................................................................8
D. Interpretation of data for business activities as shown in Task 2......................................9
TASK 3..........................................................................................................................................10
A. Advantages and Disadvantages of budgetary control......................................................10
B. Application of planning Tools.........................................................................................11
C. Management Accounting System response to financial problems..................................12
D. Analysis of Management Accounting Techniques used to respond Financial Problems13
E. Evaluation of planning tools to solve financial problems................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting field of finance lays high level of emphasis on the internal
control through the means of several tools and techniques. In simple words, it can be stated that
management accounting includes both financial and non-financial provisions which in turn helps
account managers in decision making. In the following assignment, detailed information is given
about management accounting and its systems in context of Qbic Hotel. Such small sized hotel
unit provides accommodation services to the customers at cost effective prices. This project
report contains various types of accounting reports that are used and implemented by an
organization.
Criticism will also be done on benefits of different types of accounting system with their
techniques such as marginal costing and absorption costing. Moreover, requirements and needs
are contrasted for different types of management accounting. Further, practical aspects of project
are fulfilled by preparing income statement based on calculations of cost, calculating breakeven
point, etc. Last part of project report will highlight suggestions and recommendations for
implementing management accounting techniques pertaining to respond monetary problems.
TASK 1
A. Management Accounting and its different types of systems
Management Accounting could be termed as the process of managing reports and
accounts that are used to provide accurate financial condition of firm which helps in making day
to day decisions in an organisation (Agbejule, 2011). It is also known as cost accounting, a
process of measuring, interpreting, identifying, analysing and communicating information to
managers for achieving organizational goals. This process of communicating information helps
manager of Qbic, a hotel to cope up with changes and to evaluate actual requirement of financial
and non-financial provisions that are used in making decision.
Different types of management accounting system that can be used by Qbic are as follows:
It is a framework which is used to predict the cost of services for analysing profitability,
cost control and inventory valuation. Following are some accounting system such as:
 Cost Accounting System: It is also known as product costing system, it is used by Qbic
hotel to identify the cost of their services for analysing profitability, controlling cost and

evaluating inventory. A firm focus on evaluating profitability of products by estimating
correct cost of the services and products.
 Inventory Management System: It is a system of tracking goods and services through
the whole supply chain or a portion where a business operates (Baldvinsdottir, Mitchell
and Nørreklit, 2010). In simple words, it enables Qbic hotel to see all moving parts of its
operations activity by allowing them to make better decisions and investments.
 Job Costing System: This system tracks the cost, income of job and assists in identifying
profitability in job. Qbic hotel uses this accounting system to allow number of jobs that
are assigned to every individual including items of expense and revenues.
 Price Optimization System: This accounting system uses mathematical tools to analyse
customer’s response to different prices of its products and services through different
mediums and channels. Qbic hotel use this system to determine the best methods of
achieving objectives such as profit maximisation from operations.
B. Management Accounting Reports
These reports provide hotel information for cutting down cost, rewarding high
performing employees and investment in goods that offer the best financial return from
business. Reports could be generated quarterly, half yearly, monthly or on daily basis. Following
are some types of management accounting reports that could be used by Qbic hotel:
 Budget Report: This report provides deeper insight to the management team about the
extent to which budgeted figures are met. This type of report assist management in
analysing business as well as their own department and to control cost (Lee Jr, Johnson
and Joyce, 2012). This report is important for controlling different departments of
organization and to control cost services.
 Accounting Receivable Aging: This is a type of tool for managing cash flow after
extension of credit to business customers. Management team of Qbic hotel can use this
tool to identify problems which are being faced by company's collection process. This
tool will assist hotel in solving problems related to collection process for smooth
functioning of business transactions.
 Job Cost Reports: This reports displays expenses made in finance for a specific project
by business. Qbic hotel can easily match these with the revenue to evaluate job's
profitability. From this, company can identify high earning areas of the business so that

more focus could be made on them instead wasting time and money on areas generating
low profits. This report could be important for Qbic hotel to put efforts in areas which
requires improvement.
 Inventory and Manufacturing: This managerial accounting report is used to make
manufacturing process more efficient (Lusardi and Mitchell, 2011). This is significant in
comparing different assembly lines within business to highlight areas which needs
improvement. C. Evaluation of Benefits of management accounting system
Cost Accounting System
Advantages Disadvantages
 Elimination of Wastes: A good system
eliminates wastes by fixing standards.
 Cost Reduction: Use of new and
improved production methods leads to
cost reduction.
 Identify reasons of profits and losses: A
good cost accounting system highlights
reasons for increasing and decreasing
profits.
 Advises on decisions: By gaining cost
information management could decide
whether to make or buy a product in
open market.
 Price Fixation: Total cost that is
available in the costing records is
useful in fixing up price of a product or
services.
 Decision is taken by management about
future but only past records are
available in costing records.
 Cost data are not so useful as cost of
previous is not same in the succeeding
year.
 Cost may not be accurate if capacity is
partly utilized.
 Can lead to over absorption or under
absorption of overheads.
 Cost accounting system is rigid in
nature, hence cannot serve all purposes.
Job Costing System

Advantages Disadvantages
 Accounting staff can monitor to see if
costs are posted at wrong places to
correct them on the spot rather than
waiting for job closure.
 Company can monitor cost incurred for
longer posts and can make necessary
change before they close (Macintosh
and Quattrone, 2010).
 Cost plus customers are aware in
advance about the costs incurred for
which they can prepare in advance and
pay the additional amounts.
 It pays attention towards products
rather than on departments and
activities.
 Overhead is generally allocated based
on rates that are changed about once a
year.
 It promotes use of standards overhead
rates rather than using actual or requires
adjustment on time according to the
changes.
Inventory Management System
Advantages Disadvantages
 Lowering of costs: By using this
system an organization can cut off all
extra fees to prevent stuffing up of
storage with unnecessary items.
 High Efficiency: Effective inventory
system lead to appraisal of operating
performance which results in more
productivity.
 It also assist in managing adequate
supply of services.
 Further, it reduces duplication of
services.u
 Most inventory control software cost is
very high and a small business fails to
afford those high prices.
 Catching the basic principles of
software is quite difficult and time
taking too. So if an organization fails to
do so it won't work properly.
Price Optimization System

Advantages Disadvantages
 Industry Standard: Pricing according to
the mix of cost of producing the
product is quite easy.
 Price Management : Some managers
price the product to maintain cost
effectiveness of goods and services
regardless of buyers expectations , this
lead the organization to suffer losses.
D. Evaluation of management accounting systems and management accounting reporting
From assessment, it has identified that management accouting systems and reporting is
highly integrated with each other. It is very important for Qbic hotel to translate their effects of
operations into financial information to accomplish goals in a well manner. By quantifying
effects and ramifications of stakeholder’s information, management team can get suitable data
for decision making. It is better to start computerized accounting as it is more efficient and fast
as well, this process is compact also with minimised costs (Marks, Sisirak and Heller, 2010).
Integration helps in standardizing procedures for recording transactions and disseminating
financial information. It interconnects the reporting activities of different functional areas of your
business such as point of sale, stores, back office and front office. Hence, management
accounting reports and systems are integrated to supply accurate information for taking decision.
It is important as well to integrate management accounting system, to avail accurate and specific
information which in turn results in effective decision making. It is very good for an organization
to have an effective decision making power to set standards for procedures of recording
transactions.
TASK 2
A.1 Absorption Costing and Marginal Costing methods
For determining cost and assessing profitability aspect Qbic can use one of the following
techniques such as:
Absorption Costing: Such method focuses on absorbing manufacturing costs by the units
produced. In simple words, it includes cost of finished unit in inventory inclusive of direct
materials and labours. This is also known as full, direct and variable costing as it considers both

fixed and variable expenses while determining production cost. For the determination of
production expenses company considers both fixed and variable expenses. This type of costing is
often needed for external financial reporting and beneficial for income tax purpose.
Marginal Costing (MC): It is the change in opportunity cost that is there due to
increment in one unit of it. At each level of production MC could be calculated as cost of
additional units for producing next unit . Marginal cost includes all costs that vary with level of
output.
A.2 Preparation of income statement as marginal and absorption costing method
Particulars Amount Amount
Revenue 33000 33000
material 5600
labour expenditure 4800
Production expenditure
(variable) 1600
Sales expenditure (variable) 800 12800
Less: closing balance of
inventory
Direct material 1400
Direct labour 1200
Production expenditure
(variable) 400
Sales expenditure (variable) 200 3200
Cost Of Production (per unit) 9600
Less: Fixed cost 23400
Overheads (Production) 3200

Fixed administrative
expenditure 1200
Fixed selling expenditure 1500
5900
Net income 17500
Absorption Costing
Particulars Amount Amount
Total Income 33000 33000
Direct material 5600
Direct labour 4800
Production expenditure
(variable) 1600
Sales expenditure (variable) 800 12800
Less: Closing balance of
inventory
Direct material 1400
Direct labour 1200
Sales expenditure (variable) 200
Less: Sales expenditure
(variable) 600 3400

Less: Absorption of Overheads
(Fixed)
Cost of manufacturing 9400
Per unit contribution 23600
Less: fixed cost
Overheads (production) 3200
Fixed administrative
expenditure 1200
Fixed selling expenditure 1500 5900
Net Income 17700
B. Calculation of Break Even Analysis
Break-Even analysis
Particulars Formula Figures
Selling Price (per unit) 10
Variable Cost (per unit) 13
contribution (per unit)
Fixed expense
Break Even Point (in units)
Selling price per unit
Variable price per unit
Fixed cost/ contribution per
unit
27
6000
222
Break Even Point (in value or
monetary terms)
Break Even Point (in units) * 8888.8888

selling price per unit 888889
Units need to sell for attaining desired profit margin
Particulars Formula Figures
Fixed Expenses 6000
Desired profit 10000
Contribution per unit 27
Number of units required to
sell
Fixed cost + desired profit
margin/ contribution per unit
592.59259
25926
Margin of safety Actual Sales-Break-even
point/Actual sales
0.72
C. Management accounting techniques and appropriate financial reporting documents
From- MOA
To- GM
Subject- Giving information about approving management accounting technique which are
needed to be implicated.
Sir,
With context of interpreting valuable information which could reflect high creativity and
proper allocation of costs. Marginal and absorption costing are two types of management
technique which will help system in identification of required profits for Qbic hotel. Hence, in
this case procedure of absorption costing will be proper in order to get best results because it

dwells all cost that is incurred while doing production of units. Moreover, there are many
methods which are helpful to the management accounting techniques like:
1. Cash flow statements, historical checking
2. Analysing the financial accounts
3. Financial accounting
4. Communicating the information etc.
5. Review of the accounts.
By adopting both the methods it is clear that marginal costing profit of Qbic Hotel is
relatively low as compared to absorption costing. There is a profit of 17,700 absorption costing
and 17,500 in marginal costing techniques. Hence, it can be said that use of absorption costing
is much more fruitful to organization. It is a full cost method which shows the competent net
profit (Rioux and et.al., 2010). In marginal costing, all the uncertain expenses are taken into
consideration like direct labour and production overhead direct material. In absorption costing
method all fixed as well as variables expenses are taken into account. There are various
reporting techniques which are to be implemented in the organization are as under
 cash flows
 start up costing
 Balance sheet
 Budget and forecast table.
Thank you
D. Interpretation of data for business activities as shown in Task 2
Marginal Costing
By using and utilizing this method it is assured that Qbic Hotel does not encourage much
net profit generation. The profit that is attained by them in marginal costing method is 17500
which is relatively less than other technique being used. As this method move with the operation
of variable costs only and therefore do not consider any kind of fixed expenses while calculating.
Absorption costing