Management Accounting Report: Interactive Investor Analysis

This report provides a comprehensive overview of management accounting principles, focusing on their application within a company called Interactive Investor, a medium-scale private organization. It explores the core concepts of management accounting, highlighting its distinction from financial accounting, and delves into various management accounting systems such as cost accounting, inventory management, price optimization, and job accounting. The report examines the integration of these systems within organizational processes, emphasizing their role in planning, organizing, monitoring, and controlling business functions. It further details different types of management accounting reports, including budget reports, accounts receivable aging, inventory manufacturing reports, and job cost reports. The report also analyzes different costing techniques, such as marginal costing, and discusses the application of budgetary control tools. Finally, it compares how different organizations use management accounting to address their financial issues, providing valuable insights into the practical application of these concepts.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Meaning of managerial accounting and essential requirements of various management
accounting systems......................................................................................................................3
P2 Different management accounting reports..............................................................................6
LO2..................................................................................................................................................8
P3 Calculations of costs using different costing techniques........................................................8
P4 Various tools for budgetary control........................................................................................4
P5 Comparison of ways in which management accounting system responds to financial
problems of organizations............................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is defined as a procedure of developing reports and document
which are related to financial information with a motive of assisting the internal management of
a company in their decision-making. This branch of accounting is applied by the business
organizations for measuring company's success or failure and scrutinizing whether the business
has been efficient enough in meeting organizational goals and objectives (Trigo, Belfo and
Estébanez, 2016). Different techniques of managerial accounting is applied by the managers for
the purpose of determining the profitability of each of the activity of business.
The present report is about a company called Interactive Investor which is a medium
scale private organization that offers direct to investor services. The company is based in
Manchester, United Kingdom. The report will highlight concept of management accounting
system along with how it is different from financial accounting. Management accounting have
several types of systems which will be covered in this report. Further, application of marginal
and absorption costing techniques will be covered, advantages and disadvantages of different
planning tools will be discussed. Lastly, a comparison will be made regarding how various
organizations employs managerial accounting for the purpose of solving their financial issues.
LO1
P1 Meaning of managerial accounting and essential requirements of various management
accounting systems
Management accounting is considered as a field of accounting which is involved in
determining, measuring, evaluating, analysing and reporting the information of financial nature
to the managers for aiding them in attaining the organizational objectives. This process of
accounting involves determination of cost behaviour of company's offerings, product costing for
the manufactures, preparation of budgets which acts as a base for crucial decision making within
the business, pricing of products/services, investment appraisal by the way of capital budgeting
etc (Shields and Shelleman, 2016)
Difference between managerial and financial accounting
Basis Managerial Accounting Financial Accounting
Purpose It is applied for the purpose of It is applied by company for

helping the internal management
in its process of decision-making
preparation of financial
statement for communicating to
the interested stakeholders of
business (Difference Between
Financial Accounting and
Management Accounting, 2018)
Mandatory It is not mandatory and is solely
used for making decisions.
It is compulsorily required by
the law.
Kind of
information
It facilitates both monetary and
non monetary information
It provides only monetary
information.
Different kinds of management accounting systems
Management accounting facilitates various kinds of systems, the application of which
significant allows Interactive Investors in its cost accounting, deciding pricing strategies, etc.
Below are the different managerial accounting system:
Cost accounting system:
It is referred to as a system which is concerned with identification and analysation of all
the costs involved in manufacturing a product or services, performing of any process or any
undertaking any project. Interactive Investors applies this method for keeping the track of
movement of raw materials from one operation to another.
Benefits and requirements:
Interactive Investors applies this management accounting system because it aids in
reassuringly and improving the operational efficiency. It helps the management in controlling the
costs of operation and contributes significantly in company's decision-making process (Phan,
Baird and Su, 2017).
Inventory management system:
Inventory management system is a process of keeping a track on the movement of
materials and other inventory from store to production area. Interactive Investor, by the
application of this system, manages its inventory level optimally through which its production

process takes place very smoothly. There are several ki8nds of inventory management system
such as :
 LIFO: It stands for Last In First Out wherein the goods which are purchased currently are
assumed to be sold first than the goods purchased at older date.
 FIFO: Its an abbreviation which stands for First In First Out and is a method of inventory
valuation which assumes that goods which are purchased at the oldest date are sold first
and accordingly the value of inventory is recorded. Just in time purchase: It is such a system of inventory management wherein Interactive
Investor schedules its inventory for goods, labour or material exactly at that time when
the need for such inventory is demanded or occur (Just in Time (JIT), 2019).
Benefits and requirements:
The primary advantage of this system is minimization of costs related to material
handling and carrying costs of inventory. The immediate effect of such system is on reduction in
the working capital requirements of Interactive Investors. It further eliminates the manual record
keeping of inventory data which in turn offers higher level of operational efficiency within the
business.
Price optimization system:
It is a system wherein mathematical model is used by Interactive Investor for analysing
the responsiveness of customer in relation to different sets of prices of products/services. In other
words, it refers to a process of determining such a spot for a price at which consumers are willing
to pay. This is also that price level which yields the maximum profits for the company (Chan,
2015).
Benefits and requirements:
This system is required by the Interactive Investors for the purpose of finding the most
appropriate price for its products. This is necessary because inappropriate fixation of prices could
lead to a situation where firm starts making losses. Thus, the advantage of price optimization
system is that it allows the management of Interactive Investors in scientifically sets its prices
which contributes to the success of the firm in long run.
Job accounting:
It can be described as a system of recording and analysing the cost of a particular job
instead of a process. The application of job costing system within the business of Interactive

Investor allows the managers in keeping the track of a specific job in terms of its profitability,
fund consumption and efficiency.
Benefits and requirements:
The benefits of this managerial accounting system includes facilitation of cost control,
determination of profits made by each job. Also, it allows Interactive Investor's management in
finding out of wastage and unnecessary expense more easily and conveniently through which
they are controlled with much more effectiveness (Ahmad, 2017).
Integration of different management accounting system and reporting within
organizational processes
Management of Interactive Investor company cannot imagine exercising its planning,
organ sing, monitoring and controlling functions without the application managerial accounting
and its reporting. For optimally and rationally decision-making, managers requires strong and
sound base and managerial accounting for this purpose is considered to be the most suitable tool
as it offers them with qualitative and quantitative information. Integration of management
accounting with [planning and controlling processes of company offers accurate forecasting for
the business. For example, preparation of budgets helps the management in finding out the
loopholes and efficiency of organization's actual performance. This in turn aids the managers in
identifying the root causes behind such deviation through which they become able in formulating
more effective strategies for meeting the future dynamic demands of the business (Krishnan,
2015). Thus, it can be said that integration of management accounting and its reporting is very
essential for the purpose of attaining overall efficiency, productivity and profitability of the
business.
P2 Different management accounting reports
Management accounting report are defined as the document which consist of detailed
analysis of company's financial information. Such reports are continuously prepared by the
management accountant of Interactive Investors throughout an accounting period (McVay,
Kennedy and Fullerton, 2016). The purpose of generating these managerial reports regularly is
for their utilization in planning, regulating, evaluating performance and decision-making process.
Below are some characteristics of management accounting system:

Understandable : The reports generated by the way of management accounting system
must be simple to understand by the management of company because such reports have direct
impact on the significant decision-making for the entire organization.
Reliable: The information provided management accounting system report must be
reliable. It means the quality of the information upon which the decision-making process of
company could rely with utmost confidence (Characteristics of Good Management Accounting
Information, 2019).
Relevance: The information obtained through management accounting system must be
relevant for the managers in their decision-making. Management accountant must keep in mind
that no irrelevant information are passed to the managers which could deviate from
understanding and using material facts and information required for quality decision-making
(Langfield-Smith and et.al., 2017).
There are various kinds of management accounting reports which are discussed below:
Budget reports:
These reports are considered as the most fundamental report and is generated by almost
every kind of business. Interactive Investors prepares this reports for the purpose of
understanding and controlling the expenses of the business. With the help of these reports,
managers are able to forecast the expenses and costs for the subsequent years through which they
gets the privilege of cost cutting in their operations. The overall aim of preparing budgetr is to
make the activities of business cost effective.
Account receivable aging:
Account receivable aging reports offers the detailed information about the credit balance
according to the maturity period. These are prepared for the purpose of helping the managers in
adjusting the credit allowance policies of the company. The ultimate effect of such report reflects
in a sound credit policy which is developed keeping in mind the repayment capabilities of
company's customers.
Inventory manufacturing report:
These reports are prepared by Interactive Investor for making the production process
more effective and efficient. Inventory reports usually includes inventory waste, labour related
informatory, per unit cost, overhead etc. Such reports are used by the managers in comparing the
different assembly lines for the purpose of highlighting the areas where improvements can be

made for the making the inventory operations highly efficient (McWatters and Zimmerman,
2015).
Job cost report:
Job cost reports reveals the costs or expenses associated with a particular project or a
specific job. These expenses are matched against the revenues that will be generated during an
accounting period with a motive of evaluating the profitability of a job. Such reports enable the
managers of Interactive Investor in assessing those jobs which are highly profitable on which
more resources could be assigned. Also, underperforming jobs are assessed for which decision
relating to it continuance or discontinuance is taken.
LO2
P3 Calculations of costs using different costing techniques
Cost is defined as the monetary value or expense which the business organization has
incurred for producing or creating a product or service. Cost is broadly divided into three
segments such as :
 Fixed costs which are those specified expenses that will be incurred irrespective of
change in the production level.
 Variable costs are such costs which tends to vary with the change in activity level of a
firm (Leitner and Wall, 2015).
 Semi variable costs are those costs which up to a certain level remains fixed and by the
time it crosses that certain level, such costs tends to vary with the change in productivity
activity of business.
Marginal costing
The marginal costing is a procedure of measuring, identifying, preparing,
communication, analysing and interpreting of management information adopted in order for
evaluation, controlling and planning in a business. Also, marginal costing assure an
appropriate use of their available resources. For shareholders, regulators, creditors companies
prepare financial report in management accounting. The marginal cost is comprises to produce
one addition unit in addition to the cost (Machado and Alves, 2017). It is a powerful technique
as it provide aid to decision making of managers in a business entity. It is helpful for businesses
to set price and to compare different methods of production. This cost is a procedure of tracking
all the variable cost and fixed cost of production.

Absorption costing
The absorption costing is cost ascertaining technique. This practise charges both fixed
and variable cost. The absorption costing comprises direct cost added to cost of overheads. The
fixed cost of production is absorbed in unit cost and this further carried forward in accounts of
inventory which is to be charged against sales.
Cost of production per unit ( Marginal costing)
Cost of production per unit ( Absorption costing)

Income statement for the month of May ( Marginal costing)
Income statement for the month of June ( Marginal costing)

Income statement for the month of May ( Absorption Costing)
Income statement for the month of June ( Absorption Costing)
1

Interpretation: It can be noted from the above calculations that there is difference
between the net profit calculated under both the methods. The reason for difference is the way,
closing and opening stock has been valued under both the costing techniques. In marginal
costing, only variable expenses were considered for valuing the opening and closing stock. This
means that stock was valued at the rate of 16. While on the other hand, opening and closing stoc
under absorption costing were valued at the rate of 29.33. This is because this method considers
both fixed and variable costs in identifying per unit cot of production.
Calculation of material variance
Budgeted cost per unit 2kg @ £ 10kg
Actual units = 1000 units
Budgeted cost = 2*10*1000 units
= £ 20000
Material variance
Budgeted amount
(£)
Actual Amount
(£)
Variance
(£)
20000 20900 900
Interpretation:
It can be observed that actual material cost incurred by the company is £20900 which is
higher than the budgeted cost which was £20000. The variance identified is of £900. Such deviation
signifies that company has not been able to incur expenses within the limit set for it. This in turn reveals
that organization has acquired the material at higher cost that was expected.
LIFO and Weighted Average Method
2