Management Accounting Report: Methods, Benefits and Analysis

This report delves into the realm of management accounting, analyzing its core concepts and practical applications within the context of Hewland Engineering Limited. It begins by defining management accounting and its system, highlighting various types such as price optimization, inventory management, job costing, and cost accounting systems. The report then explores different management accounting reporting methods, including budget reports, performance reports, and inventory management reports, alongside their benefits. Furthermore, it evaluates the integration of management accounting systems and reporting within organizational structures. The report also covers the preparation of income statements using both absorption and marginal costing techniques, providing detailed calculations and working notes. Finally, it examines the application of management accounting techniques, such as activity-based costing, and discusses the benefits and weaknesses of various planning tools in budgetary control, offering a comprehensive overview of management accounting practices and their impact on business operations.

Management Accounting

Table of Contents

INTRODUCTION
In past (around 150-200 years back), private organisations experience the need of an
internal accounting system to supervises and control the internal environment of a business
organisation in order to ensure their existence in the market. For this, a practice which is evolved
commonly known as managerial accounting. Such accounting technique provides information to
the managers so that they can be assisted in making decisions and planning for achievement of
organizational goals.
For better understanding of management accounting, a famous engineering company
Hewland Engineering Limited has been selected in this report. The company is founded in
1957 by Mike Hewland in Maidenhead, England and conducts its business in automotive sector
specialises in racing-car gearboxes.
This report covers definition and various aspects of MAS, knowledge of MA reporting,
budgetary tools as well as such system helps the company in solving various financial problems
within its working environment and assist in answering to such issues. This report provides the
various methods that may help in estimating and analysing future business conditions in
organizational context.
ACTIVITY 1
P1. Management Accounting System and its various kind:
Management Accounting: It may be defined as collection, documentation, abstracting,
evaluating and supervising the data to assist the management (for maintain sustainability in
functioning of the entity to attain its target. Management accounting may be defined as technique
which is utilised by the management of an entity to be able to take effect of its internal
operations and functions. The essential task that a management accountant of an entity has to
accomplish are planning, organizing and supervising activities of the firm (Serena Chiucchi,
2013).
Management Accounting System: MAS may be defined as approach that includes
creation of several documents and estimations of company's future requirements for assisting the
managers. With help of MAS, Hewland Engineering limited can prepare its income statements at
each year end. An entity may utilise distinct kinds of MAS that are as follows:

Price Optimisation System: It is a technique that assist in understanding that how the
potential consumer will behave on several quotations for a specific commodity. Price
optimisation system helps in choosing best price which is satisfactory on both behalf (i.e.
company and customers). Respective organization utilises such technique to fix amounts of
several products in market as per several circumstances for its potential consumers.
Inventory Management System: This type is evolved to maintain and manage the most
essential source of organizational income viz. the inventory or stock of products. It keeps record
of raw material, WIP, finished goods dispatched for delivery, sales return and goods on
consignment, etc. The management of respective enterprise may be capable in selecting
appropriate method for inventory valuation, these are as below:
 LIFO: In such valuation method, closing stock are valued based on price of last inventory
purchased.
 FIFO: In technique, inventory is valued on the basis rate of first inventory purchased. Weighted average method: In this method, company divides the total cost of goods
available for sale with number of quantity available.
Job Costing System: Such type of MAS is used by an enterprise for a specific job in
calculating the cost of such particular job by adding all the costs such as materials, labour and
overheads (Lindholm, Laine and Suomala, 2017). In other words, it may be said that Job costing
system act as a tool in an organisation for tracing costs related to individual’s jobs and evaluate
the performance of such job to reduce the costs of all future jobs. For example, an enterprise may
produce custom made machines as job A and It may construct custom-designed buildings as job
B.
Cost Accounting System: It is a type of MAS that helps a manufacturer to find and
measure several costs in manufacturing process. Cost accounting system helps the company in
estimating the correct cost of its products because it is very essential to control the cost for better
profitability. The management of Hewland Engineering Limited utilises such type of MAS for
estimating the expenses of its products and calculate the profit of the organization. A company
by implementing such can reduce its costs related to manufacturing process that may be used for
improving its several business operations (Stechemesser and Guenther, 2012).

P2. Different method used for Management Accounting Reporting:
Management Accounting Reporting: It covers evaluation, analysis and verdict
preparing technique with benefit of data furnished by the management and statements. This
process gives a opinion of operational structure to the executive managers to implement several
plans. The main function of these reports is to calculate variance between real and estimated
budgets or outcomes. In business environment, several reports utilised by staff of Hewland
Engineering limited to develop management reporting system. Few are as follows:
Budget Reports: It consists information regarding several business activities of an
organisation and accordingly preparation of various budgets for different activities of various
department. It helps the company in comparing its actual results of business activities with such
budgeted report and assist in improving its efficiency and effectiveness. This report contains
routine income and revenues information, rigid and elastic costs, net worth of the organisation,
including assets and liabilities. The executive managers of chosen entity are capable to measure
adverse or favourable variances (deviations) with help of such report and determine the action to
be taken according to each circumstances. Budget report provides way the board to minimise
expenses. It also assists in moderating or updating standards in budgets, if required.
Performance Reports: This report provides about the performances of its various
business activities along with its working staff to the board of directors. With the help of such
report, an entity's executive managers may assess the weaknesses and strengths of its current
business activities and accordingly it makes take sufficient and appropriate actions within the
internal environment of an entity. This may in various types according to the need of the
organisation such as progress report, forecasting report, trend report and so on.
Accounts Receivable Reports: Such report assists the company in providing information
related to its account receivable (debtors) that are very useful for evaluating the performances of
its debtors. It provides the details that how many amount is pending from the debtors after the
due date and also provides details about amount of interest which a company shall require to
recovered from the it accounts receivable due to delayed payments (McVay, Kennedy and
Fullerton, 2016). Such report provides the details about unpaid debtors list along with utilised
cash memos and it may be defined as collection tool for management personnel.
Inventory Management Report: For further move, process of inventory management
system, this report is prepared. Information and estimations delivered by the system provides a

base to compare standards and actual condition of inventory available. In case of selected firm,
this report boost up the sales of the organization by increasing production level and quality. The
management is capable to deal with external stakeholders such as customers, government and
investors confidently by preparing such report.
Trend Analysis and Forecasting Reports: Such reports generally contain data regarding
the market related to current trends and patterns that are usually in demand and comparing with
company's current position in the market. It also determines the reasons behind these variances
so that a business enterprise may eliminate or mitigate such cause to stop such variances in the
future business operations.
M1. Benefit of management accounting system in organizational context:
Various accounting system Advantages
Price optimisation system  It assists management in analysing the attitude of
customers regarding different prices of products in
Hewland Engineering Limited.
 It helps in classification of consumers as per their
reactions regarding price level.
 Managers may enhance company's profits by
implementing this in the organisation.
Inventory Management System  It supports respective firm to increase the satisfaction
level of its potential consumers by producing good
standard products.
 It escalate the effectiveness in administration of
merchandise and in prevent space and other key
resources.
Cost accounting system  In Hewlend Engineering Limited, this system
increases the effectiveness of its production process
and helps in cost reduction and cost control by
eliminating non value added activities.
 It assesses the correct cost of its products to increase

the profitability of company.
Job Costing System  It helps Hewlend Engineering Limited to estimate
correct cost related to particular job.
 Job costing system provides company the benefits of
being capable to maintain path of individuals' and
teams' execution power and reward them accordingly
(Schaltegger, 2012).
D1. Evaluation of management accounting systems and management accounting reporting
integration inside organisational systems:
In the absence of MAS, administrative records are useless papers. By utilizing these
records, company has not able to create successful structure with the goal that these may be
utilized for the success of company. MA reporting gives assistance in breaking down execution
of various factors and discover error and create essential framework. Such framework helps in
establishing in accomplishing high execution and increase the profits of company (Schaltegger,
2012).
P3. Preparation of income statements using absorption and marginal techniques:
A business organisation may have prepared its income statements by two methods given
as under:
Absorption costing: In this technique of management accounting system, all the cost
which a company incurred is considered whether it is relevant cost or irrelevant cost. In
absorption costing, fixed cost and historical cost is also considered (Flamholtz, 2012).
Marginal costing: This is method in which only relevant cost which is responsible for
manufacturing the particular product is considered. In marginal costing, fixed cost is considered
for amount which is remain after reducing variable cost from sales.
Income statement by marginal costing techniques:

Income statement by
absorption costing method (1st quarter)

Working note:

Income statement by absorption costing method (2nd quarter)
SALES (3000*95) 285000
COGS -180250
GROSS PROFIT AT
NORMAL 104750
Under ABSORPTION -5476
GROSS PROFIT AT
ACTUAL 99274
-FIXED EXP -45000
NET PROFIT 54274
Working notes:
2.

M2. Application of management accounting techniques and appropriate financial reporting
documents:
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -

X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
D2. Interpretation of data for a range of business activities:
From the above stated solution, it is easily observed that overhead cost (£ 181255) in the
activity based costing is less than absorption approach which is £ 192000. This is due to more
efficient allocation of fixed overhead to show the better utilisation of business resources. In
above mentioned solution, in ABC costing, fixed cost is allocated with help of various cost
drivers such number set up, number of order which gives effective treatment of overhead but in
absorption costing, all the overhead costs are allocated by the help of total labour hours (22000
hours) ignoring the others key factors.
ACTIVITY 2
P4.Benefits and weaknesses of various planning tools in budgetary control:
Budgetary control refers to efforts of mangers to monitor the business operation by
utilising such controls to supervise and oversight the expenses and activities in an financial year.
In this, actual results of given accounting period is compared with the actual results and if there
is any deviation then appropriate action is to be taken. In preparation of budgetary control,
various planning tools is used which has some benefits and which have some disadvantages
(Rossing, 2013). Some of these planning with its benefits and weaknesses are as below:
Fixed budget:
Such budget assist the management for its future course of operations to monitor and
control its expenses and incomes. As name suggest, fixed budget is prepared for fixed goal
which can not be changed.

 Benefits: It teaches the company to prioritize by providing clear distinction between
things you need and things you want.
 Disadvantages: Company like Hewland Engineering Limited can not modified even if
there is a change in future level and it means it does not account for future unforeseeable
events.
Flexible budget:
This budget is prepared by Hewland Engineering Limited for its future period if there are
not certainty about level of business operation in near future. It provides that how cost changes
with different rate of volumes of business operations (Hodges, 2012).
 Benefits: Company can easily change this budget accordingly to the variation of
production and it helps in controlling the cost.
 Weaknesses: It is very time consuming and costly process and it may lead to reveal to
confidential information and may create conflicts.
Zero based budget:
This budget allows the organisation like Hewland Engineering Limited to start with zero
for each item in their budgeting list which may lead to less or no chances of error. In zero based
budget, each activity is evaluated and justified before preparing this budget.
 Benefits: It helps the company in justified spending, identifies redundancies, focuses use
of resources and elimination of waste.
 Weaknesses: Preparation of this budget requires huge money and also it is not easy to
understand such budget quickly. Hewland Engineering Limited may not be able to made
its mission and vision (Myers, 2013).
M3.Application of various planning tools for creating and estimated budgets:
A wide range of planning tools of budgetary control that are very essential for correct
forecasting of the budgets. In context of Hewland Engineering Limited, it utilises several
planning tools as mentioned above.
Calculation of net present value (NPV) and payback period:
Year Future cash
flow (X)
PV @ 12% Dis. Cash
flow (X)
Future cash
flow (Y)
PV @ 12% Dis. Cash
flow (Y)
0 -5000 -8000

1 2500 0.893 2232.143 1500 0.893 1339.286
2 1000 0.797 797.194 2000 0.797 1594.388
3 1000 0.712 711.780 2500 0.712 1779.451
4 500 0.636 317.759 1000 0.636 635.518
5 1500 0.567 851.140 2500 0.567 567.427
6 1000 0.507 506.631 0.507 1266.573
Total 5416.647 7182.647
P5 Financial problems and solutions:
Financial Problems: For a business, money is known as life blood to survive. When an
organization suffers from lack of money or faces difficulties in operation of daily transactions
due to deficiency of funds, the situation is known as financial problems. Such issues can incurred

by several factors affected the functioning of an organisation. All the companies are facing with
such happenings and this shall be considered crucial to use such plan of action to determine
correct decision. Some of the major financial problems, Hewland Engineering Limited is
suffering with, are as under:
Delayed Payments From Customers: The company has adopted credit basis business
with its clients and sales goods credit terms. Sometimes customers are failed to pay their
payments on time and respective firm has to suffer with the lack of funds. Due to these late
payments, the management is unable to make its daily operations and the company has to endure
huge losses (Clinton and White, 2012).
Unforeseen Expenses:The expenses which are not included in the budgets at the time of
estimations and take place in budgets period due to sudden events are known as unforeseen
expenses. These unexpected overheads are unnecessary burden on the financial budget and
reduce profitability and revenue of the organization.
Some methods and techniques utilised by management accounting to identify the
financial issues arising heads in an organisation. Some of them are discussed below:
Key Performance Indicator: These are a set of quantitative measures that an
organisation working in this industry utilises to set standard and analyse performance in terms of
achieving their strategic and functional targets. This technique focuses on high performing
activities and objectives. The top management make their view clear towards key objective of
the organization while lower administration concentrate on particular departmental goals given
to them. Respective firm uses this method to identify the problem of unforeseen expenses.
Benchmarking: It means to investigating a commodity against a reference point for
specify the quality of a product (compared to other commodities. It is a accepted path for
comparing the one commodity or activity to another. The selected firm applies benchmarking
process in its premises so that performance of employees as well as organization may be
measured and variances may be find out. The company is capable to evaluate the performance of
its debtors and credit collection period and policies (Houghton, 2013).
Financial Governance: It may be defined as system by which a company may makes its
own rules and regulations to control and supervises the various business activities. Board of
directors of an organisation play an important role in establishing the such rules and regulations
In case of Hewland Engineering Limited, financial governance may be defined as rules and

regulations related to financial matters of the company to resolves such matters. For example,
issue of unexpected expenses and delayed payment can be controlled or neglected with help of
this set because it helps the board to keep the records according to proper law.
Comparison between two organisation which utilised techniques to solve the financial problems:
Hewland Engineering Ltd. Aston Martin
It is an engineering UK based company which
provides services in automotive sector
specialises in racing-car gearboxes. It faces the
problem relating to more expenses than
earning. In this company, managers spends
more on various designing, promotions as well
as other activities more than they earn.
For resolving from the above mentioned
financial problem Hewland Engineering
Limited applies approach of Key Performance
Indicators for effectively monitoring the
individual and organisational performances to
achieve profitable returns (Spraakman and
Jackling, 2014).
It is an independent producer from UK which
produces iconic luxury sports cars along with
grand tourers. It provides different financial
services to its potential customers.
This company is facing problem of
mismanagement of cash flows while
performing business operations.
In order to solving out this problem company
should apply the benchmarking technique
which will assist in analysing and comparing
performances with other companies in same
sector. By preparing correct benchmarking
reports, such problem may be resolves and
which assist in identifying the ways for
investment in potential areas in business.
For solving out such issue, job costing system
shall be followed for allocating costs at
different tasks for maintaining purchase as well
as sales in order.
In order to overcoming such problem inventory
management system shall be implemented.
Such system helps in tracking status of
inventory (Wagner, 2015).
M4.Use of management accounting in solving financial problems and ultimately lead to
sustainable success:
By implementing MAS, various important execution symbol can be used to help in
reviewing and controlling financial and non financial conducts of an organisation to ascertain the

rise of business in the opposing environment. Benchmarking method is very appropriate in
seeking the best manner and analysing advancement in business activities. Financial manager of
Hewland Engineering Limited shall apply this technique to solve out problem of low cash for its
expenses, (lower profits capabilities and not stable in business for the motive of reducing related
costs. Such reports are utilised for creation of budgetary reports, cost managerial accounting
reports and stock cost reports that gives boost to company in enhancing its profits (Alyousef and
Mickan, 2016).
D3.Planning tools for accounting assist in resolving issues and supporting industry for
sustainable success:
In Hewland Engineering Limited, Planning tools are utilised for making missions and
visions in advance to eliminate and reduce with uncertainty related to future. MAS provides
various planning tools that may assist in financial related matters to maintain the sustainable
environment in an entity. By utilising of these management accounting methods with such tool,
helps in reducing its expenses in doing any tasks. Planning tools are helpful for analysis several
business events to provide long term survivability to the company (Järvinen, 2016).
CONCLUSION
This report provides that MA gives more support to the management staff in functioning
of their day to day operations. There various kinds of MAS that may be implemented by the
company for enhancing its profitability and also there is different method for reporting purposes
such marginal and absorption techniques which has different-different advantages in different
business environment of companies. Marginal and absorption techniques are very useful for
preparation of various cost related aspects in an organisation such as in income statement and so
on. For solving financial related problems, there is requirement to implement such system for
giving better result in organisational context. It is further concluded that governance is also play
a important role in achieving its goals and objectives in long run, therefore, an manufacturing
organisation shall focus on its financial governance aspects also.

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