Management Accounting Report: Cost Reports, Analysis, and Techniques

This report provides a comprehensive overview of management accounting principles and practices. It begins with an introduction to the profession, its scope in both medium and large companies, and a comparison between financial and management accountants, highlighting overlapping functions. The report then delves into different types of cost reports, their importance, and stock holding costs, alongside modern cost reduction techniques. It presents income statements using both absorption and marginal costing methods and examines the significance of break-even analysis and net profit from a management accounting perspective. The report utilizes Ragus Sugars Limited as a case study to illustrate these concepts, making it a valuable resource for students studying management accounting. Desklib offers this report and other past papers and solutions for students to enhance their understanding.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Profession of management accounting...............................................................................3
2. Scope of management accounting in medium company as well as in a large company....4
3. Comparison between financial and management accountant and areas in which their
functions.................................................................................................................................5
overlap....................................................................................................................................5
4. Difference between various kind of cost reports in management accounting and also
importance of other reports ...................................................................................................5
5. Stock holding cost of a business and other modern techniques for reduction of cost of stock
................................................................................................................................................7
6. Income Statement of Absorption and Marginal costing.....................................................7
7. Importance of Break Even Analysis subject to Management Accountant.........................8
8. Importance of net profit subject to Management Accountant............................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accountants prepare reports for internal management. With the help of these
reports, managers can take decision for regular business operations. And it also assists in
management process that includes different steps of planning, coordinating, staffing, leading and
controlling activities of business (Bouten and Hoozée, 2013). For the purpose of explaining
corporate accounting systems, Ragus sugars limited is taken which is a UK based sugar
manufacturing company.
This report covers examples of managerial accounting, also covering comparison of
management accountant with financial accountant. After that various kind of cost reports
prepared in management accounting.
MAIN BODY
1. Profession of management accounting
Professionals of management accounting are also called managerial accountants or
corporate accountants who provide their services to any public or private company. Their work is
to make different management strategies for various departments. But main focus is on analysing
financial and non financial condition or performances of a firm.
DATA ANALYSIS – It is a process of evaluating management accounting data for using logical
and analytical reasoning to examine each component of the data provided. This is form of
analysis is just one of the many steps that must be completed when conducting a research
experiment.
INTERNAL STAKEHOLDERS – These are entities of organisation such as investors, board of
directors, managers and employees.
DECISION MAKING – Small business managers and owners are faced with countless decisions
every business day. Management accounting helping to uses information from operations such as
labour utilization and profit margin, so mangers takes decision on the behalf of these
informations.
Task of manager accountants includes reporting to internal stakeholders and also to
leaders to take financial decisions. This decision making is laid on the basis of planning by
determining past data and anticipate future necessities, risk management activities, ability to
enhance profitability etc. Manager also ensures quality certification manufacturing process

because raw materials are imported from different countries. They need to keep record of
revenues, expenses, profits or losses with significant accountability and responsibility. To adopt
management accounting as profession, one should have desirable skill set, knowledge and
qualification as they would have to supervise other accountants who performs basic accounting
for companies.
2. Scope of management accounting in medium company as well as in a large company
Manager's basic role remains same in every company whether medium or large but the
only difference is size of organization acts as a factor affecting scope of their work. Ragus sugars
limited is a medium sized organization in which activities are not so much complex as compared
with Tesco which operates in UK retail industry. Managers in organisation plays restricted role
in area of sustainable development while in Tesco, their area of managing sustainable
development is very vast (Arroyo, 2012). Also, manager can create pools of various functions
and delegate it to another lower-level managers in Tesco but in small organisation like Ragus
sugars limited, manager has to perform all the functions. Size of company influences the
complexity and volume of various tasks, determination of role of managers, abilities to handle
various functions and also consciousness of them in the areas beyond their financial work. In
consideration with size, large companies have complex hierarchical structure including many
levels results delay in decision making. So scope of managers in Tesco is larger as compared
with Ragus sugars limited.
BUDGET – A budget is an calculation of expenses and revenue over a specified future period of
time.
RISK MANAGEMENT - It is the process of identifying to potential risk, analysing and
controlling threats to an organization's earnings and capital.
COST ACCOUNTING = A method of accounting in which all costs obtain in implementation an
activity or fulfil a purpose are gathered, categorized and recorded.
STRATEGIC PLANNING – It is a process in which organizational leaders determine their
vision for the future as well as identify their objectives and goals for the organization.

3. Comparison between financial and management accountant and areas in which their functions
overlap
- Financial accountants are specialized in the field of financial accounting and are of
many types for instance, cost accountant, tax accountant, corporate accountants.
Management accountants are expert at handling managerial accounting.
- Financial accountants mainly focuses on providing financial information to internal as
well as external stakeholders while management accountants on internal management
control system.
- There is no compulsion on MA to appoint management accountant but financial
accountants are necessarily need to be appointed for preparation of financial reports
and statements.
- Managerial accounting system's primary role is to help managers in planning, policy
making and their implementation for effective decision making (Chan, Wang and
Raffoni, 2014).
- There is no specific format of presenting information for management accountants.
- Financial accounting is done for SPECIFIC TIME (usually one year) time duration
but in case of management accounting, there is no time period if fixed as they reports
can be made according to demand of firm.
- Financial accountants aims at recording financial performance through financial
statements such as income statement, cash flow statements, balance sheet and changes
in equity, provided according to established accounting standards. On the basis of this
information tax is charged by tax authorities. Financial reports are made in summarized
form and should be audited while management reports in elaborated form as well as not
mandatory to be audited.
4. Difference between various kind of cost reports in management accounting and also
importance of other reports
Cost reports refers to reports which involves description of total cost spend on a
particular project, production or manufacturing of goods over a period of time. These reports
consists of income, expenses, profit or loss of every department of company such as marketing,
sales, finance etc. Cost reports generates information for internal stakeholders like employees,
management, shareholders etc. And it contain details of all the costs incurred by firm from

production or manufacturing to supply of products to ultimate customers (Van Noorden, 2013).
In simple words, costs incurred on business operations and activities are included in cost reports.
Various types of cost reports are as follows:
 Job cost reports: DEFINE= UNIQUE JOBS
 These reports are shows revenue and expenses so that they can be matched to find
profitability of a particular project. With the help of these reports, the company can
classify accrued costs like labour, overhead, material, also able to identify areas which
are more profitable and which are less.
 PROCESS COSTING – It is a term used in cost accounting to describe one method for
collecting and analysing manufacturing costs to the units produced.
 BATCH COSTING – It is a kind of specific order costing. Job costing mention to costing
of jobs that are executed against specific orders whereas in batch costing items are
produced for inventories.
 CONTRACT CONTRACT – It is a specialised system of job costing applies to long term
contracts as different from short term jobs.
 DIFFERENCES (DIFFERENCES BETWEEN COST MODELS/)
 BUDGET COSTING – It is the process of creating a plan to expend money. Creating this
outlay plan allows to ascertain in advance whether will have sufficient money to do the
things.
COST TO PRICE
Management accountant produce many kinds of reports for the enhancement in value of business
and they are:
Budget reports: This type of report is very basic in management accounting because it helps in
cost controlling of various departments in the organisation. It is being prepared on the basis of
past performance and then it is compared with actual (Guay, Kothari, and Shu, 2011). Ragus
sugars limited has limited resources and they should be optimally utilized to get more profit.
Budgets cost reports can be made on monthly or yearly basis. Some companies involve
employee participation in budgeting process to evaluate their performance.
5. Stock holding cost of a business and other modern techniques for reduction of cost of stock
ORDER COST – These costs are related to the preparation of supplier's order, including the
inspection cost, cost of delivery an order and documentation costs.

STORAGE COST – Amount charged to store goods in facility at the point of beginning,
destination and ports of entry during the transport.
TIME = OBSOLETE/OUT OF DATE
Various modern techniques used in inventory costing are as:
Implement a Just-in-time inventory system
just in time management is a method keeping almost no inventory in warehouse at all,
but alternatively, ordering everything need the moment need to it. It's a form of learn
manufacturing that would mostly destruct the cost of inventory. It definite quantity to develop a
strong relationship with supplier, shorten production cycle (Fermanian, and Vigneron, 2015).
Avoid minimum order quantities
A minimum order quantity is described as the smallest quantity or number of a product
that an organisation will supply. MOQs are very common, and they are used by manufactures
and suppliers to unload more of their inventory on wholesalers and retailers – reducing their cost
of inventory but increasing of company.
6. Income Statement of Absorption and Marginal costing
Jupiter handbag makes and sells s single product, in September 2018, it produced and sold 25000
units. Information for September 2016 was:
Selling price per unit £30
Direct Materials cost per unit £4
Direct Wages per hour £10
Variable manufacturing overhead per unit £3
variable selling expenses per unit £5
Fixed manufacturing overhead £140000
Fixed admin. & distributions costs £60000
Direct manufacturing labour per unit 30 minutes
Direct labour hour per unit 30/60*£10= £5
Marginal (variable) Costing Income Statement

For the month ended 30 Sep. 2016
£ £
Sales Revenue (20000 units*£30) 650000
Marginal cost of sales
Direct Materials (20000 units*£4) 80000
Direct Labour (20000 units*£5) 100000
Variable production overhead (20000 units*£3) 60000
Variable distribution & admin expenses (20000 units*£5) 100000 -340000
Contribution 260000
Fixed Costs
Fixed manufacturing Overhead 140000
Fixed selling & admin. Costs 60000 -200000
Net profit 60000
Absorption Costing Income Statement
For the month ended 30 Sep. 2016
£ £
Sales Revenue (20000 units*£30) 600000
Marginal cost of sales
Direct Materials (20000 units*£4) 80000
Direct Labour (20000 units*£5) 100000
Variable production overhead (20000 units*£3) 60000
Fixed manufacturing Overhead 140000 -380000
Gross profit 220000
Distribution and admin. Expenses
Variable (20000 units*£5) 100000
Fixed 60000 -160000
Net profit 60000
7. Importance of Break Even Analysis subject to Management Accountant
If trying to calculate the net profit for a given situation then the formula would become
NP = Px – (a+bx)

Where NP = Net Profit
X = Units sold
P = Selling Price
a = total fixed assets
b = unit variable cost (the variable costs of producing just two unit of product or service)
So
NP = (£ 2*150000) – (10000 + (0.20p*£150000)
= (300000) – (10000 + £30000)
= (300000) – (13000)
= £2870000
Break even Analysis will be (remember here the number of units sold will not be known)
0 = Px – (a+bx)
So
0 = (£2*(X)) - (£10000 + (£0.20*(x))
2x = (£10000 + 0.20x)
1.75x = £10000
X = £10000/1.25
X = 8000 units break even
Break even analysis helps to determine minimum production quantity required to earn
minimum profit (Hafez, and Bhattacharya, 2012).
8. Importance of net profit subject to Management Accountant
£ £
Sales Revenue 200000
Marginal cost of sales
Direct Materials 20000
Direct Labour 8000
Variable Production Overheads 5000
Variable distribution & admin. Expenses 3000 -36000
Contribution 164000
Fixed costs
Production Overheads 3500

Distribution & admin. Expenses 2500 -6000
Net Profit 158000
While calculating net profit, management accountant keep an eye on all expenses so from
sales revenues deducting all expenses. For calculating net profit apply a structure firstly less
marginal cost of sale after that getting contribution. Fixed costs less from contribution and
getting net profit. It is one of the most closely followed numbers in finance, and it plays a
significant role in financial statement analysis and ratio analysis. It is important to measure how
cash a company earned during a given period (Wang, Ma and Yang, 2014). Management
accountant show this income in balance sheet that is effected to investors, auditors, owners and
customers. As per the above table net profit calculated by less all expenses from sales revenues.
CONCLUSION
It is concluded that management accounting internal part of company/firm, of Ragus
sugars limited and set systems. Management accounting apply in company by professionals and
it is important in large size company as well as medium size company. Management accounting
different from financial accounting because it's handling accounting of company but financial
accounting mostly focusing on arrange financial information. Cost reports different from other
reports such as budget reports. Management accountant have important role for calculating break
even analysis and net profit.

REFERENCES
Books and journal
Bouten, L. and Hoozée, S., 2013. On the interplay between environmental reporting and
management accounting change. Management Accounting Research. 24(4). pp.333-348.
Merchant, K.A., 2012. Making management accounting research more useful. Pacific
Accounting Review. 24(3). pp.334-356.
Arroyo, P., 2012. Management accounting change and sustainability: an institutional approach.
Journal of Accounting & Organizational Change. 8(3). pp.286-309.
Chan, H.K., Wang, X. and Raffoni, A., 2014. An integrated approach for green design: life-
cycle, fuzzy AHP and environmental management accounting. The British Accounting
Review. 46(4). pp.344-360.
Van Noorden, R., 2013. The true cost of science publishing. Nature. 495(7442). pp.426-429.
Guay, W., Kothari, S.P. and Shu, S., 2011. Properties of implied cost of capital using analysts’
forecasts. Australian Journal of Management. 36(2). pp.125-149.
Hafez, O. and Bhattacharya, K., 2012. Optimal planning and design of a renewable energy based
supply system for microgrids. Renewable Energy. 45. pp.7-15.
Fermanian, J.D. and Vigneron, O., 2015. On break-even correlation: the way to price structured
credit derivatives by replication. Quantitative Finance. 15(5). pp.829-840.
Wang, G., Ma, J. and Yang, S., 2014. An improved boosting based on feature selection for
corporate bankruptcy prediction. Expert Systems with Applications. 41(5). pp.2353-
2361.
Li, Z.C., Lam, W.H., Wong, S.C. and Sumalee, A., 2012. Design of a rail transit line for profit
maximization in a linear transportation corridor. Transportation Research Part E:
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Online
Reduce to cost of inventory. 2018. [Online] Available
through:<http://www.waspbarcode.com/buzz/reduce-inventory-cost/>