Management Accounting Report for Sollatek (UK) Analysis

This report provides a comprehensive overview of management accounting principles and their application within Sollatek (UK). It begins with an introduction to management accounting, its significance, and essential needs, followed by an exploration of various reporting methods, including performance, inventory management, account receivable, and job cost reports. The report delves into different costing methods used for calculating net profit and evaluates the benefits of using a management accounting system. Furthermore, it examines the advantages and disadvantages of planning tools, assessing their application for forecasting and reducing financial issues. The report concludes with a comparison of Sollatek (UK) with other organizations to highlight how management accounting can address financial challenges. The report offers a detailed analysis of financial data, costing techniques, and planning tools to enhance business strategies and decision-making processes within the company.

Management Accounting

TABLE OF CONTENTS
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Concept of management accounting and their essential need..........................................1
P2: Various types of management accounting reporting methods.........................................3
M1: Benefits of using management accounting system.........................................................5
D1: Critical analysis of various reporting method and system integration............................6
TASK 2............................................................................................................................................6
P3: Different types of costing methods those are used for calculating net profit...................6
M2: Evaluation of various types of accounting tools and methods........................................8
D2: Evaluation of data gather from profit and loss statement................................................8
TASK 3............................................................................................................................................9
P4: Advantage and disadvantage of using planning tools......................................................9
M3: Evaluation of different planning tools and their application for forecasting................10
D3: Analysis of planning tools in order to reduce various financial issues.........................10
TASK 4..........................................................................................................................................10
P5: Comparison with other organisation to reduce financial issues.....................................10
M4: Analysing various use of planning tools to deal with financial problems....................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is associated with preparing and delivering accurate as well as
timely financial data to any business manager so that they can make future decision in effective
manner. It is done with the aim to get more specific information about the company financial
position in last couple of years. It is considered as one of the fundamental aspects of business
administration that is done to get more reliable outcomes in near future time. The manager of
“Sollatek (UK)” will assist in managing overall business transaction that are done within an
accounting period. This project module aims at delivering particular information about different
types of management accounting as well as reporting system those are useful for the company.
Apart from this, various types of costing approaches those are useful in calculating net profit is
considered under the report. Use of advantage and disadvantage of planning tools taken into
account for budgetary control are discussed effectively. Comparison with various organisation is
being done to identify, how they are using management accounting to overcomes their financial
issues (Gates Nicolas and Walker, 2012).
TASK 1
P1: Concept of management accounting and their essential need
In the present era, it has been determining that most of the time accountant are looking to
make use of reliable system that can assist them in recording of various transactions that are done
within an organisation. It will be more helpful in organise and allocating resources more
effectively so that chances of wastage can be avoided. It is termed as effective presentation of
accounting data that used to provide necessary guidance to operate their business more
accurately. Accountant uses this system more regularly because they are responsible for
analysing various financial as well as non-financial transactions into their respective format. The
role of management is to amend policies and regulations in respect to various accounting
statements that can be followed by the finance officer (Zainun Tuanmat and Smith, 2011). It
consists of various accounting systems and policies that are connected with a specific knowledge
while recording of data. This seems to be the act of making sense of financial and accounting
information those are useful for administration within Sollatek (UK). In contrast, it analyses and
results are kept in-house for all business leaders to make utilisation of decision making those are
helpful for the company in more effective manner. It is a periodic report for the company’s
entire department as well as managers.
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Definition: Management accounting is one of the operative branch of accounting that is
responsible or colleting particular information regarding financial transaction in appropriate
manner. Or, it is a profession that includes partnering in administrative decision making, future
planning, performance evaluation and formulation of organisation strategies.
Significance of using MA:
 Help in formulation of future strategies: It is one of the important aspects for managers
that by the help of effective accounting systems they can easily be able to make
upcoming planning. The objectives that are set by Sollatek (UK) for near future can be
beneficial for them.
 Simple to make profitable decision: In case manager of “Sollatek” wants to make any
new decision for regulating new policy or plan they would initially be looking to have a
look on management accounting system (Arjaliès and Mundy, 2013).
 Determination of future aims: It will help in formulation of budgets that is considered
as primary tools for an organisation. They can take assistance of these budget in the
attainment of future aims.
Types of accounting system:
 Cost accounting system: It happens to be one of the effective process that is helpful for
recording, analysing and allocating various alternative course of decision. It will be
useful for operations department of Sollatek (UK) to control its extra costs that are
incurred during the time of production process. The company required to taken into
account this system as they are linked with manufacturing of production of tubes, valves
and many more products. In respect to efficiency and capability of manufacturing
department certain important decision would be made to the higher level. There are
various types of costing methods that are useful for Sollatek in controlling cost such as
normal, standard and actual costing.
 Inventory management system: It is taken into account as one of the reliable process of
effective direction of supervision of every non-capitalised inventory items. It is
considered as one of the reliable component of supply chain that evaluate proper flow of
goods from makers to warehouses. It is one of the reliable process that overlooks the
maintenance of stock items or check whether any modification is needed to be done. It is
basically associated within manufacturing sectors in respect to create effective works
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order, bill of products and production related invoice details. There are various types of
method those are required to be taken into account some of them are FIFO, LIFO and
AVCO.
 Price optimisation system: It is basically used in the field of pricing strategies those are
used in order to analyse valuation of application associated with the prices. It is taken into
account as accurate evaluation that is done by the company in order to response various
client those paying for the products and services. This will guide Sollatek UK company
to set standard range of prices for all their goods. They are basically associated with best
suitable price chose that estimate total earning and profit out of the total sales of tubes
and values they are earning (Ng, Harrison and Akroyd, 2013).
 Job costing system: It is basically related with one of the effective step that is taken into
account for allocating cost that are generated to a specific job associated with Sollatek.
This happens to be more wide term that is internationally helpful in construction sectors.
There are different types of costing methods that would be taken into account during
manufacturing process. Some of them are related to batch, product, standard and process
costing.
P2: Various types of management accounting reporting methods
In every organisation department, it has been found that all the levels need to work as per
the guidance or order that are made by the top management. In respect to maintain proper
balance among each department the concern finance manager would need to prepare an
accounting reports. The reports often consist of details of company’s available cash, recent
generation of sales earnings, current state of organisations account and so on. It has been found
that the information found in the accounting is vastly varies than financial accounting in wide
number of ways. It will provide huge opportunity that are held responsibility for providing
particular data regarding internal or external factors. Reporting is considered as one of the
reliable document that includes various essential data regarding different financial and non-
financial information in accurate manner (Ratnatunga and Alam, 2011). The investors and
shareholder used to make profitable decision on the basis of all data collected by the finance
manager in relation to Sollatek (UK). In formulation of report, role of management accounting is
more beneficial for the company as they are held responsible for tracking every performance
during an accounting period. It is vital for the manager to gather necessary data in order to
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reliable ways so the upcoming decision can be made in proper manner. Positive use of
accounting reports includes different roles and duties to manager in order to deal with all kind of
critical situation that are mentioned under a reporting system. The primary aim of accounting
system is to track, analyse and prepare report for the manager regarding overall revenue and
expenditure that are incurred by Sollatek (UK). This will help financial manager and other
concern parties to make appropriate decision regarding the ways activities of business can be
managed by the accountant. It happens to play an eminent role in current business environment.
It is used to deliver clear image to top management regarding present financial position of the
company and make future amendment as per the requirement to get more effective outcomes.
There are various types of accounting reporting methods that will be useful for the department in
order to record essential data regarding the company entire financial data. Some of them are
discuss below:
Performance report: It is considered as one of the important activity that is associated
with the project communication department. It included proper of data collection and
disseminating various plan, allocation of resource and predication of future growth. A yearly
growth report must be used to deliver reliable outcomes for each employees of Sollatek. It would
assist them to evaluate, whether they are operating effectively in the mentioned project or in
moving in right direction. Overall work performance report is being used to compilation of work
ability for the objective of consumption regarding different aims such as attaining upcoming
decision making (RW Hiebl, 2013).
Inventory management report: This happens to be effective report which is prepared by
the manager of Sollatek (UK) to overlooks all non-capitalised inventory items that are kept with
the company. It is associated with vital component those are required to be taken into account to
manage and control its stocks. The information about opening and closing stock information are
gathered and take into account for recording them into the report. It will deliver a comprehensive
statement of stocks or supply of some other items. This seems to be more easy and simple to
demonstrate information in front of the investors. There are certain techniques those are helpful
for the company in doing stock valuation such as ABC costing, Inventory turnover ratios and
Economic order quantity.
Account receivable report: It refers as one of the periodic detail reports that is divided
into overall account information as per the duration of length of unpaid invoices. It is taken into
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consideration as one of the most reliable report those are helpful in analysing financial position
and business health of Sollatek. It is the primary tools that is being used for the purpose of
collecting all unpaid invoices detail invoices from the debtors.
Job cost report: According to this particular accounting report, it has been considered
for effective tracking costs and earning that are done for the particular jobs. It enables them to
standardised reporting to gain profitability from an individual job activity. This seems to be
considered as profitability report that is likely to be related with various financial statements such
as profit and loss and balance sheet report. In order to use this specific report, an individual of
Sollatek (UK) would easily be liable to evaluate productions related information and overall
investment made by the company (Armitage, Webb and Glynn, 2016).
M1: Benefits of using management accounting system
It has been found that there are various benefits of using various types of accounting
system that can assist in upcoming attainment of an organisation aims and objectives. All of
them are equally provide benefit to Sollatek (UK) in respect to manage and control different
resources of the company. Some of them are mentioned underneath:
Types of accounting system Benefits
Cost accounting system Provide selling cost in different situation of the production
process.
It will ascertain total cost by using various costing methods.
Inventory management system The manager would assist and improve proper accuracy of
inventory details.
To develop more organise warehouse for large stocks.
Price optimisation To determine perception of customer regarding the prices of
products.
Make availability of economic price as per their own
requirements.
Job costing system It must be Accessible to customer or other stakeholder in
collecting more information about the company’s financial
performance.
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D1: Critical analysis of various reporting method and system integration
It has been analysing that both accounting system and reporting is playing important role
in overall growth and sustainability of the Sollatek (UK). The accountant need to make effective
data regarding integration among each other. All the reporting systems such as performance
report that is based on analysing past and previous financial year growth of the company. While,
account receivable in another important tools that is held responsible for analysing total
outstanding amount needed to receive from the debtors. Inventory management report used to
provide specific information about opening and closing stock of the company those are kept by
with an organisation.
TASK 2
P3: Different types of costing methods those are used for calculating net profit
Cost is considered as value of amount that is being paid by the Sollatek company for the
purpose of producing specific products and services. In case of manufacturing process, manager
can use to gather essential amount of raw material or other vital requirement for various parties
of an organisation. It plays an eminent role on effective operation of business transactions that
are done during an accounting period of time. In companies like, Sollatek (UK) the cost is to be
taken into consideration is based on proper acquisition under which the total amount of value
will be required for the purpose of expanding their business (Amidu, Effah and Abor, 2011).
There are various types of costing methods that can be helpful for the purpose of calculating net
profit for the company. Some of them are discussed underneath:
Absorption costing: It refers as all kind of cost that are incurred during the time of
production of product and services related to Sollatek (UK). It includes various costs such as
fixed and variable. In respect to marginal costing, it seems to be more effective method that is
being taken into account during each cost that are related with the company. It is not considered
more reliable for the company in order to make future decision in near future time.
Marginal costing: It is said to be one of the effective costing tools and techniques that
would be taken into account within the department. It consists of only variable cost in respect to
entire sales that are used during the calculation of net profit for Sollatek. The fixed cost would be
written-off while calculating the contribution per units. Instead of all the implication most of
accountant used to consider this costing as important tool that is used for the purpose of future
decision making.
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Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It refers to be critical stage where the company would not generate
profit or neither incurred loss. The overall outcome remains equal for Sollatek.
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
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c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is termed as one of the effective aspects that is associated with
effective management of different intrinsic value of inventory which is recorded at the market
prices. It will be providing different ways as closing sales volume relies on overall break even
analysis.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2: Evaluation of various types of accounting tools and methods
It has been found that various types of accounting techniques which will be effectively
reliable for future decision making. Some of them are discussed underneath:
 Marginal costing tools: It is one of the major tools that is used by the accountant for
the purpose of calculating contribution per units value out of the total sales.
 Absorption cost: As per this technique they can easily be able to detect that all the
total expenses and cost they are incurred for the purpose of getting net profit for
Sollatek.
D2: Evaluation of data gather from profit and loss statement
In accordance to deal with every issues that are related with the operational department of
Sollatek, it is important to make use of effective costing methods so that proper results can be
attain in near future time. It will make reliable contribution to the company in order to gain
competitive advantage over other companies. In order to use get more specific outcomes in near
future time, the manager must use marginal costing because of its high net profit with 17500. In
case they are using absorption costing they are getting a total net profit of 15675 during the time.
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TASK 3
P4: Advantage and disadvantage of using planning tools
Budget is considered as future estimation of cost and expenses Sollatek company is going
to incurred. A budget financial formulation planning can be defined during the period of time. It
consists of planned operating cost, sales and earnings.
Budget control process: It is one of the effective techniques which will be followed by the
company during the time of budget preparation. In this process, budgeted and actual estimation
used to be measure properly within the department (Zamora, 2011). There are various valuable
centres that included effective process to deal with different budget requirements. It consists of
various process some of them are mentioned underneath:
 The process of budget would be prepared by the top management by taken necessary
consult with the finance department.
 Based on the future estimated income and expenses of different department all the
decision is being made to formulate the budget.
 After taking necessary approval from the higher department process of budget get
started.
 Implementation of process can be done with the assistance with accountant of an
organisation (Ward, 2012).
 Review process is done in order to check any kind of mistake and modification is
needed in the areas.
There are certain planning tools those are helpful in control all the budgets that are
prepared by the company. some of them are discussed underneath:
Forecasting tools: It is said to be most reliable process that is used for the preparation of
upcoming previous and present data in more similar ways. It has been found that estimating
future cannot be easy for the finance manager. It is more crucial techniques that is considered by
business (Carlsson-Wall, Kraus and Lind, 2015).
 Advantage: The main purpose of forecasting is to provide business with valuable data
to investors that is taken into account for future decision making.
 Disadvantage: These are basically relying on qualitative predication that will be
depend on subjective inputs and thus not considered as more effective.
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Contingency tool: It is a kind of management tools that is used to evaluate all the impacts
of potential downfall in the budgets and make sure that adequate arrangement would be made in
advance. Emergency preparedness includes of all event taken into account of crises to give more
quick response to business risk (Contingency plan, 2018).
 Advantage: It is a proper plan design that is held responsible for facing every kind of
problems that are affecting overall profitability and growth of the company. It can be
done only by making skilled staff and members (JOSHI and et. al., 2011).
 Disadvantage: The biggest limitation is that because of inappropriate literature company
lead to suffer from various kind of problems which is having huge impacts on the
stability. It is more complex in few kind areas those are related with qualitative nature.
M3: Evaluation of different planning tools and their application for forecasting
In respect to various tools that is used by Sollatek company in controlling budgets are
considered effectively by the finance manager. It has been found that there are various tools
those are estimating company to deal with all kind of implication. Forecasting tools is used to
examine total amount cost and expenses an organisation is going to incurred in near future.
While, in case of contingency tools they manager can uses this to restrict all business risks those
are affecting the profitability position of the company (Mistry, Sharma and Low, 2014).
D3: Analysis of planning tools in order to reduce various financial issues
It has been found that an organisation need to deal with various internal issues that are
closely related with Sollatek. In order to deal with various impacts in near future some financial
resolving tools are needed to be taken into account. In case company is getting issues related to
the financial performance they can use Key performance indicator to resolve it. In case of any
contingency arises within an organisation they need to set specific standards to resolve them.
Financial governance can be another important technique which will lead to resolve various
issues that are arises with the department.
TASK 4
P5: Comparison with other organisation to reduce financial issues
In each business organisation, it has been analysed that there are numerous financial
problems that are disturbing overall development and success during the specified financial year.
The major conflict of the firm is determined as below:
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 Profit level: In case the company is not able to sell appropriate range of products into the
market. Then it is crucial for firm to implement its business operations in order to make
analysis of influence on the profitability for a firm.
 Product and quality services: It is mainly connected with the overall reputation of
Sollatek Ltd If they are not being able to handle their capital in well planned way. This
can create more impact on the operations of the firm.
There are various tools which are effective in overcome with the issue of the firm that has
direct or indirect influence on the operations of the firm, in which some are associated as below: Key Performance Indicator (KPI): Low execution of workers influencing the growth
and profitability of organization in this manner utilizing such device as to help in
improving the capacities and execution level of employees. This tool is effective
analysing the ability of employees as to carry out the business activities in right direction. Financial governance: It implies rules which are designed for employees with a desire
for getting appropriate results in their future. As there are numerous issues that may
emerges at working environment which are required to manage in a viable manner by the
management of firm (Windolph and Moeller, 2012).
Comparison of Sollatek Ltd. with other companies:
Sollatek Ltd. Vacon Ltd.
It is the organization which deals in providing
electronic tools with a target to appropriate
utilisation of resources.
It is an organization which deals in creating
variable speed AC drives for flexible control of
electronic engines and inverters.
Sollatek Ltd. Is working at little scale therefore
utilizing KPI and benchmarking device which
help in persuading representatives to give their
best in attaining more reliable outcomes.
Vacon Ltd. Is worked everywhere scale along
with these lines utilizing financial
administration to keep up their steady market
position.
M4: Analysing various use of planning tools to deal with financial problems
There are different financial issues and conflicts that includes cash unavailability, product
related issue and others or has direct influence on the profitability of an organisation. To
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overcome these issues, KPI and benchmarking are the most suitable tool which is used by
Sollatek Ltd.
CONCLUSION
This project report concluded that management accounting is one of the effective tools and
techniques which will be effectively helpful for Sollatek to record various transaction incurred
during the time. In order to do so, they need to make use of various types of accounting and
reporting system those effectively responsible for posting of various transactions. While, with the
use of appropriate costing method they can easily be able to gain accurate net profit. Advantage
and disadvantage of using planning tools to control budget. It will assist manager to make better
understanding of financial issues and measure to resolve them are discussed in the above report.
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