Astra Zeneca: Management Accounting Report on Costing and Planning

This report, prepared for the General Manager, provides a comprehensive overview of management accounting principles, systems, and various costing techniques, focusing on their application within Astra Zeneca. It begins by defining management accounting and outlining the essential requirements of different management accounting systems, emphasizing their role in providing accurate financial information for internal decision-making. The report then explores various management accounting reporting methods, including job cost reporting, operational budget reports, inventory management reports, and performance reports. A key section of the report details the calculation of net profit using both absorption costing and marginal costing techniques, providing detailed income statements for each method. The report also examines the advantages and disadvantages of different planning tools used for budgetary control within Astra Zeneca and compares ways in which organizations can use management accounting to respond to financial problems. The report concludes with a summary of the key findings and recommendations for effective implementation of management accounting practices within the company.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
P1.Explain management accounting and give the essential requirements of different types of
management accounting system:.................................................................................................3
P.2 Various methods used for management accounting reporting:.............................................5
TASK.2............................................................................................................................................7
P.3 Calculation of net profit using absorption costing and marginal costing techniques:..........7
TASK.3..........................................................................................................................................11
P.4 Explain the points of advantages and disadvantages of various sorts of planning tools
utilized for budgetary control in the event of Astra Zeneca: ...................................................11
P.5Compare ways in which organisations could use management accounting to respond to
financial problems.....................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

From: MAO
TO: GM
Subject: To present a report to GM in which management accounting, its systems and various
costing techniques are reported. Reporting will also be made so that implementation can be made
appropriately.
INTRODUCTION
Management accounting is an important for the development of the company. Now the policies
has been changed and there are so many management accounting tools which has been used to
provides the exact financial position of the company (Weißenberger and Angelkort, 2011).
Earlier, there were traditional accounting approach had been followed by the corporate world
which were only related to the cost of the manufacturing goods and they were mainly focused
only to the cost product. But now the every companies are applying the modern accounting
approach in their management accounting system. Astra Zeneca pharmaceutical company is
basically manufacture their own products and it needs to opt management accounting tools for
optimum utilizing the cost of production, and management accounting also assist the company to
make their strategy in manufacturing process so that the cost of the products can be managed
well. In this era, management accounting has become the need for running the operations and
manage the management of the companies as well.
P1.Explain management accounting and give the essential requirements of different types of
management accounting system:
Management accounting is the process by which the financial reports and the accounts of
the company has been prepared and also assist to provide the accurate information for the
company so that the exact picture of the company can be shown in front of general public and
the investors could also take the help from those reports. Financial accounting is quite different
from the management accounting and and that will provide the information to the outsiders by
analysing the company's data(Ward, 2012). Management accounting only concerned to make the
internal reports for the divisional managers and also to the chief executive officer of the
company. Such kind of report are used fro displaying the amount of cash, sales revenue created,
amount of orders in hands, amount of available cash, raw material stock, etc. managers or the
accountants apply the accounting informations for the effective decision making management

accounting performs in the areas of strategic management, performance management and risk
management.
These have been discussed below in details:
 Strategic management: management accounting assist the management of the company to
helps for making the strategy for the betterment of the company's' growth and
development.
 Performance management: management accounting assist the company to improve the
company's performance by way of following management accounting practices.
 Risk management: risk can be managed with the help of management accounting
techniques(Van Helden and et. al., 2010). Management accounting assist the company to
make the management to make the policies for handling the risk in a better way so that
the firm would able to attain the objectives.
There are some any methodologies by which company can do the management
accounting practices in the firm :
Cost accounting system: This is the accounting system under which cost is evaluated so
that this can reduce by the manufacturing company. Now, this also been seen that is is connected
with the process of gathering, recording and analysing of various costs that are connected to the
cost of production. The key role of such system is to make render managers essential information
which are based on the cost efficiency and performance capabilities.
Price optimisation system: This is presumed to be the numerical analysis by a firm to
predict how customers would react to several prices for its products and services via so many
modes. The main aim of Astra-geneca is to identify the price which would meet its aims like as
to enhance operating profits throughout the year.
Job costing system: Under this system, this is concerned to the process via which
determination of assigning costs which are covered on a most specific jobs under which a firm is
concerned with.
Batch costing system: This is same as job costing under which a lot of product is
considered. It is an simplest form to determine goods with its number. Whole information related
to goods like production date, time and year are covered under this.
Notwithstanding, there are different sorts of management accounting procedures which
are required in the company. Firms today confront the issues of how to change their systems,

plan of action, and practices to react to social and environmental challenges while making
financial planning and value for their shareholders(Shah, Malik and Malik, 2011).
P.2 Various methods used for management accounting reporting:
There are so many methods used by the management accountants which can provides the
assistance for the firms future projects. Some of them are mentioned below:
management accounting helps the firm to make the financials or management planning. Profit
earning is the main target for any firm(Setthasakko, 2010). With the help of management
techniques, company can easily make the profits by reducing cost of the goods and maintaining
quality in the product and services. Management accounting methods:
There are various methods used for the management accounting process sucs as:
Job cost reporting: This is concerned to that costs that are incurred by 4COM plc in
manufacturing of product in a year. These are totally connected with as an assumption of revenue
yield throughout the year. On the other way, each job activities are covered what amount of
profits are analysed by such reporting system. This would also assess those region that are
earning optimum profits with minimal efforts.
Operational budget report: Such specific budget reports produce information regarding
the expenses that are covered by 4COM plc during manufacturing process. This is presumed to
be the major reporting system that assist the managers to get complete details of actual costs
covered by the firm. This covers different sub parts like- sales budget, variable budgets and
much more. This could be framed during month, half yearly or on annual basis.
Inventory management report: This report mostly concentrates on stock management
and its control. Whole those physical stocks which are implemented by 4com. Because,
inventory management reporting is to identify so many level of stock availability. This covers
different steps that are needed to be followed by managers for to defend and record details in the
books of account. There are so many methods like- EOQ and ABC costing which can be used in
order to analyse the outcomes.
Performance report: Finance department can use accounting in order to judge the
performance of the firm. This would be done by taking data of current and past year. Various
information that are connected to the employees, team, firm goodwill and other outside rivals are
assessed by taking help of his report.

Account receivable report: Cash related information are covered under this. Such
specific report is used for handling firm's cash transaction or in regards to credit amount.
Financial planning reporting: It is a very important function for any business as profit
depends largely on effective financial planing. Therefore it is considered as an important method
of management accounting.
Financial statement reporting: There are various financial statements like the balance
sheet and the profit and loss account. Analysis of these statements are done by the management
to calculate the total growth of the business(Sánchez-Rodríguez and Spraakman, 2012). The
financial statements of different periods are compared and the ratio analysis is done.
(Renz, 2016).
TASK.2
P.3 Calculation of net profit using absorption costing and marginal costing techniques:
Net profits can be computed with the help of management accounting techniques. Via
absorption costing and marginal costing, Astra Zeneca can compute the net profits.
Absorption costing: The methodology that is implemented to gather the different costs which are
linked to the various manufacturing processes and later on apportioned to an individual goods.
Absorption costing also helps the firm to evaluate the stock with the help of absorption costing,
management of the company able to evaluate the inventory which are mentioned in the
company's balance sheet. A good is absorbed in variable cost and fixed costs. Although, such
costs are not identified as an expenses in the month when company pay for them and they
continue to be in the inventory in the assets side in the balance sheet until company sold the such
goods. That point of time, firm charged to the cost of goods sold(Pipan and Czarniawska,
2010). Via absorption costing, over and under absorption could be treated accordingly.
Income Statement as per absorption costing :
Selling price £35
Unit costs
Direct materials £6
Direct Labour £5
Variable Production overhead £2

Variable sales overhead £1
Budgeted production for the period is 600 units
Fixed costs for the month are given below
Budgeted cost Actual cost
Production overhead £1,800 £2,000
Administration cost £800 £700
Selling cost £400 £600
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £3
Fixed cost £5
Total £19
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*19 = £1900
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £3300
Fixed overhead: £3500
Total £200(over absorbed)
Net profit using absorption costing £ £
Sales 21000
(-) Cost of Sales:
Opening inventory 0
Production 13300
Closing inventory (1900) (11400)
(Under)/ Over absorbed fixed prod. O/h 200

Gross Profit 9800
Less Expenses
Variable sales 1800
Fixed administration 700
Fixed selling 600 (3100)
Net Profit 6700
Marginal costing: Marginal cost represents the variable cost of the firms cost of sales. This is
basically a sum of entire direct material, direct labour, and other direct overheads. If the
production of goods increased then the variable cost also enhanced. So the marginal cost vary as
per the change in production of goods. However, fixed cost is irrelevant, as they are not
concerned to the units. On the other mean, marginal costing is the tool by which vary in cost of
opportunity which changes due to vary in production(Nandan, 2010.). Marginal costing deals
with the marginal cost of producing that extra unit.
Income statement as per marginal costing :
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production o/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Sales (35*600) 21000
less:
Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable cost -7800
Contribution 13200

less:
variable sales overheads (600*1) -600
fixed overheads -2000
Admin & selling cost (700+600) -1300
-3900
NET INCOME AS PER MARGINAL COST 9300
NET INCOME AS PER ABSORPTION
COSTING:
Sales (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
less;over absorbed fixed production overheads -100 -1800
NET INCOME AS PER ABSORPTION
COSTING: 9600
Difference between absorption and marginal costing techniques :
Marginal Costing Absorption Costing
 In marginal costing, variable costs are
directly connected to the no of units
produced.
 Marginal cost only associated to the
variable cost only.
 In Absorption costing all kinds of costs,
variable and fixed cost, are absorbed.
and then that cost is apportioned to
different products.
 Absorption costing helps to absorbs and

 Under Marginal costing, overheads are
divided into two categories, i.e. fixed
and variable overheads.
 contribution in marginal costing could
be identified via profit-volume ration
(PV Ratio)
allocate both fixed and variable costs
in production.
 Absorption costing bifurcate overheads
into three class, i.e. production,
management and overheads linked with
selling and distribution.
 In absorption costing, net profit as per
the income statement is adopted as a
profit under absorption costing.
Usage of management accounting methods if there should arise an occurrence of Astra Zeneca :
Astra Zeneca is a company which is only deal in the pharmaceutical sector and there are
so many employees in their hierarchical structure(Macintosh and Quattrone, 2010). it is
overviewed that the revenues of the company is greater when comparing with different business
working in a similar industry and playing same operations. Management accounting are applied
in the firm for efficient operation of firm. They form with one other in assisting management of
the Astra Zeneca for the attainment of its long term objectives and goals. There are some
analytical tools which is used by the management accounting that can be executed by
administration of Astra Zeneca . Some analytical tools are mentioned hereunder:
•Cost Volume Profit Analysis(CVP Analysis) : cost volume profit analysis is used by the
management of the association for effectively analysed cost and profits of the goods. Through
this analytical tool, company would determine the effect of change in the volume of production
of goods, its cost and profits(Lukka and Modell, 2010).
In the provided case, actual production overhead, selling cost and administration
expense is more than the budgeted cost, as budgeted total cost of three element was £ 2600
however actual cost is £ 3300. while planned selection of candidates through Astra Zeneca was
600 rivals during a specific era yet the actual enrolment was 700 applicants within a specific
period.

TASK.3
P.4 Explain the points of advantages and disadvantages of various sorts of planning tools utilized
for budgetary control in the event of Astra Zeneca:
With the help of budgetary control, company would able to control the cost and also reduce it to
the certain extent so that the firm profits can be maximized. Basically there are two types of
control, budgetary and financial control. Financial budget is classified as a forecasting of cost
over the specific project. Budgetary control is the method which is used for efficient and
effective utilization of human and other physical resources in order to gain the utmost outcome.
Budgetary control also perform as a communicating method which is linked to the employees of
the company. A budgetary control also helps the company to compare the actual results with the
anticipated outcome of the company(Luft and Shields, 2010). However, there are some
disadvantage as well while opting the budgetary control of the company.
Budget can be overviewed as a pressure equipments which is obligatory by the
administration, therefore resulting in:
a). bad labour relationship in the company
b). false record keeping
There has been arise the conflict over the department due to:
a).conflict over resource allocation
b). divisions also fault if goals are not attained.
Managers of the company overestimate the cost that is why they never responsible in the future.
Advantages of budgeting and budgetary control: There are some of benefits of
budgetary control:
 Compels administration to think about the future, which might be the maximum
important function of a budgetary making plans and control system. Budgetary control
Forces management to set out specific plans for attaining the objectives for every
department, operation and (ideally) each manager, to count on and deliver the enterprise
motive and course.
 Encourage coordination and communication.

 Clearly elaborates the areas of obligation. It also assist the managers of budget centres to
be made responsible for the fulfilment of price range goals for the operations underneath
their non-public manipulate(Lee, 2011).
 Provides a foundation for performance appraisal. budget is essentially a yardstick in
opposition to which actual overall performance is measured and assessed. Control is
furnished with the aid of comparisons of actual consequences in opposition to budgeted
plan.
 Budgetary control helps remedial action to be taken as variances developed.
 Motivates personnel by collaborating inside the placing of budgets.
 Budgetary control the allocation of limited resources
 hurdles in budgeting
Therefore effective planning techniques are used to implement in those planning in the same
time when company feels the needs of such planning in the firm.
Budgetary tools are used in the company which have been mentioned below:
Master Budget: Master budget is the total of entire lower-level budget created by an
organization's different functional ranges, and furthermore incorporates budgeted financial
statements, cash forecast, and a financing planning. The master budget is normally introduced in
either a month to month or quarterly format, and includes an organization's whole financial year.
An illustrative content might be incorporated with the master budget, which clarifies the
organization's strategic direction, how the ace spending will help with fulfilling particular
objectives, and the administration activities expected to accomplish the budget.
Operational budget: it is the forecasting of the day to day affairs of the business. This is
basically framed to make this is linked to the sales and cost that are further linked to the
operational activities of the Astra Geneca. Plan for expenses needed to handle keep up the
working of a business(Kaplan and Atkinson, 2015). For instance, an average operational budget
may incorporate foreseen material and labour costs expected to maintain the business and to
produce goods or give services.
Cash budget: It is a forecasting of cash inflow and cash outflow of the company over a
specified period of time. Positive cash flow represents that the firm's liquids assets are enhancing
and company also able to settle its debts, again invest in the company, return money to its