Management Accounting Report: Income Statement and Budgeting

This report delves into the core aspects of management accounting, focusing on its crucial role in organizational financial management. It begins by defining management accounting and outlining its essential requirements, emphasizing its importance in decision-making and financial reporting. The report then explores various management accounting reports, including inventory management reports, operating budget reports, and job cost-based reports, highlighting their significance in controlling costs and managing resources. A key section of the report involves the preparation and analysis of an income statement using both marginal and absorption costing methods, demonstrating the impact of different costing techniques on profit calculation. The report also examines the importance of budgeting in planning and controlling, discussing the advantages and disadvantages of planning tools. Furthermore, the report addresses financial problem-solving by exploring the balance scorecard approach and Just-In-Time method. The report concludes by reinforcing the value of management accounting in enhancing organizational performance and financial stability.

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its essential requirements........................................................1
P2 Management accounting reports............................................................................................4
TASK 2............................................................................................................................................6
P3 Income statement...................................................................................................................6
TASK 3............................................................................................................................................8
P4 Importance of budget in planning and controlling purpose. .................................................8
OPERATING BUDGET..................................................................................................................9
TASK 4..........................................................................................................................................11
P5 Balance Scorecard approach to respond financial problem................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the process of managing the organizational activities in order
to cope up with the financial problems occurring in the business. This report is based on the
requirements of the various kinds of the management accounting system and the several methods
of accounting reports. In order to generate the net profit amount, Income statement is made by
using marginal and absorption costing method, it helps in generating new profit amount of the
organization. This report also lay emphasis on the advantages and disadvantages of the planning
tools that are used control budget. And lastly, the balance scorecard approach and Just-In-Time
method to respond financial problems for the firm will be discussed in this report.
TASK 1
P1 Management accounting and its essential requirements
Management accounting and reports are very crucial for the managers of Tesco in order
to reduce the operational and financial issues and problems within the firm. Management
accounting reports will help management to prepare financial reports and analysis, cost of
business operational activities and suggestions to make effective decision making in the firm.
Financial and costing data is also prepared by the management accounting reports and translate it
into important and useful information for the managers. This will help them to manage various
resources in the firm in order to increase profitability and production effectively. This will also
help to achieve better planning over business operations. This will enhance the value of
stakeholders and consumers in order to manage different financial and human resources
efficiently.
Management accounting as a decision making tool
It can be said that management accounting role is important as well as crucial for the firm
in order to make decision regarding non-financial and financial activities within business. The
managers are able to maintain the effectiveness of operational and financial activities for the long
time period by using data driven inputs (Bhattacharya, 2014). Performance matrix is also
identified by the managers by using management and accounting reports analysis. The reports
collect all the financial and non-financial data for the managers in order to manage the decision
making. The reports also evaluate the deviations which will help managers to measure different
aspects within the firm by accepting valuable suggestions.
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Difference between management and financial accounting
BASIS MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
DEFINITION The management accounting is a
process which will help managers by
providing them useful information
regarding business activities in order
to make strategies and plans to make
effective decisions.
Financial accounting prepares
statements which provide financial
data and information to the managers.
INFORMATION Monetary and Non-monetary
information is considered.
Financial accounting only considered
monetary information.
TIME FRAME Reports regarding management
accounting are made by the
managers according to the demand
and requirements.
Financial statements are made at the
end of the year which will be in
accounting period of time.
REPORT Detailed and complete information
and data for the reports (Coe, 2014).
Prepare summary report including
financial information (Gibbons,
2015).
PRINCIPLES OF MANAGEMENT ACCOUNTING
Designing and compiling: Compiling and designing refers to make reports regarding financial
statements, accounting data and information and evidences related to the previous and future data
which should be well design and complied by the mangers in order to achieve various business
goals and objectives effectively.
Integration: Integration is all about collecting useful and important data and information related
to the management which will be integrated as well. This will help managers in Tesco to use it at
maximum and at the same time effectively. Accounting services are provided at low costs.
Utilisation of business resources: Tesco should analyse all the resources within the firm in
order to manage the operational activities effectively (Otley, 2016). This will be done by
managing available resources in the firm. Management accounting reports will help to evaluate
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all the resources within the business and will help them to keep in proper utilisation manner
efficiently.
Cost accounting system: Cost accounting system will help managers to evaluate and determine
the cost of products and services offered by the firm in the market towards customers effectively.
Accounting system related to the cost such as actual, normal and standard costing. Management
accounting reports will generate the cost data and information for the managers in order to
control different resources within the firm under the budget. This will also help to make
strategies and plans in order to increase the profitability and production.
 Cost accounting system will help managers to determine the actual selling cost of
products and services.
 Managers are also able to determine the profitability and production in order to cope up
with competition.
 Managers can manage the business resources and decision-making on the basis of
products and services costs.
Inventory management system: Inventory management refers to the effective management and
control over stock of products and services and various business resources. Resources such as
raw materials, finished goods and work in progress. Inventory management reports will help
manager in Tesco to evaluate the availability of stock within the business in order to enhance the
production process which will lead towards profitability. This will also help to evaluate
availability of stock, quality of products and services and quantity which will be ordered to
manage the operational activities.
 Inventory management system will help managers in the firm towards protecting the
shortage of stock and will reduce the business uncertainties (De Baerdemaeker, 2015).
 Inventory management will also help to take advantage of economy scale which also
supports strategies, plans and policies effectively.
Throughput accounting system: It is known as the modern accounting system and under this
main focus is on cost control through improving business operations. It is the accounting system
that was developed by Israeli business man and now become quite popular among people at fast
rate. This system is now becoming very popular across the globe and used by many firms. This is
because in it analysis of activities is done and on that basis, it is identified that in which activity
there is need to work in order to improve performance.
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Job Casting system: Job casting system will help manager to identify the cost of products and
services at workplace to manage and control them effectively. The job casting system is
appropriate for those firm where the production is One off for the firm. In this case, the method
is specially used when a consumer demands a particular product or service in a specific time
period effectively. This will help managers to determine the actual cost of selling products and
services.
P2 Management accounting reports
Inventory management reports: Inventory management reports will help to determine the
availability of stock and will also help to manage different resources in the firm at various
inventory levels. Resources such as raw materials, finished goods and work in progress.
Inventory management reports will help manager in Tesco to evaluate the availability of stock
within the business in order to enhance the production process which will lead towards
profitability. Inventory management will also help to take advantage of economy scale which
also supports strategies, plans and policies effectively.
Operating budget reports: Operating budget report will help managers to evaluate the different
performance level of employees within the firm in order to mange and control them effectively
and efficiently. This will help to manage resources and activities under the budget which will
also help to cope up with financial issues and problems (Cooper, 2017). The operating budget
reports will analyse the best performance provided by the employees towards their individual
work which will help management to categories them in order to provide incentives and rewards.
Job cost-based reports: Such reports will help managers in Tesco to evaluate the cost of
products and services within the firm in order to manage and control them effectively and
efficiently. The job casting system is appropriate for those firm where the production is One off
for the firm. In this case, the method is specially used when a consumer demands a particular
product or service in a specific time period effectively. Such reports are usually combined with
the estimate revenues of the business. It will also determine the cost of products and service
while the work is in progress.
Accounts receivable ageing reports: Accounts receivable ageing report will help managers in
the firm in order to control and manage the cash flow activities. The report can be described as a
critical tool which breaks sown the customer balance at the time when they are connected to the
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firm by purchasing products and services. The reports will also help to overlook at the business
previous debts effectively.
Performance reports: Performance reports are the main statements in order to increase the
production and profitability by increasing the skills and knowledge within employees. The
performance analysis reports will help managers to evaluate the performance level of employee
towards their individual or team work. This will also help to make strategies and plans in order to
improve and develop the performance of different departments in the firm.
MANAGEMENT ACCOUNTING IMPORTANCE
Management accounting and reports are very crucial for the firm in order to manage
different operational and financial activities. Such reports will help managers in Tesco to
increase the effectiveness of their decision making towards enhancing the profitability and
production for the firm. Operating budget reports will help to manage resources and activities
under the budget which will also help to cope up with financial issues and problems. This will
help them to make decisions in order to improve and develop the overall performance of
organisation (Ponticelli, 2017).
Thus, it can be said that management accounting and reports are very useful for the firm
in order to manage and control different resources within the firm effectively. This will increase
the productivity and profits for the firm effectively.
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TASK 2
P3 Income statement
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Illustration 1: Marginal costing method

From the above analysis it can be said that the marginal costing method is producing
9300 of net profit amount and in case of absorption it is 9600. thus, both marginal and absorption
costing methods are showing different net profit amount. It can be said that the calculation
method is different from each other effectively. There is a interesting fact about the marginal
costing method that it takes variable cost in the process of calculating net profit amount and also
compute the overall cost of the products and services effectively. The marginal costing system
includes sales revenue which is 21,000 and direct material 4,200 direct labour 3,500 and
production overheads 1,400 is deducted from it which produce variable expenses of 7,800. In
that case the calculation for absorption costing method is totally different that it takes all the
variable costs such as semi-variable and fixed expenses in order to compute the overall cost for
Tesco. Absorption costing method include sales revenue of 21,000 and deduct cost of production
9,500 and variable expenses such as fixed selling cost 600, administrate cost 700 and overheads
600 which produce a net profit amount of 9,600 effectively.
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Illustration 2: Absorption costing method

Thus, it can be said that there is a minor difference between these two methods
calculation. In that case, it is necessary to understand the variable expenses, semi-variable and
fixed expenses. Fixed expenses are those which remain unchanged for the organisation for an
example, employees and managers salary is the best example of fixed expenses within the firm.
Variable expenses considered different nature that it consistently changes in terms of values and
never remains same for the firm. Semi-variable expenses are those in which the one part remain
same and another part keep changing within the firm. These are made in various combinations in
the business. Qualitative and quantitative approaches are also best in order to calculate the nature
and costs of expenses within the firm effectively. It is very difficult for the managers to choose
one methods in order to find out the net profit amount. It can be said that both methods are
important for the firm and considerations should be on both. Both methods considered different
values and expenses in order to evaluate the net profit amount. In that case, managers should use
both methods which will help them to take consideration of both variable and semi-variable
expenses within the firm. Fixed costs are not incurred directly in the marginal costing method in
relation to the production process effectively.
Thus, it can be said that both methods keeps their own importance in order to calculate
the net profit amount for the firm taking variable and semi-variable and fixed expenses
effectively. This will help managers to take decision appropriately and will increase the
profitability and production for Tesco efficiently.
TASK 3
P4 Importance of budget in planning and controlling purpose.
Financial Budget: It is used to explain the expectations of the industries in order to
enhance the cash revenues for the organization. It is based on the future plans of the organization
and also helps in constructing plans and strategies that can help the company in enhancing their
profits (Otley, 2016).
Cash Budget: Managers can control the flow of cash in order to operate the functions of
the business organization, Effective flow of cash is managed on monthly or yearly basis.
Budgeting cash is one of the most important task for the managers in order to manage the
functions of the organization and regulate the availability of cash in the organization
(Bhattacharya, 2014).
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All the flow of the cash that occurred in the business regarding, salaries, transactions,
production and manufacturing cost can be managed by the constructing budgets in the
organization.
Capital expenditure budget: Plant, land, machinery are some major assets of the
organization upon which managers focus the most. This assets are very useful and important for
the organization. Management of capital expenditure budget is useful in managing the assets of
the organization, such budgets are acquired from long term bond of the organization.
Balance Sheet Budget: Such budgets are managed on the basis of the fulfillment of the
demands and requirements of the organization, for effective management of the budget mesh
constructing proper and appropriate balance sheet budget is the core requirement for the
organization (Chenhall, 2015).
OPERATING BUDGET
Revenue and sales budget: For managing and operating the effective customers
strategies organizations construct sales and revenue budget, that helps in controlling the
operational activities of the firm. It is the duty of the managers to analyze and evaluate the
organizational position of the firm in order to manage its financial activities.
Expense Budget: This budget helps the organization to evaluate the expenses of the
organization in some specific period of time. Expense budget also helps the firms to analyze the
and estimate the budget for future firm which managers can construct the plans and strategies
which helps the organization to reduce its expenses and increase the productivity and
profitability of the organization.
Project Budget: it is budget which revolves round the sales, profits and expenses of the
organization. Profit budgets are use to analyze the profit sharing ratio of the organization. For an
example, if the expected profits are low than there should be some plan and strategies managed
and formulated by the managers in in order to increase the production and sales to control the
expenses. This will also increase the profitability which leads towards accomplishing objectives
and goals.
FIXED AND VARIABLE BUDGET
Fixed cost: These are those expenses and expenditures of the organization that are
necessary and important for the growth and development of the firm. Fixed cost is use to manage
the relational outcomes with the suppliers, customers and employees in more effective manner. It
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is tool for managing and controlling the activities of the business. For example the monthly
salaries which are paid by the firm to their employees is considered as a fixed cost for the
organization.
Variable cost: The scope and operational activities of each organization differs from one
another, variable cost are the such expenditures of the organization that are depend upon the
number of functions of the organization. Raw material which are used in the process of
production are considered as one of the best example for variable expenses of the organization.
ADVANTAGES DISADVANTAGES
Budgeting is the method which is use to help
managers to convert strategies and plans into
actions
Lack of employees participation in functioning
business activities is the main disadvantage and
it also produce sense of demotivation among
the various members of the organisation.
For maintaining and operating business
operational activities preparation of the budget
is most important aspect for the organisation.
It creates sense of unfair-means among the
employees.
It helps in developing effective communication
within the organisation.
It gives rise to competition and politics within
the organisation.
It helps in managing the various kinds of
resources of the organization.
Budget sometimes, reduce the initiative and
innovation at lower level and will be a
disadvantage if used rigidly or mechanically.
In order to maintain the cost effectiveness of
the organisation preparing budget is very
beneficial for the organisation.
Preparing budget is very time consuming
process for the organisations. As it makes its
working very rigid and less flexible.
BUDGET PREPARATION
Obtaining estimates: Estimates helps the managers in order to construct the budgets more
effectively and in a more efficient manner, it helps in evaluating the sales, cost of production,
manufacturing cost, resources availability. It helps in constructing more effective budget, it also
helps the managers to handle the unstable situations which can occur in the organisation. Based
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on the informal and formal discussion budget will further send to the higher department for
seeking approval (Coe, 2014).
Coordinating estimates: It helps the managers to identify the availability of the resources in the
firm. The main responsibility of the budget department is to identify the authentication of the
various budgets in order to chose the best appropriate approach.
Budget communication: Communicating the plans and policies regarding budget with other
members of the organization helps in creating satisfaction and motivation among the different
members and employees of the organization.
Implementation of budget plan: Lastly the report of the budget is being sent to the managers in
order to implement it as a plan or policy of the organization to control its financial expenses and
activities.
The process of creating budget is very important for the organization and on the other is
iv also very critical as it involves studying various outcomes of the market. A proper and
effective budget will help in increasing the productivity and profitability of the organization
(Cooper, 2017).
IMPORTANCE OF BUDGET
Budget is important as it helps in regulating financial activities and expenditures of the
organization. It helps managers to control their financial activities and outcomes of the firm in a
most effective manner. The process of managing the budget is:
Cost-based pricing: It helps the managers to decide the actual selling cost of products that will
attract the attention of the customers in the market.
Cost plus pricing: At this level cost related to labour, raw materials, and other manufacturing
related expenses are identified by the management unit of the organization.
Profit pricing: It is the strategy to enhance the profit ratio of the organisation by selling goods
and services at a more efficient price.
Transfer price: It helps in managing cost of product to increase the profitability of the
organization.
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TASK 4
P5 Balance Scorecard approach to respond financial problem.
Managing financial activities is the most crucial aspect of any business organization. It
helps in managing all the outcomes of the organization, and it also helps in increasing
productivity and profitability of the organization (What is Balanced Scorecard, 2018).
Financing helps in reducing the extra and useless expenses of the organization in order to
increase its profit ratio. The cash revenue of the business can be improved by an effective
controlling, planning and management of the financial issues. The business has a financial loss of
£1.5 million for the last few problem which is a major issues for the firm in order to maintain the
profitability and production effectively. There are various approaches which helps the business
in reducing the financial issues occurred in the organization, Customer relationship management
is considered as one of the most prominent one (Ponticelli, 2017).
For increasing the profit ratio of the firm, organizations must use the aspects of
innovation and creativity within the working of the business functions. This helps in solving the
financial problems in a more effective manner. Management should also design BSC and
monitor in order to achieve better results and to turn losses into profits efficiently.
BALANCE SCORECARD APPROACH
This approach is used to handle the financial problems in a more effective and efficient
manner. It also helps in evaluating the internal environment of the organization with the help of
techniques of strategies management approaches. The tools of the traditional method of
balancing scorecard is based on identifying various aspects such as growth, development,
process and activities that are present within the firm (Messner, 2016).
These activities revolves around, collection of data and all the other objectives of the firm
in order to achieve them. The financial loss of £1.5 million is a big loss for the firm which
should be managed by controlling financial activities and budgeting plan. Management
accounting is the technique which is used to solve the financial problems of the organization in a
more systematic and effective manner. Improving performances of employees will also lead
towards increasing profitability (Gibbons, 2015).
Vision Determination: the vision of the firm should be main source of balance scorecard
method and it should mainly based on enhancing the productivity and profitability of the
organization.
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Add measurements, perspectives and objectives: In vision circle the main areas of
business processing should be financial growth of the organization. There should be proper
objective and assigned targets to analyze the various issues that are related to the business.
Share and communicate: This is used to analyse the short term plans and actions that
can manipulate the working of the organisation. Strategic management helps in developing and
implementing long term plans for the operations of the business.
Just-In-Time (JIT): This approach is use to enhance the skills and efficiency of the
employees and also increase a sense of learning attitude within them.
On the other hand the approaches of balance scorecard is helpful in handling and solving
financial problems of the firm to increase its productivity and profitability. The financial loss of
£1.5 million is a big loss for the firm which should be managed by controlling financial activities
and budgeting plan, management accounting is the technique to solve the financial problems of
the organisation in a most effective and efficient manner. Managers can control the flow of cash
in order to operate the functions of the business organization, Effective flow of cash is managed
on monthly or yearly basis. Budgeting cash is one of the most important task for the managers in
order to manage the functions of the organization and regulate the availability of cash in the
organization (De Baerdemaeker, 2015).
CONCLUSION
It can be concluded from the above report that management accounting is important for
the firm in order to reduce the operational and financial issues and problems within the firm.
Management accounting reports will help management to prepare financial reports and analysis,
cost of business operational activities and provide suggestions. This will help managers to take
decision in order to increase profitability. Management accounting reports are very useful for the
firm in order to manage and control different resources within the firm effectively. This will
increase the productivity and profits for the firm effectively. Net profit amount is also calculated
for Tesco using income statement and methods such as marginal and absorption costing. Budget
management will also help managers to manage the different resources under the budget which
will also help to deal with financial problems and issues which will help to increase the
profitability for the firm. Balance scorecard approach and Just-In-Time method will also provide
suggestion towards responding to the financial issues within the firm effectively.
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REFERENCES
Books and Journals
Bhattacharya, A., 2014. Green supply chain performance measurement using fuzzy ANP-based
balanced scorecard: a collaborative decision-making approach. Production Planning &
Control. 25(8). pp.698-714.
Chenhall, R. H., 2015. The role of innovation in the evolution of management accounting and its
integration into management control. Accounting, Organizations and Society. 47. pp.1-13.
Coe, N., 2014. Two decades of the balanced scorecard: A review of developments. The Poznan
University of Economics Review. 14(1). p.63.
Cooper, D. J., 2017. Popularizing a management accounting idea: The case of the balanced
scorecard. Contemporary Accounting Research. 34(2). pp.991-1025.
De Baerdemaeker, J., 2015. The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective
organisational commitment. Management Accounting Research. 29. pp.1-12.
Gibbons, R., 2015. Formal Measures in Informal Management: Can a Balanced Scorecard
Change a Culture?. American Economic Review. 105(5). pp.447-51.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Ponticelli, J., 2017. Austerity and anarchy: Budget cuts and social unrest in Europe, 1919-2008.
Online
What is Balanced Scorecard. 2018.[Online]. Available through : <
https://balancedscorecards.com/balanced-scorecard/#learn-overview >
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