Management Accounting Report: Systems, Costs, Budgeting, and Analysis

This report delves into the realm of management accounting, providing a comprehensive analysis of its systems, cost calculation techniques, and budgeting processes within the context of Cambridge Manufacturing Ltd. It explores various management accounting systems such as price optimization, cost accounting, job costing, and inventory management. The report then proceeds to examine different cost calculation techniques, including absorption costing and marginal costing, with practical examples. Furthermore, the report discusses the importance of budgeting for planning and control, and concludes by addressing financial problem identification and the application of appropriate techniques. The report highlights the differences between management and financial accounting and the significance of managerial accounting reports. The report includes calculations and analysis of costs using various methods and techniques, offering a detailed insight into the financial aspects of the business.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Management accounting and several types of essential systems...........................................1
TASK 2............................................................................................................................................4
Calculate cost using appropriate techniques...........................................................................4
TASK 3...........................................................................................................................................8
Using budgets for planning and control.................................................................................8
TASK 4..........................................................................................................................................10
Identify financial problems and apply appropriate techniques.............................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a set of skills that perform the various accounting information
in such a way that it can assist the management for a better understanding of accounts to prepare
and formulate the policies and decisions for the organisation (DRURY, 2013). It is mainly
followed by the internal team of an enterprises and this is only thing which makes it different
from financial accounting. To better understand the topic of relevant topic taken Cambridge
manufacturing Ltd, it provides weight loss supplements and produced a range of specialist
dietary products and offers nutritional assurance with conventional foo for more gradual weight
loss and weight management. The entire report presents the understanding about management
accounting system as well as reports of particular accounting period of time. Report also focus
on cost techniques which can use to calculate of net profit. Additionally, several planning tools
and accounting tools are applied by business to face off different types of financial problems.
TASK 1
Management accounting and several types of essential systems
Management accounting is the process to prepare different types reports regarding to
internal activities then present in front of top management. In present time every organisation
want to maintain and control their internal system in effective manner so they can apply
management accounting system.
Management accounting system and their types
Management accounting system is procedure to collect, analyse, measure and
determinant meaningful financial information then record in right accounts. These systems can
apply according to situation and help to increase productivity as well as profitability of
Cambridge manufacturing Ltd. There are defined essential system of management accounting
that are discussed underneath:
Price optimisation system- This system mainly based on customer perception and pricing
structure of the company. Every manufacturing company wants to increase their sale so they will
conduct research regarding to their product. It is a mathematical analysis that consist of financial
information of their products and set price of different items as per the analysis and customer
perception. In Cambridge manufacturing Ltd, apply price optimisation system to set best prices
of different supplements and attract much more customers (Herbert and Seal, 2012).
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Cost Accounting System – It is a set of framework which can use by companies to
evaluate the cost of their products in the context to analysis of stock, profitability as well as cost
control. It can examine past, present and future data to provide the basis for managerial decision
making. A cost accounting system has been recorded all data in simple way and the purpose to
fix sale price to acquire small part of mission. In Cambridge manufacturing Ltd help to
investigate process of producing at different level and detail information like raw material, work
in progress and finished goods.
Job costing system – A job costing system is the process of collecting information which
is connected to cost of production as well as service job. These type information need to submit
in the contract where costs are reimbursed. Most of the companies used particular system to
provide facility of customization of products & services to their customers. In the context to
Cambridge manufacturing Ltd, the system is useful to determine information and examine
accuracy to able to quote price that can allow for a reasonable profit (Kaplan and Atkinson,
2015).
Inventory management system – This system is track the record of inventory and
analysis each level manufacturing. The particular system mainly consider for manufacturing
company where consist of raw material, finished goods in warehouse, stock dispatched to
delivery to merchant or customers. In Cambridge manufacturing Ltd manufacturing company
apply the system to use material in appropriate way and try to reduce wastages. The system
based of three methods which are
 LIFO – According to this method inventory come in last that will sale out first.
 FIFO – In this method first in first out of stock and company apply this method to
generate profit.
 AVOC – There are material used on Average cost.
Difference between management accounting and financial accounting
Basis Management accounting Financial accounting
Meaning It is the process of internal system
and provide data to managers to take
decision and prepare plan and
strategies.
It is an accounting system which
can focus on develop of financial
statement in order to provide
financial information to outsider of
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business
Information There are providing monetary and
non monetary.
These types system provide only
financial information.
Objective There are objective of the
management system to provide
information which can help to
decision making process and provide
detail information.
The main objective of this system
to provide all financial information
to creditors, investors and clients.
Format Under the system there is not to any
particular format.
To prepare report under the system
need to specified format.
Presenting financial information
Management accounting apply by every organisation in order to present accurate and
reliable information to managers to management. These information will be reliable and up to
date as per the financial year. It can present on the basis of user who can easily understand all
presented information.
Different types of managerial accounting reports
Management accounting reports is essential part of any organisation which can provide
usable and appropriate information. In the report record all detailed information regarding to
financial activities and provide to management. As a result, it can help to decision making
process and reduce weakness in effective manner. There are Cambridge manufacturing Ltd
develop different types of reports these are -
Performance Report – The particular report presents performance of organization in
different types of situation and how to conduct it. There are monitoring performance of company
as well as employees in reference to particular task. In Cambridge manufacturing Ltd, use
particular of report generate by the managers to provide rewards to employee and help to build
up good market image of the organisation in the market (Kotas, 2014).
Budget Report – This type report mainly produced by manager to know comparison
between budgeted and actual performance in reference to examine to company is able to meet its
targets or not. Cambridge manufacturing Ltd produce budget report to estimate income and
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expenses of a company and make assure about the operational and executional activities which
are presented on the base of estimation.
Inventory management Report – These type of reports mainly produced by
manufacturing company in order to track the record of producing process. In Cambridge
manufacturing Ltd, it is prepared to know how to company use different types of raw material at
each level and know wastage inventory. It can help to deduct quantity of wastages and utilises
resources in effective way.
TASK 2
Calculate cost using appropriate techniques
Cost – The particular term directly connect to the business and present the amount of
money which is received and paid by company to conduct different types of transactions. In the
manufacturing company to produce goods and services record on the basis of cost. There are
including all necessary cost which can get assets in lace and ready to use. There are discussed
various types of cost -
 Direct & Indirect Cost – Direct cost are those cost which are connected to product and
amount of expenses to easily attributable of the product. These types of cost are
appointed for the commodity on purpose and effect relationship. While indirect cost are
connected to product but amount of expenses is not track-able in an economically
feasible manner.
 Fixed and Variable cost – Fixed cost is that cost which can not change after the changes
in proportion to the change in result like monthly salary cost of a supervisor. On the other
side variable cost is changing in proportion to the change in aspects like direct labour cost
(Lukka and Vinnari, 2014).
 Production and non production cost – The production cost mainly focused on the
manufacturing of commodities such as labour cost while non production cost are
concentrate on other cost of the business such as administrative cost.
Absorption Costing – The particular method consider as managerial accounting cost
method where all expenses mainly related to manufacturing for specific products. The particular
method includes both type costs direct and indirect to analysis of cost of production. For
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example, Cambridge manufacturing Ltd manufacturing based company so they can apply
particular method to calculate net profit.
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Working note
Fixed costs 16000
Budgeted cost of production
80000 per
units
Budgeted fixed cost 0.2
Variable cost per units 0.65
Marginal Costing – It is method of costing where consider production cost to charged
cost units and fix costs to get total production cost. The particular technique implies the extra
cost involved in manufacturing an additional unit of output (Ward, 2012). It is known as total
variable cost appointed to one unit. To calculate from this method apply formula -
Marginal cost = Direct Material + Direct Labour + Direct Expenses + Variable expenses
Quarter- 2
Particulars Amount (in ￡)
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…. ….Sales 74000
Less: Cost of sales
Opening inventory (12000*0.65) 7800
….. ….production cost (66000*0.65) 42900
Less: Closing stock (4000*0.65) 2600
48100
Contribution 25900
Less:
…. ….Fixed overhead 16000
…. ….Fixed & selling expenses 5200
21200
Net profit 4700
… ...Reconciliation
… ...Working note Q1 Q2
… ...Variable costing profit 1900 4700
… ...Opening inventory 0 7800
… ...Closing stock 7800 2600
Absorption costing profit 4300 3100
… …Opening inventory 0 10200
…. …Closing stock 10200 3400
(b) Reason for analysing variations in profit
There is a different between result in the net profit due to marginal and absorption costing
method. Bo the different method where fixed overhead cost has been updated as period cost in
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marginal costing method. On the other side in absorption method whether fixed or variable is
categorised as cost of production (Maas, Schaltegger and Crutzen, 2016).
TASK 3
Using budgets for planning and control
Preparing a budget - Budgeting is a process that defines estimate figure of future
income and expenditure over a specific time of period. Budget is Financial statement or
estimation of revenue and expenses that can be made by a person, a business, a government or
an organisation. Financial department prepares the sheet to assists the department's head in
formulation of budget estimate. Manager discuss the plan for proposed level of activity. Top
management can work with the planned budget according to budget's financial circumstance and
prepare the estimate of forthcoming year. The complete budget are present by managers with the
approval of executive officers. Nero Ltd is used the same process to figure out the proposed
budget. They sets the expenditure level of all the products for every department. The estimate
figure are allocated to their target capital which are available for the project.
Operational budget:
It is a detailed prediction of all estimated income and expenses based on forecasted sales
revenue for a specific time of period. An operational budget is helps the Nero Ltd in the terms
for planning the day to day activities so they always know the working areas.
 Advantages - Its advantages are to Nero Ltd to manage the current indirect expenses
which are paid on daily or monthly basis such as office rent, salaries, wages etc. This
budget helps for evaluating the current actual expenses and past expenses too. So they
can found the variation in the expenditure (Tucker and Lowe, 2014).
 Disadvantages - It may have some disadvantages first it cover, it is time consuming
concepts especially for the poor organised company. There are not easily predetermined
of accurate data.
Master Budget:
It is a functional budget prepared by particular division of an organisation. Master budget
is sum of the all division's budget. It may includes income statement, balance sheet, cash flow
statement, fund flow statement of an organisation. Nero Ltd can prepare particular budget to
examine capital investment and manufacturing levels (Otley and Emmanuel, 2013) .
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 Advantage - Advantages of this budget are well planning of every division 's function. It
is summery of all branches which is overviewed by the management. This budget help to
determines the long term goals of company.
 Disadvantage - Master budget is an extravagant or big budgeted business strategy for
future sales, level of production, future expenses, capital investments. Disadvantage of
this budget are divisional staff are forced to achieve the target in spite of having practical
knowledge of the same task.
Zero based budget
Zero Based Budgeting is the process starts with the postulating that all the department
budget are zero. Nero Ltd's Manager are required to build the budget from ground up level
explaining every penny they want to spend. This is the process to creating budget from null
without using the prior budget or spending figure.
 Advantages - Zero-based budgeting is a budgeting method that allocates the resource
based on efficiency and requirement rather than on budget history. It improves the
organisation performance and operating efficiency by examining future expenditures.
 Disadvantage - To implicating a zero based budget require special training to personal
that is time consuming and costly. It may harm the brand image of Nero Ltd as it is
require new estimated data.
Pricing Strategies – In the business context, several types of pricing policies can help to
business in order to analysis of cost as well as expenditure where consist of various activities of
business. The Nero Ltd selecting two pricing policies to provide help to cover the cost of
product. The pricing strategy set of the company after analysing of market activities, there is
required to awareness of competitors. After collect information need to set prices f their products
in effective manners. As a result it can help to compete with their competitors and generate much
more profit.
 Cost plus Pricing – It is considered to be most essential approach which is used by Nero
Ltd in order to fix cost of goods sold. In this method consist of overhead cost and
material to selling stocks.
 Full costing pricing – It will include as practices of cost of a product which is determined
from as firms on the basis of their direct cost as per units.
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TASK 4
Identify financial problems and apply appropriate techniques
In present time every organisation face different type of financial problem which can
become reason of stress. There is need to manage money in proper way and have appropriate
monetary resources to execute business activities and operations. Currently Cambridge
manufacturing Ltd is dealing with some of them. As a result, it can affect to company's
productivity and also profitability. All the money related problems of the company as follows - Late Payments by clients – Many time clients who can purchase commodities on credit
and take late payments which is become reason of financial issues. As a result it can
affect to efficient of business so it is essential to tighten the credit policy so that
outstanding money can be achieved by the entity on time (Renz, 2016).
 Improper money management system – To conduct business activities it is required to
manage money in proper way but Nero Ltd can not manage as per the accounting
principles. To solve particular problem need to recruited hired skilled workers who have
knowledge of accounting and understand every situation easily.
The manager of Cambridge manufacturing Ltd are applied particular techniques to
recognise financial problem. These are as follows:
Benchmarking – The particular technique applied by company to achieve minimum
expected result. It is mainly applied to compare policies and practices of company with another
company to evaluate financial issues. Benchmarking can be used to identify problem of improper
money managements and late payments by customers through compare strategies of the
company with others. When company compare performance of Cambridge manufacturing
strategies and performance with another company that time get that selected company can not
proper manage of money transaction as a result it can affect to profitability.
KPI – The key performance indicator can be used by company to determine financial and
non financial information. As a result it can help to analysis of success and failure of the
processes that will be adopted by company. In Cambridge manufacturing Ltd use particular
technique to identify problem of improper money management system. It can assist to manager
how to determine unexpected expenditure that may take place in future (Sánchez-Rodríguez,
and Spraakman, 2012). Through this tool company can analysis financial and non financial
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indicator which can help to recognise unsudden expenses. Through financial indicator it is
getting that company can not record all transaction so it will affect to decision making process.
Financial Governance - All the financial problem of Nero Ltd are sort out financial
problem with the help of financial governance. Every type of company use the particular tool and
direct to manager to execute all the suitable principles so that the accounts can be developed in
fittingly manner. The financial problem of improper money management system has been sorted
through adopting accurate principles, issues of late payments by tightening credit policies of the
organisation. Through particular tool sort out the problem of improper money management
because company record every transaction in the accounting books and collect all cash receipts
and payments. To overcome from late payments set credit timing for the creditors otherwise
charge penalty.
Comparison between Nero Ltd and Cambridge manufacturing Ltd
Nero Ltd Cambridge manufacturing Ltd
In Nero Ltd cost accounting system is applied
by managers in order to tackle of financial
problem of improper money management
system. So through this system arrange records
and transact of suitable cost.
The company mainly applied inventory
management system to reduce wastages and
proper utilisation of resources. Through this
system they can track record of inventory and
applied to conduct operations.
The manage of the company has been applied
price optimization system in border to solve
financial problem of late payments by clients.
There are set structure of price regarding to
products where the clients pay amount in cash
rather than in credit (Schaltegger, Gibassier
and Zvezdov, 2013) .
There are using cost accounting system to
evaluate the cost of production unit then set
price of each product. The company producing
food supplements which is produce for reduce
health so different product has different cost.
CONCLUSION
As per the above report it has been concluded that management accounting plays
significant role to conduct business activities and enhancing performance of an organisation. The
main objective of management accounting to use statistical data and take a appropriate decision
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and control the business activities. It is a application of professional skills and knowledge to take
decision in reference to business. Different types of management accounting system can use by
company in order to execute of business in effective manner. There are cost accounting,
inventory management, job costing and price optimisation. Further various types of management
accounting reports prepare by manager to provide detail information of different section in front
of top management. Through these reports analysis performance and budgets through track
record of organisational information. In the manner of budgetary control three planning tool like
operating, zero based and master budgets which are used by managers to implement in suitable
way. There are applying techniques of KPI and benchmarking to recognise financial problems.
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REFERENCES
Books and Journals
DRURY, C. M., 2013. Management and cost accounting. Springer.
Herbert, I. P. and Seal, W. B., 2012. Shared services as a new organisational form: Some
implications for management accounting. The British Accounting Review. 44(2). pp.83-
97.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Lukka, K. and Vinnari, E., 2014. Domain theory and method theory in management accounting
research. Accounting, Auditing & Accountability Journal. 27(8). pp.1308-1338.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting.Journal of Cleaner Production.
136.pp.237-248.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Sánchez-Rodríguez, C. and Spraakman, G., 2012. ERP systems and management accounting: A
multiple case study. Qualitative Research in Accounting & Management. 9(4). pp.398-
414.
Schaltegger, S., Gibassier, D. and Zvezdov, D., 2013. Is environmental management accounting
a discipline? A bibliometric literature review. Meditari Accountancy Research. 21(1).
pp.4-31.
Tucker, B. P. and Lowe, A. D., 2014. Practitioners are from Mars; academics are from Venus?:
An investigation of the research-practice gap in management accounting. Accounting,
Auditing & Accountability Journal. 27(3). pp.394-425.
Ward, K., 2012. Strategic management accounting. Routledge.
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