Management Accounting Report: Imperial Crown Jewels Ltd. Case Study

This report provides a comprehensive analysis of management accounting practices, focusing on the case of Imperial Crown Jewels Ltd. It begins with definitions of management accounting and explores various accounting systems such as price optimization, inventory management, cost accounting, and job costing. The report details the benefits of these systems, emphasizing their role in client loyalty, profitability, and effective management control. It also covers essential accounting reports, including performance reports, accounts receivable reports, job cost reports, and inventory management reports, highlighting their importance for decision-making and financial performance. Furthermore, the report delves into cost analysis using marginal and absorption costing methods, offering insights into cost management and pricing strategies. Finally, it discusses various planning tools used to control budgets, along with their merits and demerits, and explores tools to resolve financial issues, providing a well-rounded overview of management accounting principles and their application in a real-world business scenario.

Management Accounting

INTRODUCTION
Management accounting is a profession which involves preparation of financial and
statistical reports that will help management in gathering relevant and useful information so as to
make short as well as long term decisions. Profit & Loss a/c, Balance sheet, Cash flow statement
etc. are such financial reports which reflects true and fair financial position of company during
an accounting period. It assist stakeholders (Both internal and external parties) to make decision
about further investment in company so as to get maximum amount of return. For this, company
required to appoint knowledgeable and experienced accounting manager who know how to
record all business transactions in financial statements. The present assignment is based on The
Imperial Crown Jewels Ltd. which is engaged in manufacturing of Jewellery items for the people
of UK is selected for the purpose of preparing this report. It has employed 24 employees which
support them in manufacturing and selling products to the targeted customers. The company has
generated approx. £376,000 as net revenue. The project includes different management
accounting and reporting system with brief description. In addition with this, calculation of cost
using marginal and absorption costing method is also done under this report. The project also
includes various planning tools used to control budget with their merits and demerits. Tools used
to resolve financial issues are also discussed under this report (Bedford, Malmi and Sandelin,
2016).
TASK 1
P1:
Definitions of MA:
Institute of Management Accountants (IMA): Management accounting is an activity
which are performed by some accounting professionals to reflect true and fair financial position
of company. It can be done through preparing financial reports to make an effective decisions
and suitable plans for the betterment of an organisation.
Management accounting requires skilled and knowledgeable accounting manager who
are much capable to record business transactions in financial statements so that accurate and
reliable information can be communicated to stakeholders of company.
Meaning: Management accounting assist shareholders to understand company's true and
fair financial position of company so that further goal setting, decision making and budgeting
can be carried out effectively. It can be communicated through preparing financial statements
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such as Profit & Loss a/c, Balance sheet, Cash Flow statement etc. on annual basis or can be
catered through qualitative information which can be considered while formulating decisions.
Therefore, management accounting is valuable part of an organisation which drives them
to achieve growth and success in competitive market. The accounting manager is held
responsible to perform all roles and responsibilities regarding recording, summarising and
interpreting the financial as well as non-financial data into useful information so as to make an
effective decision and suitable plans for the betterment of an organisation (Carlsson-Wall, Kraus
and Lind, 2015). Imperial Crown Jewels Ltd. is operating at small-scale due to which it is
required for them to maintain its financial performance which can be identified through
preparing financial reports on each accounting year. To support in preparing financial statements,
various accounting systems are there which are required to be implemented. Such accounting
systems are described as below along with their benefits:
Different management accounting systems:
Price Optimisation system: It is such an accounting system which is mainly focuses on
the identifying the opinion and perception of targeted people towards the amount charged by
company against their products and services. For example, Imperial Crown Jewels Ltd. is
engaged in manufacturing of Jewellery items at certain price which may influence their buying
behaviour to shift to rivals company who can charge less price than Imperial Crown Jewels Ltd.
Therefore, using such accounting system facilitate management to identify the sweet spot when it
comes to price make changes in their existing pricing policies so as to maintain the satisfaction
level of their regular clients.
Inventory management system: It is also more useful accounting system which help
company in acquiring knowledge about the inventory level at present in their warehouses so that
further decision regarding manufacturing products can be made to meet client's needs and
demands. Imperial Crown Jewels Ltd. is engaged in manufacturing of Jewellery items therefore,
it is must required for company to avail products for them on time which can be possible through
maintaining adequate amount of inventory with them. It can be done through using inventory
management system (Cuganesan, Dunford and Palmer, 2012).
Cost accounting system: Cost accounting system attempts to estimate the cost of their
products for the purpose of controlling costs and conducting a profitability analysis. Imperial
Crown Jewels Ltd. is manufacturing wide range of Jewellery products which requires huge
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amount of funds. Therefore, using such accounting system the management are able to perform
different functions at minimum cost which makes positive impact on their profitability.
Job costing system: It is such an accounting system which help in identifying and
analysing the total cost incurred in producing individual product or group of products. This will
requires management to prepare budget to produce particular products after analysing the future
response of clients towards products and also profitability so that cost has been allocated
accordingly. Imperial Crown Jewels Ltd. is manufacturing wide range of Jewellery products
therefore, identifying the products which were more in demanded in previous years and
accordingly allocate cost to produce demanded products to achieve future sales and profitability.
Benefits of management accounting systems:
Assist in achieving loyalty of targeted clients: Using price optimisation system, the
management of Imperial Crown Jewels Ltd. Are able to identify the willingness of targeted
customers to pay for the products and services offered by them. It enable them to make an
effective pricing policies which can attract customers easily as well as generate huge profits for
company (Johnson, 2013)..
Achieving profitability: Using accounting systems such as cost accounting system
facilitate company in analysing the cost invested in producing particular product or bunch of
products which makes easy for them to identify the profitability achieved after selling such
products to their clients. This will direct management to focus on minimising cost during
production process so as to increase
Effective management control: Using accounting systems assist management to make
changes in their existing decisions and plans in order to maintain their financial performance and
strong their presence among their rivals in market.
P2:
Imperial Crown Jewels Ltd. Is operating its business at small-scale which deals in
manufacturing is manufacturing wide range of Jewellery products. Due to small-in size, an
organisation tried to increase the size of company which can be done through maintaining
accounting reports and statements on regular basis so that transactions done by company on daily
basis can be easily identified. It requires management to gather relevant and useful information
which can be possible through maintaining various accounting reports such as performance
report, inventory management, account receivable report, job cost report etc. Therefore, it must
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required for every organisations such as Imperial Crown Jewels Ltd. to maintain such types of
accounting reports which directs managers to make an effective decisions and suitable plans for
the purpose of achieving growth and success in competitive market. It requires company to have
skilled employees who ate much knowledgable about recording each transactions in financial
reports without any errors (Klychova, Faskhutdinova and Sadrieva, 2014). Therefore, such
accounting reports will be essential to adopt by an organisation to maintain their financial
performance and loyalty of targeted clients for longer period of time. It can be further understood
in brief manner under the below:
Performance report: It is a documentation which reflects the performance level of each
department working for the growth and success of an organisation. It can be determine through
comparing their actual performance with desired performance so that the deviations can be easily
identified which restrict them to reach to an expected level of performance. For this, the
managers of different department are responsible to maintain records of every transactions made
by them so that it can be represented towards high authority for the purpose of analysing their
performance. Therefore, it will be more useful for Imperial Crown Jewels Ltd. In order to
maximise their overall performance level which makes easy for them to attract lots of investors
as well. Importance of using such report report is that they help in identifying flaws in the
existing manufacturing process and enhance effectiveness and efficiency.
Account receivable report: This is the accounting report which is maintained to identify
the amount which is yet to be collected by company from its debtors on particular point of time.
Such accounting reports contains the list of debtors along with their unpaid amount to company
so that the management can make further actions and strategies to recover the same on due date.
It also help management to re-think about their existing credit policies and should make relevant
changes to prevent any case of bad-debts in near future (Lavia López and Hiebl, 2014).
Job cost report: This is the accounting report which also more useful for Imperial Crown
Jewels Ltd. to adopt in order to analyse the cost invested and required to execute business
functions more effectively. Such report contains the information about investment made to
produce particular product along with their sales quantity and revenue earned which makes easy
for management to make further decision regarding producing products at required quantity in
order to achieve higher profitability for business.
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Inventory management report: It is an accounting report which indicates about the level
of inventory the company have at present which makes easy for management to make further
decision regarding ordering raw materials from suppliers to avail sufficient amount of inventory
to production and other departments. Imperial Crown Jewels Ltd. deals in manufacturing is
manufacturing wide range of Jewellery products whose demand can be rises at anytime therefore
collecting information about current inventory level through using such accounting reports will
assist company to fulfil the acquirements of their regular clients. The maintenance of inventory
reports assists in enhancing efficiency in the organisation as it eliminates wastages of inventory
along with reduction in per unit overhead costs. (Mistry, Sharma and Low, 2014).
M1:
Imperial Crown Jewels Ltd. may get various advantages by applying different
management accounting systems. Such advantages are given as below:
Management accounting systems Benefits
Cost accounting systems It assist management in minimising the usage
of cost through allocating them to produce
profitable products.
Inventory management system Imperial Crown Jewels Ltd. to meet needs and
requirements of business clients on time
through storing adequate amount of inventory.
Price optimisation system It help Imperial Crown Jewels Ltd. to maintain
the loyalty of their clients through setting an
effective pricing policy after identifying the
willingness of their clients.
Job costing system It helps in determining total cost invested in
producing individual product or group of
products.
D1:
There are various accounting and reporting system which assist managers to gather
relevant and useful information in order to make an effective decisions and suitable plans for the
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betterment of an organization. For an example, pricing optimization system enable management
to identify the actual perception of clients towards existing pricing policies and accordingly
identify the sweet spot which is helpful in maintaining a balance between price and value in
context of products and services offered by the company.
TASK 2
P3:
Cost: It refers to the amount which is incurred by the company to produce something
and execute business functions with an objective of earning profits in future period of time. It is
the value of efforts and time invested, acquiring resources, bearing risk etc. which are essential
requirement to execute business activities in more effective and efficient manner. It also involves
material, labour, overhead costs etc. which is used in manufacturing process (Moser, 2012).
Imperial Crown Jewels Ltd. to make an effective pricing policies after analysing the cost
and margin of company so as to achieve profitability. For this, there are two costing methods
such as marginal and absorption method which are used to calculate net profitability of company
among which suitable method will be opt by company in increase its profitability. It can be
further understood under the following:
Marginal costing: It is a method which is used to calculate net profitability when extra
unit of output are produced other than main output. Under this method, only variable cost is
included in net profit calculation due to which the profitability of company are increased. It is
also called as variable cost which includes labour and material cost in addition with estimated
portion of fixed cost.
Absorption costing: It is an appropriate method which additions all costs incurred in
execution of business activities thus more reliable and accurate. Under this method, both variable
and fixed cost are included while making calculation of net profitability of company. It is
required to Generally Accepted Accounting Principles (GAAP) external reporting. Due to
inclusion of all invested costs, the net profitability of company decreases thus less preferred by
most of an organisation (Soin and Collier, 2013).
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Break even analysis: It is considered as one of the crucial point at which every cost and
expenses needed to provide equal outcomes for Imperial Crown Jewels Ltd. It is called as
effective point in which organisation neither earn profit or nor incur into any kind of loss.
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Margin of safety: It is considered as one of the reliable aspects which assist managers to
manage intrinsic value of stock at market cost. It is termed as more accurate ways to provide
effective ways as an end sales volume which would be depend as appropriate business range to
overall break even analysis.
M2:
There are mainly two types of accounting techniques which includes:
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Standard costing: It is a beneficial costing method which help in determining net future
profitability through considering various aspects which includes future sales revenue, costs and
demand. Such method is most preferable by most of the companies in order to ascertain future
outcomes.
Marginal costing: It is a costing methods in which decision are implemented through
ascertainment of total costs. It is adopted by almost every organization including Imperial
Crown Jewels Ltd. so as to ascertain net profits through considering only variable costs.
D2: Data interpretation
As per the above calculation, it has been observed that the profitability of Imperial Crown
Jewels Ltd. Increases when using marginal costing method whereas decreasing while using
absorption costing method. In the given calculation, 17500 of profit came using marginal
costing method whereas 15675 came by using absorption costing method. Such difference of
9600 comes due to addition of variable cost. In Break even, total number of units sold are 500
and total amount of sales revenue to achieve break even is 20000. To earn minimum profit of
1000, Imperial Crown Jewels Ltd. need to achieve sales revenue of 1333.33.
TASK 3
P4:
Budget: This is the forecasting tool which is used by the organisation for making the
business operations efficiently and effectively for a certain period of time. By using this tool, an
organisation can control their expenses and enhance their revenue savings. This can only be
attained after comparing actual budget information with the forecasted information and try to
overcome deviation in an effective manner. this is basically a formation of the forecasted income
and expenses over a period of time so that the management of the cited organisation could
control in an effective manner (Vaivio and Sirén, 2010).
Process of budgetary control: There is a strong need to control the budget by detecting
the deviation and make proper steps in order to gain the sustainability. Budgetary control is
basically mean how effectively managers have utilised budgets in order to regulate costs and
operations for a particular period of time. On the other hand, this can rightly have said that
budgetary control is the process for managers to fix the financial and performance goals along
with the budgets, compare the actual outcomes and adjust performance accordingly. Budget can
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be effectively control by incorporating budget centres, budget manual, budget controller, budget
committee, budget period. These all are mentioned hereunder:
Budget organization: An appropriate firm is essential for effective formation,
maintenance and administration of budgets. A budgetary committee is incorporated that
comprises departmental heads of diverse divisions.
Budget Centre: It is a part of firm through which budget can be made divisionally.
However, this can simply have said that the management could allocate budget division-wise so
that the wastage of budget can be traced efficiently. This is essential for cost control purposes.
Budget Manual: A budget manual is a document which mentions duties and likewise
responsibilities of the diverse executives concerned along with the budgets. This mentions
relation among diverse functionaries. It contains budgetary process, firms structure, setting up of
responsibilities and budget time table (Windolph and Moeller, 2012).
By using these, Imperial Crown Jewels Ltd. could optimum control its budgets. Apart
from that, various planning tools are used along with the advantages and disadvantages of them.
some of them are mentioned hereunder:
Forecasting tool: This assess the financial condition of Imperial Crown Jewels Ltd.
actual condition of it and assist in competency mapping. Forecasting tool majorly supports the
organisation’s management in order to evaluate the current position and make assumptions for
the cited organisation.
 Advantages: Forecasting tools provides appropriate data which could assist to form an
efficient decision in order to meet out the future circumstances. This is helpful in
measuring existing position.
 Disadvantages: This is rightly said that the there is nothing which could calculate the
actual data and forecast accordingly. Henceforth, management of cited organisation can’t
rely upon the forecasting tool in order to know the forecasted results.
Contingency tool: This is the tool which facilitates management in dealing with future
contingencies through making an effective decisions and plans in advance. This protect the
stability of company in competitive market for longer period of time. Merit: It aids management in controlling business cost and operation that supports in
increasing the net profitability of company (Zimmerman and Yahya-Zadeh, 2011).
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 Demerit: Such tool is applicable only to deal with emergencies thus not be beneficial for
every situations.
Scenario tool: It is another beneficial tool which assist managers in identifying the
alternative available to execute business activities in an appropriate manner. Such tool directs
and guides management to perform different functions. Merit: It help in collecting relevant data about the several options and assists in executing
business functions in desired manner.
 Demerit: Such tool requires more time in identifying various alternatives due to which
the effectiveness of business activities and results are much affected.
M3:
Budgetary control is an important business function which help company in reducing
operation cost through allocating cost to different division who can provide desired outcomes to
company. For this, management is held liable to control, monitor and operate the budget
prepared to execute business activities more effectively.
TASK 4
P5:
Every organisation exist in market to achieve future growth and sustainability which can
be possible through maintaining financial performance by analysing the results received from
each department more carefully (Management Accounting. 2016). Imperial Crown Jewels Ltd. Is
operating its business at small level due to which it is required to maintain records of every
transactions made by them on daily basis so that deviation if any, can be easily found which
affect their performance level. Such deviation may be related with lack of employee support,
overvalued and undervalued of amount recorded in financial statements etc. To identify and
overcome from such issues, there are various planning tools such as KPI, Financial governance,
Benchmarking etc. It can be further understood under the below:
Key performance Indicators (KPI): It is an effective tool which can be applied by
Imperial Crown Jewels Ltd. to provide an opportunity to identify the aspects which created
issues and lowers down the profitability of business. It facilitate management in removing such
resources that can harm the financial performance and enhance the effectiveness of overall
process. It also assist management of Imperial Crown Jewels Ltd. in analysing the performance
level of each employees through comparing their actual performance with the standard so that
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