Management Accounting Report: Costing and Profitability Analysis

This report delves into the core concepts of management accounting, emphasizing its role in decision-making within organizations. It examines various management accounting systems, including stock management, cost accounting, job costing, and price optimization systems, highlighting their benefits and applications. The report focuses on TPG Processing, a manufacturing company, and applies absorption and marginal costing techniques to prepare income statements. It also explores the advantages and disadvantages of different planning tools and compares how various organizations utilize management accounting to address financial challenges, ultimately demonstrating how management accounting contributes to sustainable success. The report further analyzes the importance of management accounting reporting, detailing account receivables, cost, performance, stock and production, and budget reports. It also critically evaluates the management accounting system and its reporting methods, while comparing and contrasting absorption and marginal costing methods.

MANAGEMENT
ACCOUNTING
1

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
P1. Requirement of management accounting systems................................................................1
P2. Methods of management accounting reporting.....................................................................3
Benefits of management accounting system................................................................................4
Critically evaluate management accounting system and reporting.............................................4
P3 Preparing cost and profitability statement using absorption & marginal costing system......5
Interpretation:................................................................................................................................11
Part B.............................................................................................................................................12
P4. Advantage and disadvantage of different planning tool......................................................12
P5. Compare organizations that adapting to system of this accounting to respond to financial
problems....................................................................................................................................14
Conclusion.....................................................................................................................................16
REFERENCES..............................................................................................................................17
Books and journals....................................................................................................................17
2

INTRODUCTION
Managerial accounting (MA) is that branch of accounting which is concerned with
recording and analysing the cost related, financial information along with qualitative information
of the business. The main purpose of management accounting is to assist the managers of a
company in their decision-making process. Techniques of managerial accounting system are
applied by the companies for deriving the meaningful information from cost data that eventually
helps them in taking quality-decision for the entire organization. In the present report, concept of
MA will be discussed, various kinds of management accounting systems along with their
benefits will be highlighted. Further, why integration of management accounting is required is
going to be covered in the report.
The report is about TPG Processing, a company belonging to manufacturing sector. The
company deals manufacturing, transportation, distribution and services relating to business.
Different techniques of management such as absorption and marginal costing will be applied for
preparing the income statements. Moreover, a comparison will be seen in the project report
regarding how different organizations apply management accounting in dealing with their
financial issue and how management accounting leads an organization to sustainable success.
PART A
Requirement of MA System
Definitions of management accounting
Managerial accounting is defined as a procedure of evaluating and analysing the
expenses and costs of a business organization for preparing financial report meant for internal
use by the management of the company (Krishnan, 2015).
Management accounting implies for the process which in turn lays emphasis on providing
managers with financial information and resources for decision making purpose (Langfield-
Smith and et.al., 2017).
The aim of managerial accounting is to facilitate the manager of a business enterprise
with the much-needed information relating to costs through which manager becomes enable in
setting the prices of company's products and services. Management accountants focuses on
predicting the future expenses and income of then company by preparing budgets. They very
thoroughly analyse each and every activity of the business for the purpose of appropriately
1

allocating and assigning the costs and other resources to each of the responsibility centre in the
business.
The primary difference between the managerial accounting and financial accounting is
that latter is concerned with the presenting and reporting the financial information for the
external use by different stakeholders such as customer, investors, government etc. While former
is concerned with the presentation and reporting of financial data for internal use by the
management for decision-making.
Role of management accounting :-
Managerial accounting plays an integral role within the business as :
 It facilitates managers with necessary planning tools through which they undertake their
short and long term planning.
 It aids in developing a management information system as reports from all other
departments are forwarded to management accountant for taking corrective actions (7
Roles of Management Accountant, 2019).
 Managerial accounting helps the managers in exercising the controlling functions by
performing various techniques of measuring performance such as variance analysis,
budget etc. and evaluating it in order to find the reasons for deviations so that needed
actions could be taken.
 It facilitates the managers in accurately forecasting the costs and income of the business
for a future accounting period.
 It also allows the managers in keeping a check on the cash inflow and cash outflow which
takes place in the business, which in turn aid the managers in making more effective
strategies for increasing the cash inflows and reduce unnecessary cash outflow.
Different types of MA systems exists which different organizations employs in
accordance with their business requirements. They are as follows:
Stock management system:- This system of management accounting is a process of
tracking inventory, order, sales and deliveries of products. Through this system, managers of
organization evaluate and analyse to movement of stock from production to storage and from
storage to delivery (Hald and Thrane, 2016). It includes FIFO and LIFO method and managers
making decision about to order and maintaining to manufacture process.
2

LIFO :- it is the method of stock management that means product that recent purchased on
particular cost so it first to be sale.
FIFO :- it stands for first In first out and it refers that the oldest inventory recorded swill be sold
first.
In addition to this, there are several tools available which can be used for inventory
management include EOQ, JIT etc. Stock management tools provide deeper insight about stock
which need to maintain within an organization for ensuring smooth functioning of operations.
This in turn helps in maximizing profitability by reducing the cost associated with holding and
ordering aspects.
Cost accounting system :- It is an essential type of management accounting that is used
by management of TPG to estimate the cost of their product to analysis profit. Production
process includes fixed and variable cost. Cost that never changing with quantity and quality of
product is called fixed cost. Those cost that changing with unit of production, is called as
variable cost (Schaltegger and Burritt, 2017). It also reduces difficulties because many
departments includes in organization and all have different income and expenditure. Managers
use to this system and calculate to cost very effectively and efficiently. For example – labour
cost and overhead. Cost management system is highly significant which in turn helps in turn
helps in setting appropriate prices of products or services. It clearly presents expenses incurred
for offering products or services. Hence, by dividing total costs from number of items per unit
cost can be assessed. Further, by adding gross margin % in per unit cost price can be determined
effectually.
Job costing system :- It can be defined as the framework for allocating and accumulating
the costs of manufacturing of a particular product or job. It uses by manufacturing organization
who produce products according to demand and order of customers. This system makes to easy
process of organization because in TPG, many types of job considered and every job consume
cost like labour, overhead and material. Mangers also keep records in proper manner through it
(Armitage, Webb and Glynn, 2016).
Price optimization system :- Management of TPG use to this system of accounting that
helps to evaluate and understand behaviour of customer with changing price of products. It also
helpful for organization because they understand through fluctuation in demand and supply and
3

then change prices of product (Lapsley and Rekers, 2017). That consumer can easily afford and
organization achieve goal and meet objective.
Methods of management accounting reporting.
Reporting of management accounting helps to evaluate and analyse accuracy of data and
informations of all reports of TPG. All report of organization provide helps to managers in
making effective decision, and they easily achieve goal and objective. Reports of management
accounting is essential and useful for stakeholders because they can measure performance and
situation of organizational profit. Stakeholders like CEO, owners and investors.
Account receivables report :- This report includes those types of customers that they
used to products and services of TPG but not yet paid by customers. That means customers owe
organization's payment. On the bases of those customers, management make to this report. TPG
also evaluate to health of customers related to finance. Account receivables is the assets of
organization.
4

Cost report :- TPG prepare report related to cost and it helpful to analyse cost and
charges related to job, products and activity and process. Through this report managers can
control to cost in effective manner. All expenses and revenue also considered in this report and
management use for making decision (Armitage, Webb and Glynn, 2016). It also makes to
calculation process effective so members of organization can calculate to all types of cost that
occurred and use in organization.
Performance report :- Individual performance in organization is recorded by
management in this report. Data and informations related to operation also includes in it. TPG's
performance present by this report in front of stakeholders, so stakeholders evaluate and
5

understand performance of organization before invest their capital. Mangers of TPG analyse the
performance report and if they get any types of weakness and loophole, so they make strategies
to overcome and developing their action to increase profit.
Stock and production report :- It contains all types of data and information related to
stock and manufacturing so management of TPG evaluate this report and find wastage of time
by labour and wastage of products. The process of Elimination of wastage of products and hours
influence to profitability and productivity. This report is very effective because wastage put more
effect on organizational profit.
Budget report :- Budget report is an internal report that js used by management of TPG
and make estimate. Different department and function includes in organization so management
prepare budget for all of them. It makes for future on the basis of current budget. They also
6

measure past and present performance in given budget. Organization get helps in making
effective decision for future. It is an estimation of revenue and cost for particular period.
Sales report :- TPG earn profit and revenue through sale of product so it includes and
considered in this report. It sales their products through wholesaler and retailer and management
observe through this report that who make more profit in organization. They also make strategies
and provide motivation through provide bonus, incentives and reward against to their work.
Through all these employees and members get motivation and do work with their full efforts.
Benefits of management accounting system.
Management accounting system is very beneficial for organization because management
of TPG measures past results and make action plan for future (Christ and Burritt, 2015). It also
beneficial in making decision about future and measures actual performance with given budgets.
All these things useful in raising profitability and productivity of organization.
Critically evaluate management accounting system and reporting.
Accounting system of management in TPG play vital role because they make future
decision with the helps of past financial data. Managers understand all condition and situation of
future related to budget so this system provide major helps to them in making decision.
Efficiency of business increasing through this and customer get quality services and products so
all these things increasing profitably and productivity. Its negative aspect that it has a futuristic
nature and future is uncertain so it provides data and informations for planing and decision-
making and it not necessary that plan of management provide positive and expected results. This
process consume more cost and time.
Management accounting report is also effective tool and it helpful for business. All
stakeholders get many types of data and informations, and they can easily understand to
performance of TPG. It has negative aspect that it takes higher cost and time because managers
of organization has to make many rules and regulations.
Preparing cost and profitability statement using absorption & marginal costing system
As per marginal costing
Year 1
7

Year 2
8

Year 3
9

Absorption costing
Year 1
10