Comprehensive Management Accounting Report: Jacksons Fencing

This report provides a comprehensive overview of management accounting, focusing on its application within Jacksons Fencing, a medium-scale manufacturing company. It begins by defining management accounting and its importance in decision-making, cost management, and financial planning. The report covers various reporting methods, including balance sheets, income statements, and cash flow statements, and demonstrates the use of marginal and absorption costing for income statement preparation. It also explores different planning tools, such as budgeting, and their advantages and disadvantages. Furthermore, the report addresses how management accounting can be used to resolve financial problems, such as budget variances and controlling business activities. The analysis includes cost card examples, profit statements using marginal and absorption costing, and a discussion of cost volume analysis. The report concludes with a summary of the key findings and their implications for the company's financial performance and strategic planning.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
P1 Management accounting and their requirement.....................................................................3
P2 Various methods for report the management accounting......................................................4
LO 2.................................................................................................................................................5
P3 Using marginal and absorption cost for income statements..................................................5
LO 3...............................................................................................................................................10
P4 Different planning tools and their advantages and disadvantages.......................................10
LO 4 ..............................................................................................................................................13
P5 Adopting management accounting to resolve the financial problems.................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is used to present data in proper format through the various
methods and tools to provide the information to the management for taking efficient decisions in
business unit. Jacksons Fencing is a medium scale manufacturing company. They started their
business by selling chestnut stakes and sale agriculture fencing to the local farmers. They also
sale timber security fence to their customer. The report highlights the requirement of
management accounting in the organization and their importance in calculating the profit of the
organization and managing the cost. It also explains the different methods of reporting like
balance sheet, income statements, cash flow etc. It demonstrates the purpose of various cost to
prepare the income statement of the company like absorption and marginal cost. It also explains
the pros and cons of different planning tools. The report also help to resolve the financial
problems like variances in the budget, control the business activity etc.
LO 1
P1 Management accounting and their requirement
Management accounting :
It is the process of presenting data in useful manner which provide the information to top
management for taking decisions and formulate the policy and procedure for the company. The
component are managing the risk, performance and strategy in the business organization.
Key function of management accounting system
Providing data and information : Planning is the process of formulating long term and
short term plan for achieving the organization objective. Management accounting system
function is to provide the useful data and information for decision-making process (Kaplan, and
Atkinson, 2015). Jacksons Fencing manufacture company use the data and information to
improve their productivity and profitability and make proper plan to accomplish the process.
They provide the information regarding their agriculture fencing product to their customer.
Organizing : Organizing is the process of assigning roles and responsibility to the
managers and employees for accomplish the business goal and target. Management accounting
help the Jacksons Fencing company by providing the report and useful information to control the
activity of the managers and assigning responsibility according to their efficiency. For example
Jacksons Fencing company use the information and organize them in proper format like balance
sheet, income statement to get the true profit of the company.
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Analysing : Controlling refers to monitor, evaluate and analyse productivity of business
unit and take effective measures for improving the performance (Renz, 2016). It provides the
useful data to calculate the differences between the standard and actual output and analyse the
different activities to find the reason behind the variances and manage them to get the higher
profitability and productivity in the market.
Communication : It works as a link between the management and employees by
providing information to different department and evaluate the department to control their
activities and improve their performance. For example Jacksons Fencing company use the
management accounting to communicate their decisions with the managers and employees to
integrate their work in same direction.
Different accounting system
Cost accounting : Cost accounting is help to evaluate the price of the products and
services of manufacturing business. The correct cost of the product support the firm to produce
the goods which gives the maximum return with minimum cost (Maas, Schaltegger, and Crutzen,
2016). Activity based costing in the Jacksons Fencing help to assign more logically the
manufacturing overhead cost of the product (Cost Accounting Systems, 2013).
Financial accounting : It is used to keep records of financial information and present
them in different statements like balance sheet, income statement and cash flow statement to
aware investor and customer about the financial position of the business organization. Jackson
fencing company use the financial accounting system to control the information and data. It
helps the company to audit the financial statements like cash flow, Income statement to get the
true data and present the fair position to the customer and stakeholders and control the internal
activity like management functions, manufacturing process etc.
Management accounting : It is used to produce information for taking decisions and
control the company activity by evaluating the variances in comparison of actual and expected
cost (Management Accounting – Meaning, Advantages & Functions, 2018).
P2 Various methods for report the management accounting
Management accounting works as a tool for understanding the data and interpret them
through different reports like financial reports, cash flow, revenue report, product cost report etc.
in organization.
Purpose and uses of reporting tools
4

Trading and profit and loss account : The purpose of using these account is the present
all operating and non operating income and expenses of the organization and calculate the profit
of the business for different organizational function. It is used by the Jacksons Fencing company
to present their financial data and activity in systematic manner to get the useful information
from the data and used in decision, policy and procedure making process. It also used to
communicate the financial position to the stakeholders, suppliers and owner, so they can improve
their performance and manage the activities in better way.
Balance sheet : Balance sheets of the organization represent the assets and liability to its
stakeholder (Pavlatos, and Kostakis, 2015). The motive of preparing balance sheet statement in
the organization is for attracting the customer and investor toward the organization by presenting
the true position of company in market. Jacksons Fencing company use the balance sheet to
present the cash and assets of the business in market.
Cash flow statement : This statement is used to analysis real inflow and outflow of the
cash. The motive of the statement is to measure the cash and non cash activity and find the total
cash transaction in the company. It was used by the Jacksons Fencing company to control the
day to day activity and manage the cash flow in the organization.
Stock management system : Inventory management system is support to manage the
inventory level within the company by regulating the stock level in warehouses, order level, sales
receipts etc. For example inventory management system help the Jacksons Fencing company to
manage the timber level in the warehouses and fulfilling the demand of the customer in the
market (Lopez-Valeiras, Gomez-Conde, and Naranjo-Gil, 2015).
Price optimizing system : This system is used to evaluate the customer behaviour
towards the cost of the goods and services and determine the price of product to enhance and
regulate profit of the organization. For example : Jacksons fencing company use the system to set
the price of the product to get maximum profit.
LO 2
P3 Using marginal and absorption cost for income statements
Marginal cost : marginal cost refers to the change in unit of production to increase a
decrease in additional unit.
Absorption cost : It indicates that cost of the product include the various cost like direct
material, labour, overhead, fixed cost etc.
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Case 1
Cost card using marginal costing
Profit statements for January, February and March by using marginal cost
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Case 2
Cost card using absorption costing
Required material 7×5 35
Required Labour 8×4 32
Variable Overhead 5
Fixed cost 2
Per unit marginal price 74
Selling price 100
Less : per unit marginal cost -74
Less : per unit variable cost -4
Contribution per unit 22
Profit statements for January, February and March by using absorption cost
January
Budgeted sales 10000×100 1000000
COGS
Opening stock
Labour 12000*32 384000
Material 12000*35 420000
Fixed overheads 24000
Variable Overhead 12000*5 60000
888000
Less : Closing stock 2000*72 144000
744000
Total gross profit and loss 256000
Less : Variable selling cost -40000
Less : Fixed selling cost -3000
Actual net loss/profit 213000
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February
Sales budget 12500×100 1250000
Cost of good sold
Opening stock 2000×72 144000
Material 10500×35 367500
labour 10500×32 336000
Fixed overheads 24000
Variable Overhead 10500×5 52500
924000
Less : closing stock 0
-924000
Total Gross profit 326000
Less : variable cost (selling) -50000
Fixed cost (selling) -3000
Actual net loss/profit 273000
March
Budgeted sales 11500*100 1150000
COGS
Opening stock 2000*72 144000
Material 9500*35 332500
labour 9500*32 304000
Fixed overheads 24000
Variable Overhead 9500*5 47500
852000 852000
Less : closing stock
Gross profit 298000
Less : variable cost (selling) -50000
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Less : Fixed cost (selling) -3000
Actual net loss/profit 245000
Cost : Cost refers to the monetary value which is used by the company to produce or
manufacturing some product or services in their firm. It is used to estimate total benefit on the
charged cost on the product and services. It helps to select the best alternative from the various
choices (Arnaboldi, Lapsley, and Steccolini, 201).
Cost volume analysis is a kind of process used by the business firm to determine the
effect of changing cost and volume on the cost of product and services.
Cost variance refers to the difference in the actual cost and estimated cost of the project
and services. It supports the organization to find the reason behind the variances and improve the
activities to minimize the cost. It includes various factor such as direct material variance,
purchase price variance, labour variance etc.
Fixed cost refers to cost of the product and services which remains constant with the
variation in quantity or result of the product. On the other hand variable cost change with change
in output.
LO 3
P4 Different planning tools and their advantages and disadvantages
Budgeting refers to prepare the plan for the company to spend the amount in efficient
manner, so they can achieve the target within the proper time. There are different types of budget
like operation budget, financial budget, increment budget, cash budget etc.
Operational budget : operational budget is prepared to present the company expected
revenue and associated expenses of the business (Anand, and Grover, 2015). Operating budget
include the various factor such as sales budget, production budget, material purchase, variable
cost etc.
Advantages : it helps the business organization to plan the day to day activity expenses
and evaluate the cost related to the different activities. It keeps the information real, accurate and
present the true position of the firm.
From case 3 & 4 it can be concluded that sales budget help the company to estimate the
various expenses and control the selling expenses to get the favourable variances.
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Disadvantages : Operating budget record the accurate data but there is high chances of
manipulation of data by the company for their personal benefits.
Zero base budgeting : Process of zero base budgeting start from zero base in which all
expenditure are resulted or calculated for new period.
Advantages : It helps organization to control the operation and events of the different
activities and allocate the resources to the company according to the requirement. It helps to
minimize the wastage of resources in the organization.
Disadvantages : It requires to evaluate the activity from the zero base which creates
problems in implementing the budget in the organization. It also times and cost consuming
activity. In formulating and evaluating the budget large number of problem arise because
manager are not agreed to fix the current level above the minimum level.
Increment budget : In increment budget previous year budget is used as base and in
these base increment amount is added to estimate the new budget for company.
Advantages : It supports the organization to prepare budget effectively and efficiently on
time. Increment budget is easy to make and evaluate the performance of the organization.
Disadvantages : It does not encourage the creativity and innovation in the organization
because it is based on the previous year budget. Increment budget does not show the true
position of the business activity and there are high chances of variances.
Case 3
a) Sales budget
b) Production budget.
Particulars Product EC1 Product EC2 Product EC3
Forecast unit of sales 2000 4000 3000
+ Closing stock 600 1000 800
Production required 2600 5000 3800
- Opening stock 500 800 700
Units to be manufactured 2100 4200 3100
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c) Material usage budget (wood)
Product EC1 Product EC2 Product EC3
Manufactured units 2100 4200 3100
Needed material kg/unit 5 3 2
Production 10500 12600 6200 29300
+ Closing stock 18000
- Opening stock 21000
Total raw material required 26300
Per kg material 8
Value of raw material 210400
d) Material usage budget (varnish)
Product EC1 Product EC2 Product EC3
Manufactured units 2100 4200 3100
Material kg/unit 2 2 1
Production required 4200 8400 3100 15700
+ Closing stock 9000
- Opening stock 10000
Total raw material needed 14700
Per kg raw material 4
Value of raw material 58800
e) Material purchase budget (woods)
Units to be manufactured 2100 4200 3100
- opening stock 500 800 700
+ Closing stock 600 1000 800
2200 4400 3200
Needed material per kg 5 3 2
Material purchase in quantity 11000 13200 6400
Selling price 100 130 150
Material purchase in value 1100000 1716000 960000
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Material purchase budget (varnish)
Units to be manufactured 2100 4200 3100
- opening stock 500 800 700
+ Closing stock 600 1000 800
2200 4400 3200
Needed material per kg 2 2 1
Material purchase in quantity 4400 8800 3200
Selling price 100 130 150
Material purchase in value 440000 1144000 480000
Case 4
Preparation of cash flow statement
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LO 4
P5 Adopting management accounting to resolve the financial problems
To resolve the financial problem in the organization a business firm uses the various tools
like performance key indicators, benchmarks etc.
Key performance indicator : Key performance indicator used to evaluate the
performance of the employees and the business organization by setting the target. It evaluates the
performance of each department and provide them various method to improve their performance.
It measures both financial and non financial performance (Strelnik, Usanova, and Khairullin,
2015). In financial performance it measures the different accounting statement to compare the
performance of precious year result with the current year. By indicating the variances in the
performance it focuses on the particular area to minimize the variances. Case 5 help the business
to control the financial activity by analysing the financial data.
Benchmarking : Benchmarking method is used to evaluate and compare the
performance of business organization (Miller, 2018). In benchmarking mechanism they evaluate
the performance through the standard benchmark and evaluate the variances or differences in the
standard benchmark and actual performance. It helps the business to prepare various kind of
budget and evaluate the problem. In budgeting expected budgeted work as benchmark for the
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organization. It controls the organization activity to spend the material and amount within the
expected budget.
Variance analysis : variance analysis is used to calculating the differences between the
actual budget and estimated budget of the organization. By evaluating the variances it helps the
company to find the different area for the improvement of the performance and better manage
the company. In case 5 the company evaluate the variances in the actual and expected budget. It
prevents the firm from the unexpected losses.
Respond to the financial problems
Financial governance : Financial governance is the method to gather, evaluate, monitor
and control the financial information. The good governance produce the accurate data for the
evaluation of the performance nut the poor governance creates problems in the evaluation and
controlling the activity (Xu, Zhang, and Pinedo, 2018). The financial governance helps to
prevent the organization from the financial problems. Good governance follow the rules and
procedure of the company and provide accurate data which help the firm to prepare the budget,
plans, models accurately. It prevents the organization from the duplication and manipulation of
the data which improves the quality of the product and control the cost of organization with
effective measures.
It also helps the organization to evaluate the risk of the company and prepare according
to the risk and prevent from the future losses.
Case 5
Flexible budget for the actual activity
Flexible budget
Particulars At 12000 unit At 14000 unit
Total Production 120000 140000
Less :
Direct material 40000 46667
Direct Labour 24000 28000
Variable Overhead 13500 15750
Fixed overheads 11000 11000
Total 88500 101417
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Balance 31500 38583
Variance between the actual and variable budget
Particulars Actual Budgeted
Total Production 142400 140000
Less :
Material 50000 46667
Labour 27500 28000
Variable Overhead 16000 15750
Fixed overheads 12000 11000
Total 105500 101417
Balance 36900 38583
CONCLUSION
The report summarizes types of management accounting tools in the business
organization and their benefits to the firm. It presents the requirement of management accounting
system in the company. It explains the balance sheet, profit and loss account, income statement
and cash flow statement in the calculating the financial position of the company and control the
cost. Through the various accounting tools like zero base budgeting, increment budgeting,
operational budgeting etc. a firm can easily control the budget of the company. It also
summarizes the various management accounting system to resolve the financial problems like
financial governance, key performance indicators, benchmarking etc.
REFERENCES
Books and journals
Anand, N. and Grover, N., 2015. Measuring retail supply chain performance: Theoretical model
using key performance indicators (KPIs). Benchmarking: An International
Journal, 22(1). pp.135-166.
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Arnaboldi, M., Lapsley, I. and Steccolini, I., 2015. Performance management in the public
sector: The ultimate challenge. Financial Accountability & Management, 31(1). pp.1-22.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Lopez-Valeiras, E., Gomez-Conde, J. and Naranjo-Gil, D., 2015. Sustainable innovation,
management accounting and control systems, and international
performance. Sustainability, 7(3). pp.3479-3492.
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.
Miller, G., 2018. Performance based budgeting. Routledge.
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during
economic crisis: Evidence from Greece. Advances in accounting, 31(1). pp.150-164.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Strelnik, E.U., Usanova, D.S. and Khairullin, I.G., 2015. Key performance indicators in
corporate finance. Asian Social Science, 11(11). p.369.
Xu, Y., Zhang, J. and Pinedo, M., 2018. Budget allocations in operational risk
management. Probability in the Engineering and Informational Sciences, 32(3). pp.434-
459.
Online
Management Accounting – Meaning, Advantages & Functions. 2018. [Online]. Available
through : <https://cleartax.in/s/management-accounting>
Cost Accounting Systems. 2013. [Online]. Available through :
<https://xplaind.com/360325/cost-systems>
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