Management Accounting Report: Planning Tools and Cost Analysis

This report provides a comprehensive analysis of management accounting principles and practices, using Bentley Motors as a case study. It begins with an introduction to management accounting, its requirements, and the different methods used, including inventory management, cost accounting, and price optimization systems. The report then delves into the benefits of a management accounting system and how it integrates with company processes. Part 2 focuses on analyzing three key planning tools: activity-based costing, discounted cash flow methods, and break-even analysis, evaluating their advantages and disadvantages. The report also covers cost calculation using absorption and marginal costing methods to prepare income statements, providing a detailed examination of these techniques. Finally, the report concludes by summarizing the key findings and insights gained from the analysis, offering a practical understanding of management accounting in a real-world context.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Part 1...........................................................................................................................................1
Management accounting and its requirement.............................................................................1
Different methods used for management accounting..................................................................2
Benefits of management accounting system...............................................................................3
Management accounting system and reports are integrate with company processes.................4
Part 2...........................................................................................................................................4
Analyse three planning tools used in management accounting..................................................4
Analysis the use of different planning tools and their application .............................................6
Planning tools for accounting respond efficiently.....................................................................6
TASK 2............................................................................................................................................6
Part 1...........................................................................................................................................6
Calculate cost using appropriate technique of cost analysis to prepare income statement by
using absorption and marginal costing method...........................................................................6
Part 2...........................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is the process of identifying, analysing and operating the
business in well manner. Is is required in all organisation as it is used yo prepare internal
financial reports, maintain records and make business decision in order to achieve goals. The
main aim of business organisation is to maintain proper accounts and reports by using
management accounting (Renz, 2016). To understand concept and requirement of management
accounting Bentley motors has been selected that is British manufacturer and seller of luxury
cars. It was founded in 1919, UK. The present report will discuss about system of management
accounting, accounting reports, benefits of management accounting and planning tools that can
be used in budgetary control. Apart from this report will discusses about financial problems that
can be solved with the help of accounting system.
TASK 1
Part 1
Management accounting and its requirement
Management accounting means to identify, analysis and collection the information that
helps to run a business. Every business concern wants that their business should be maintain and
be profitable. To complete this task accounting system are important that helps to collect
information and make business decision in order to achieve goals or objectives. It is important
for organisation to use different types of management accounting system that helps to understand
the needs and wants of organisation and complete it. In Bentley motors managers understand the
needs of customers and use accounting system to prepare the financial reports (Otley, 2016). The
different types of accounting system are described as:
Inventory management system: This system is used to keep track records of inventory
in appropriate manner. The main purpose is to get the information of raw material and maintain
records of each stock. It is required in Bentley motors company to keep record of stock and
manufacture products in order to attract the customers. This is mainly used in manufacturing
company that helps to manage the stock. Bentley motors manage the stock by using three method
such as:
FIFO (First in first out): This means to use material first which is purchased earlier.
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LIFO (Last in first out): This means to use acquired stock first for manufacturing
activities.
AVCO (Average cost method): This means company used stock for manufacturing
process on the basis of average cost.
Cost accounting system: This system is used to manage the cost of different products
and services within organisation. All company uses this system to define the cost of their
manufacturing products and services. It helps to define the cost of organisation by considering all
income and expenses. It is required in Bentley motors to estimate the cost of new products and
expenses. Moreover, it helps managers to make budget report in order to get accurate cost. It
guides managers to use this system and maintain all expenses in companies.
Price optimisation system: This system is used to set the prices of products and
services. Company manufacture different type of products and uses this system to fix prices of
that products. It is required in Bentley motors to set the price of manufacturing products by
including all expenses. It is used by mostly companies to setting right prices for products and try
to meet with customer's expectations. Moreover, Bentley motors understand the demands of
customers and set prices of products accordingly (Kaplan and Atkinson, 2015).
Job order costing system: This system is used to allocate or assign the manufacturing
cost in business activities. It is required in Bentley motors to assess cost of manufacturing
process that helps to maintain the productivity and profitability by assigning the task according
to speciality. The manager of Bentley motors uses this system and allocate cost among different
activities in order to get benefits. This is effective accounting system that can be used to divide
the cost among all activities and present right information in order to get more profits.
Different methods used for management accounting
Management accounting reporting: This is the process which is used to generate
management reports that help to know the position of company. In Bentley motors, managers
prepares different types of management accounting reports for getting records of expenses and
position of company. The manager of Bentley motors conduct this process on yearly basis in
order to keep track record of operational activity. The various method which is used by
management to generate management reports are described as:
Budget report: This is also known as internal report which is used by management to
compare the actual and budgeted results within entity. It also used to determine that monetary
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resources are properly used or not by company. In Bentley motors, managers prefer this report
and get difference between actual and estimated report. It helps managers to determine the
financial position of company in order to make right business decision. By using this report
managers can monitor various activities such as manufacturing, sales and marketing that helps
to complete objectives (Quattrone, 2016).
Performance report: The particular report is generated by managers to monitor and
analysis the performance of company and employees. This is effective report that helps to focus
on performance and make improvements accordingly. It is required to give appraisal and bonus
to their employees for their good performance. The management of Bentley motors generate
such report by analysing the performance of employees and give appraisals to them that helps to
retain employees for long term. Bentley motors prepares performance report on monthly basis to
know the well performer of month and motivate them for more production.
Inventory management report: Companies prepare this report to get detailed records of
goods and services which is used by management for manufacturing products. In Bentley
motors, junior accountant prepare this report for maintain
Account receivable report: This report is prepared by managers for keeping records of
credit sales which is done by a company in a specific period. The main function of this report is
to maintain the records of all transactions and prepared credit reports that helps to understand the
defaulters in order to pay amounts. In Bentley motors, junior accountant prepare this report to
analysis the analysis the amount which is owned by customers by purchasing the products. In
other words, this report helps to get information of defaulters who purchased goods and not able
to pay whole amount and promise to pay return after some time (Lindholm, Laine and Suomala,
2017).
Benefits of management accounting system
Management accounting system are good and beneficial for organisation that helps to
make decision which system should be used for particular activity. The main function of
accounting system to make easy calculation and business decision in order to grow business
continuously. In Bentley motors, managers uses different types of accounting system which are
more beneficial such as inventory management system helps to keep track records of inventory
which is used to manufacture cars, by using cost accounting system accountant can estimate all
expenses and by using price optimisation system Bentley motors set prices of products in order
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to maintain productivity and profitability. Therefore, management accounting system are more
beneficial for organisation that helps to make correct business decision by analysing data and
using it systematically.
Management accounting system and reports are integrate with company processes
From the upper discussion it has been evaluated that management accounting system and
reports are integrated with organisational process. Such as company uses accounting system and
prepares report for running organisation process successfully. Company maintain the
productivity and profitability by using different accounting system such as inventory
management, price optimisation, cost accounting and job order costing that helps to maintain the
records of all accounting and raise business activities that leads to company's process. Moreover,
it helps to achieve goals and objectives of business industry. Hence it is important for
organisational process to integrate management accounting system and reports that helps to
maintain productivity (Melnyk and et.al., 2014).
Part 2
Analyse three planning tools used in management accounting
Budget: an estimation of income and expenses which is prepare by management in
companies is known as budget. It is estimation of all income and expenses which are incurred by
organisation to run business activities. In Bentley motors, accountant focuses on all income and
expenses and prepare budget report that helps to understand future steps which need to be taken
in order to maintain productivity and profitability.
Planning tools: This means techniques or tools which is used by company to control
over budget are consider as budget. The main function of planning tools is to know the
information about expenses and control excessive budget that helps to continue business. There
are different types of planning tools which is used by Bentley motors that are defined as:
Activity based costing: This is accounting method which is used to identify and assign
the cost into overhead and products. In other words, it is used first assign cost to activities which
occurred within organisation. In Bentley motors, management uses this tool in order to allocate
cost in to activities such as direct cost and indirect cost. Moreover, this is used to control the
budgets by analysing the cost and allocating them in to different activities (Nitzl, 2016).
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 Advantage: It provides realistic manufacturing cost for specific products in
Bentley motors that helps to define product profit margin. Moreover, it helps to
allocate manufacturing overhead appropriately.
 Disadvantage: This is time consuming that much time to collect and prepare
data. It create more cost for analysing and accumulating information.
Discounted cash flow methods: This is valuation method that can be used to estimate
value of investment and defines future cash flows. It is effective planning tool which helps
Bentley motors managers to get sum of all future discounted cash flows according to production
of cars. This method helps managers to get information about product and give discount to
customers in order to sale number of products. It helps to measure the value which is created by
a business.
 Advantages: This is sound method in case of analyst is confident about their
assumptions. It helps to get accurate results about financial position. Therefore,
Bentley motors can gain advantage to make right business decision after getting
financial information.
 Disadvantages: It is time incentive process due to involving various assumptions.
It may be difficult for Bentley motors to evaluate future performance due to
having number of information (Bryson, Crosby and Bloomberg, 2014).
Break even analysis: This is a technique which is used by by company in production
management and management accountant. This is used mainly in manufacturing company to
determine number of units which helps to sell the product by ignoring losses. In Bentley motors,
managers uses this planning tool to determine selling price, fixed cost and variable cost.
Moreover, it helps to create a position of no profit and no loss by selling the products.
 Advantages: It can help Bentley motors to measure profit and losses at different
level of production and sales. Additionally, it helps to predict the changes in sale
prices and analyse relationship among fixed and variable cost.
 Disadvantages: It may be drawback for companies because it assumes sale price
are constant at all output level and may be time consume to prepare break even
charts.
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Analysis the use of different planning tools and their application
From the above discussion it has been analysed that planning tools are essential for
organization which is used to control budget. There are different types of planning tools such as
activity based costing, discounted cash flow and break even analysis. It is applied by Bentley
motors to prepare and forecast budget. For instance, Bentley motors can allocate cost in to
different activities that help to make work easy. By using discounted cash flow, it can get
accurate results about financial position of company. Another side, break even analysis helps to
measure the profit as well as losses of Bentley motors in order to make business decision. By
using these tool Bentley motors can prepare and forecast budget which can be used to complete
future activities (Samuelsson and et. al., 2016).
Planning tools for accounting respond efficiently
Planning tools are used by all organisation for preparing and forecasting budget. The
main aim of planning tools is to solve financial problems which is arises within industry. In
Bentley motors, managers and accountant used different types of planning tools that helps to
understand the budget and control the excess budget. Therefore, planning tools are used to
respond properly to solve problems. Planning tools are useful for organisation as it helps to
understand the problems and get solution how it can be solve in order to make profits.
TASK 2
Part 1
Calculate cost using appropriate technique of cost analysis to prepare income statement by using
absorption and marginal costing method
Cost – It means price of products and services which are acquired by an individual, group
and association to sale products and services. It is charged by seller from purchaser who
purchase products from sellers. In other words, it is monetary valuation of material, resources,
efforts and time to manufacture goods and deliver it to customers. For example, a company
manufacture products and sell it for getting cost of products.
Marginal costing - It is consider as costing technique which is used to measure fixed
and variable cost. This method states that fixed cost for organisation should be written off
completely and variable cost is calculated to know cost of units.
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Absorption costing - This is another method which is used to k now the profit of
manufacturing company who manufacture products. In this technique, fixed and variable cost
consider as product cost. Its main aim is to define profits by analysing cost and expenses.
PRACTICAL QUESTION
Income statement under absorption costing method for month of May & June:
Particulars May June
(in £) (in £)
Total sales 10.5 4200000 3780000
Less: Cost of Goods sold
Opening stock -
Variable production cost 1300000 1300000
Fixed indirect production
expenditure 600000 600000
Closing stock 4.75 - 190000
Total cost of goods sell 1900000 1710000
G.P. (Gross profit) 2300000 2070000
Selling & Distribution expenses - -
Administrative cost - -
N.P. (Net profit) 2300000 2070000
Income statement under Marginal costing method for month of May & June:
Particular May June
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(in £) (in £)
Total Sales 10.5 4200000 3780000
Less: Cost of Goods sell
Opening stock - -
Variable production cost 1300000 1300000
Less: Closing stock 3.25 - 130000
Total cost of goods sell 1300000 1170000
G.P. (Gross profit) 2900000 2610000
Fixed indirect production cost 600000 600000
Selling & Distribution costs - -
Administrative costs - -
N.P. (Net profit) 2300000 2010000
Interpretation: Eymen Ltd prepares collects information and prepares income statement
that help to know the profits by marginal and absorption costing. By using absorption costing
Eymen Ltd is earning net profit in may and June are 2300000 and 2010000. Another side, by
using absorption costing method it is earning 2300000 and 2070000 in may and June month.
Part 2
Financial statement of Bentley motors Ltd
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Interpretation: From the above financial statement it has been interpreted that company
has different assets and liabilities. It manufactures cars that helps to increase the profitability.
The interpretation of profitability ratio are given below:
Profitability ratio: This ratio is useful for all companies which helps to define the profit
margin of company. Organisation calculate profits in a particular period on the basis of financial
information which is based on financial metrics. In profitability involves different types of ratio
such as gross profit ratio and net profit ratio (Agrawal, 2018). The calculation of gross profit and
net profit are given as:
Calculation of gross profit
Gross profit = Gross profit / sales * 100
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Interpretation: According to above calculation Bentley motors is getting gross profit in
the year of 2018 and 2017 by analysing all income and expenses. Its gross profit ration in year
2017 was 38.48 and in 2018 is 37.82 which is less than 2017. its profit decreased due to having
more expenses in manufacturing process. To overcome the expenses it need to control the
expenses and should make more profits.
Calculation of Net profit
Interpretation: According to above calculation net profit means profit which is getting
by company after deducting interest and tax amount. A company earn more profits by converting
production in to sale and profits. After comparison of data it can be understand that company is
getting more profits in 2017 than 2018. As in 2017 the net profit was 1.10 and in 2017 is 0.24
which is less than 2018 (Goh and Scerri, 2016).
Calculation of Liquidity ratio
Interpretation: From the above calculation the liquid position of company can be
understand which is define by current assets and current liabilities. From the calculation it can
interpreted that company has enough liquid funds that can help to meet with organisation's short
term goals and objectives (Charifzadeh and Taschner, 2017).
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CONCLUSION
From the above report it can be concluded that management accounting is essential for all
company. It is mainly used to make effective business decision. The manager of business entity
collect information, prepare reports and analysis the information in order to make profits.
Management accounting system such as inventory management is used to keep track inventory
and optimize material by producing products. Price optimisation system is used to fix the prices
of products and services. Cost accounting system is used to calculate cost of business
organisation and maintain the productivity. Firm also prepare accounting report that helps to
keep records of transaction and make effective business decision.
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