Management Accounting Report: Financial Decision Making Tools

This report delves into the core principles of management accounting, exploring its role in providing financial and non-financial information to facilitate effective decision-making within organizations. It distinguishes management accounting from financial accounting, highlighting the former's focus on internal use and forward-looking perspectives. The report examines key management accounting tools such as relevant cost analysis, make-or-buy analysis, activity-based costing, inventory management, and job costing. Furthermore, it presents various types of managerial accounting reports, including budget reports and performance reports, emphasizing their importance in conveying information understandably. The report then compares marginal costing and absorption costing methods, illustrating their application through financial statements and reconciliation, and evaluates their impact on profit calculation. Finally, it discusses the advantages and disadvantages of planning tools like budgets and the balance scorecard approach, providing a comprehensive overview of management accounting practices and their influence on financial performance and strategic decision-making within a company, specifically focusing on the context of Tech Ltd.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A). Explanation of management accounting and its essential requirements:.........................1
B). Presenting financial information:.....................................................................................3
M1...........................................................................................................................................4
D1...........................................................................................................................................4
TASK 2............................................................................................................................................4
M2...........................................................................................................................................6
D2...........................................................................................................................................7
TASK 3............................................................................................................................................7
P4: Advantages and disadvantages of planning tools............................................................7
M3...........................................................................................................................................8
D3...........................................................................................................................................8
TASK 4............................................................................................................................................9
P5. Balance score card approach:...........................................................................................9
M4.........................................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management is the major branch in any organisation as this helps the firm to make their
process sustainable so that the firm can attain their pre-set targets effectively. Management
accounting is the major task which is used by the finance in tech company in order to make their
operations so smooth and transparent (Parker, 2012). Under this report, various management
accounting tools are discussed, reporting methods are also determined, various types of
budgetary tools are used within the firm so that the management can get the competitive
advantages.
TASK 1
A). Explanation of management accounting and its essential requirements:
1. Distinguishing Management accounting from Financial Accounting:
Management accounting is the tool that are used by the finance in tech in order to
provides the financial and non-financial information to the managers so that they can make
decisions accordingly. Various business decisions enables the firm to be better equipped in their
management and control functions. Management accounting system is mainly forward looking
rather than based on the historical and this is framed after keeping in mind the managers of the
firm. This system is confidential and applied by the management, rather than publicly reported.
Financial accounting and management accounting is the part of accounting process as these are
the two different branches. Financial accounting emphasis on providing the fair view of the
financial position on the firm to various stakeholders so that the they can make their investment
related strategies. While on the other hand, management accounting is the one which main
purpose to provides qualitative and quantitative information to the managers of the firm which
would assist the firm to take various strategies and also able to maximize the profits.
2. Importance of management accounting information as a decision making tools for
department managers:
There are so many decisions needed to take by the managers in a day. MA information
renders the data driven input to these decisions, that could enhance decision making over the
long term. Management accounting is used by the company's manager in order to have various
under-mentioned analysis:
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Relevant cost analysis: MA reports are implemented by the firm to identify the selling
process (Qian, Burritt and Monroe, 2011). To evaluate such decisions, management accountant
assess the costs which differentiate between advertising alternatives for each product, avoiding
common costs. Such process is known as relevant cost analysis and is taught in basic managerial
accounting courses.
Make or Buy Analysis: The main aim of such MA information is to renders information
implemented in the production. With the help of this analysis, manager will get to know about
whether they need to produce the product or to buy form the outsiders. By analysing,
management can identify the choice that are more profitable for the firm.
Activity- based costing method: This is the method that company has identified about
the goods that are required to sell, business requires to identify about whom they can sell the
products. With the help of ABC techniques, management could identify the activities which are
needed to be produced and service a product line.
These are the above-mentioned things that are required to be done by the management in
order to get the sustainability.
3. Cost accounting system:
It is the accounting system which is used by the firm in order to identify the cost of
production and also makes efforts in order to lower the price of the products by eliminating
waste from the cost of production. There are basically three methods that are used by the firm I.e
Actual costing, Normal costing and the Standard costing.
 Actual costing is recording of products costs after considering following factors:Actual
cost of materials, actual cost of labour, actual overhead costs incurred. Henceforth, the
main point under an actual costing system is that this only implement actual costs
covered and allocation bases experienced. This does not form any kind of budgeted
amount. This is the most convenient method which does not require pre-plan of the
standard cost.
 Normal costing: It is the one which is used by the manager to identify the cost of a
product. This covers: Actual cost of materials, labour and standard overheads. But there
is difference in the actual and standard overheads cost. By this, firm can either charge the
difference to cost of sales or prorate difference between COGS and inventory.
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 Standard costing: This is the practice of substituting an estimated cost for an actual one in
an accounting year, and then periodically recording variances which are diverse between
the estimated and the actual one.
4. Inventory management system: The management accounting officer is the main person who
inherently controls and regulate the inventory in an effective manner (Otley and Emmanuel,
2013). Inventory management is used by the manager in order to track the inventory levels,
orders, sales and deliveries. This can also be utilized in the production industry to form a work
order, bill of materials and other manufacturing related documents.
5. Job costing system: this is the system that are used by the manager in order to assign the
manufacturing costs to an each product or batches of product. Normally, this technique is used
by the manger at the time when the products produced are adequately diverse from each other.
B). Presenting financial information:
1. Various types of managerial accounting reports: There are various kinds of reports that are
required to be made by the MA officer in an effective manner so that the business can run
effectively. These includes product costs reports, budget reports, performance reports and others.
Budget report: one of the key factor in the management accounting is to make budget.
These are made by applying past records and then make the future budgeted figures. With the
help of budget report, this also been cited that the company on the basis of such assumption can
compare their budgeted results with the actual one which will help out to take certain strategies
in a better manner.
Performance report: With the help of this report, company could get to know the
performance and then react accordingly. As there are certain tools which are required to know
about the performance of the company. The variation occurred after comparing budgeted and
actual figure, are minimised and tries to eliminate them. These reports helps the firm to make
better strategies in order to assess the performance.
2. Their importance for information to be presented in understandable manner:
These reports assist the firm to have the better strategies in order to get the sustainability. By
applying these tools, per unit cost is determined and that can be compared to the competitors
product prices so that they could make the strategies accordingly so that they could attain the
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targets of the firm. The wastage cost can be eliminated after applying cost related strategy in an
effective manner.
M1.
The cited company needs to make certain strategies in order to implement the
management accounting tools. With the help of management accounting, company is able to get
the sustainability in an effective manner. There are so many tools that are needed in order to
provides effective outcome. There are so many tools of management accounting that are used by
the firm in order to get the product done in an effective manner. The tech Ltd company apply
management accounting tools in order to get the competitive advantages over the other
competitors.
D1
Management accounting tools are used by the firm for achieving sustainability but on the
other way, these accounting tools are integrated with the management accounting reporting in
order to get the sustainability over the other rivals. There is a need to provide effective outcome
for getting sustainability.
TASK 2
The net profits of finance in tech company is assessed by using marginal costing and
absorption costing methods, and then compare about which method is useful so that maximum
profits can be earned.
Marginal costing: this is the costing method under which extra cost is determined for
making an additional units in the firm (Østergren and Stensaker, 2011). This is normally a tool or
approach that helps the firm for making decisions. This is the change in the total cost which
emerge from producing an additional unit. This is the cost which categories the variable and
fixed costs. Marginal cost is known as he cost of additional or one less unit produced apart from
the current level of production.
Absorption costing: This is the costing tool which is used for collecting cost related
information from the manufacturing process and apportioned them in an individual goods. Such
types of costing is required as per the accounting standards in order to make the stock valuation
under a company. Under this, the cost which are related to manufacturing of goods are covered
irrespective of fixed or variable costs.
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Difference among both costing methods
Marginal costing Absorption costing
Under this method fixed costs are not taken
into consideration during production process.
In this costing method, both fixed and variable
costs are taken into account.
The results are analyse by using contribution
per units.
The net profit is computed after making
necessary deduction about fixed and variable
costs.
Expenditure associated with marginal costing
are selling and distribution.
Overhead costs are considered during the
absorption costing.
Income statement using Absorption costing
Sales ( 35*1500 ) £52,500
Less COS
Opening inventory 0
Variable cost of production ( 15*2000 ) £ 30,000
Fixed overhead absorbed ( 5*2000 ) £10,000
Closing inventory ( 500*20 ) £10,000
Cost of goods sold (30,000-10,000+10,000) £30,000
Under/over absorption (1000*5) £5000
Gross profit (52,500-30,000-5000) £17,500
Less non production cost (selling and distribution) (10,000+(15%*52,500) £17,875
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Profit/loss (17,500-17,875) -£375
Income statement using Marginal costing
Sales (35*1500) £52,500
Less COS
Opening inventory
Variable cost of production (15*2000) £30,000
Closing inventory (500*15) £7,500
Cost for sale (52,500-30,000) £22,500
Less other variable cost (15%*52,500) £7,875
Contribution (52,500-22,500-7875) £22,125
Less fixed cost/actually incurred £15,000
Less non production cost (selling, distribution and administration) £10,000
Profit/loss (22,125-15,000-10,000) -£2,875
Reconciliation
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Absorption profit - £375
Less fixed overhead on inventory (500-0*5) £2,500
(closing inventory(production –sales )(2000-1500=500) -opening inventory*fixed overhead)
Marginal profit - £2,875
M2
The Tech Ltd apply appropriate techniques in order to get the higher profits, and also reconcile
the profits effectively (Hiebl, 2014). Under this report, marginal costing method and absorption
costing method are used and evaluate the tools in order to maximise the profits effectively.
Additionally, they also makes their operations effectively in order to reconcile the profits in
order to generate adequate financial reporting standards.
D2
By applying marginal and absorption costing method, the Tech Ltd needs to know the process by
which they can generate maximum profits. Net profits(loss) as per the marginal costing is
calculated= - £2,875. while applying absorption costing method, net profits is calculated as -
£375. which is less than the profits or loss calculated through marginal costing method. Hence,
this can be said that the management accounting officer needs to make certain changes
accordingly.
TASK 3
P4: Advantages and disadvantages of planning tools
Budgets: It is an earlier predication of investment plan that is conducted by managers to
analyse actual costs and expenses incur by company. It comprises of sales estimation and
income, resource utilization, cost and expenses or cash identification.
Budgetary control: It is known as that system which is used to determine actual cost revenues
which is related with the financial earning and spendings. It is prepared to analyse that whether
the plan are working in appropriate manner or it needs any changes or modification. There are
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various precess by which budgets can be controlled (Grabner and Moers, 2013). Some of them
are as followed:
 Consult with the managers: The requirement of budgets is prior need perfect consultation
from every department. It will help them to manage and control there costs and extra
expenses. If there is need of any budget it will be directly transfer to higher authorities for
further approvals.
 Make assumption and declaration: It is very true that budget are always made on an
assumption basis. Because it is very difficult to analyse total revenue and sale incur by
company during the next few year.
 Fixed information about budgets to achieve future goals: Under this stages, a specific lists
of budgets are prepared by taking guidance from superior persons. It can be operational,
cash other other budgets that are included in it.
 Measuring actual performance with other budgets.
 Review stage.
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Planning tools: These tools includes the use of various budgets information to measure the
performance of company.
Operating budget: This budget includes the information related to the cost and and
expenses incurred during particular period of time. It has to be said that it includes the data
related to the operation of business activities (The Advantages and Disadvantages of Budgeting,
2017).
Advantages: The main advantage of this budget is that it is prepared by company in
advance.
Disadvantage: The preparation of this budget is costly because it is difficult to estimate
the budget in advance without any proper information.
Cash budgets: This budgets helps in determination of inflow and outflow of cash in one
accounting year. The preparation of cash budget includes the involvement of three activities
which are: operating, investing and financing.
Advantages: It provides the information related to cash to company.
Disadvantage: One of the disadvantage is that the present cash flow is ignored, when the
recovery time of cash is completed (Davies and Crawford, 2011).
Static budget: It is prepared at very first stage. It is prepared by the company at the time
of designing of the activities. All the data included in the budget are on the basis of the facts
which is different from actual outcomes.
Advantages: Information cannot be changed because it is based on assumption.
Disadvantage: It is not much effective because it includes only few information.
M3.
There are so many planning tools that are used by the firm in order to get the desired results. For
this, diverse aim of the planning tools are considered like- operating budget, cash and master
budgets. These all are used by the company in order to have the various plans. There are so many
tools that can be used by the Tech Ltd in order to make sustainability.
D3.
For aiming the performance analysis, various factors are required to analyse that affects
the performance of the firm. This is connected with the management for doing their routine
work. Which ultimately affects their routine work. This is connected to the management of their
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day to day routine work. Such could be assisted by the financial and non-financial factors. This is
the main accountability of the mangers to assess such finance related problems or issues in such
a way by which firm's profits can not be affected. But, for resolving these issues, firm can use
balance score card approach.
TASK 4
P5. Balance score card approach:
In any company, this is mandatory to implement those tools that helps for solving finance related
problems effectively (Caglio and Ditillo, 2012). Earlier, there were no techniques that could be
used in order to solve the financial problems effectively. Balance score card is the main tool that
permits the managers to oversee the business performance and also support the firm to improve
their performance. BSC connects with the performance measures and this can be used as:
 How do consumers view the firm? (Consumer perspective)
 What must be excel at? (Internal Perspective) ?
 Could managers regularly to enhance and incorporate values? (Innovation and learning
perspectives)
 How do we express to shareholders? (Financial perspective)
by providing senior manager information from above mentioned four diverse perspectives, the
balance score card limit the information overload by reducing the number of uses. Various firms'
have already uses scorecard approach (Cadez and Guilding, 2012). Their early experience
implementing the score card reflected that it satiate various managerial needs.
 Customer Perspective: In this competitive world, everyone is focusing on the
customers. To be the leader in the market, company would need to focus on the
customers and tries to satiate their demand effectively. So that they could think about
their customers and provides them service into particular measures which show the
factors which concerned to the customers. However, customer concerns are categories
into four categories: these are time, quality, performance, and the last one is cost.
 Internal business perspective: Customer based measures are essential, but they are
required to translate into the measures of what the firm are required to do internally so
that the customer expectations can be achieved. Tech Ltd needs to concentrates on the
internal operations which helps to assist the firm to satisfy their customers needs.
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