Management Accounting Report: Financial Analysis of Tech Ltd (M1)

This report provides a comprehensive overview of management accounting (MA) and its application to Tech Limited, an electronics company. It begins by defining MA, differentiating it from financial accounting, and highlighting its significance in internal decision-making. The report delves into various MA systems, including cost accounting, inventory management, job costing, and price optimization. It then explores the presentation of financial information through different reports, such as account receivables, budget, sales revenue, and production reports. The report analyzes the importance of presenting information in an understandable manner. The report then presents profit and loss statements based on absorption and marginal costing, along with a reconciliation statement. Furthermore, it examines different types of budgets, their merits, demerits, and the procedure for budget preparation, including pricing determination and different costing systems. The significance of budgeting is also discussed. The report also delves into the Balanced Scorecard (BSC) approach, explaining how it can be used to address financial shortfalls, connecting key performance indicators (KPIs) with Tech Ltd's financial issues. The report concludes by summarizing how MA contributes to a firm's sustainable success.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A) Explaining MA as well as its key requirements................................................................1
I. Difference among MA and financial accounting (FA).......................................................1
II. Significant of MA for making business decisions.............................................................2
III. Cost accounting systems...................................................................................................3
IV. Inventory management systems.......................................................................................3
V. Job costing systems...........................................................................................................3
Price optimisation system.......................................................................................................4
B) Presenting the financial information.................................................................................4
I. Various reports of managerial accounting..........................................................................4
II. Importance of presenting information in an understandable manner................................5
M1 Evaluating benefits of MA systems.................................................................................5
TASK 2............................................................................................................................................6
I. Statement of P&L on the basis of absorption costing.........................................................6
II. Statement of P&L on the basis of marginal costing..........................................................6
M2 Reconciliation statement..................................................................................................7
TASK 3............................................................................................................................................8
A) Various budgets and their merits as well as demerits.......................................................8
Financial budgets....................................................................................................................8
Operating budgets...................................................................................................................9
B) Procedure of budget preparation.....................................................................................11
Determination of pricing......................................................................................................12
Different costing system:......................................................................................................12
C) Significant of budget.......................................................................................................12
M3 Use of various planning tools and application to prepare and forecast budgets............13
TASK 4..........................................................................................................................................14
Ways through which BSC approach is used for responding financial shortfalls.................14
Connection of KPI with Tech Ltd's financial issues............................................................16

Comparing BSC used within another business organisation................................................16
M4 Ways through which MA helps to firm in sustainable success.....................................17
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
A system which is used in the firm for making financial plan, implementing, controlling,
monitoring as well as taking effective actions is known as management accounting (MA). The
present report is based on Tech Limited company which has presence in the electronic industry.
Main products offered by it are special mobile phone's charger as well as other carry-on gadgets.
The study reflects about the management accounting along with its essential needs within the
workplace of Tech Ltd in order to make internal financial decisions. Apart from this, various
systems involved in the MA like reporting etc. are explained. The current project focuses on
marginal and absorption costing which are supportive to frame income statements. In additional
to this, budgets, their benefits and limitations as well as importance within Tech Limited are
described. At the end of present assignment, BSC approach is explained which helps to eliminate
financial issues incurred in Tech Limited.
TASK 1
A) Explaining MA as well as its key requirements
A procedure of an entity which helps to make an effective schedule of financial expenses,
control and monitor them within workplace is considered as the management accounting (MA).
It is highly required for taking only internal decisions because not works at the external level.
When Tech Limited will consider this approach in proper and high manner then easily able to
fulfil and accomplish goals of the firm. Apart from this, it consists with wide range of systems
and methods due to which it is an essential part (Klemstine and Maher, 2014). Due to lack of
availability and proper use of MA, businesses cannot meet the objectives framed. The below
sections are giving information about different systems of MA and their basic needs.
I. Difference among MA and financial accounting (FA)
In the accounting branch of knowledge, basically two aspects involved which are like
management and financial. Both are used by the firms but in different level and criteria.
Therefore, distinguish of these both the systems i.e. MA and FA is mentioned below:
Management accounting Financial accounting
MA is a system used by the company in order
to make internal business only. It totally
On the other side, in order to make highly
effectual kind of external business decisions,
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ignored to the external information which
related to financial or non financial.
FA approach is considered. However, it not
focuses on the internal aspect of an entity.
When the firm makes reports under MA then
there are any specific strcutures or formates are
not available. Therefore, Tech Ltd able to
make reports as per its understanding and
suitability.
When looking at the FA then reports must be
prepared in accordance to structure framed by
legal frameworks.
It is not necessary for the firms to frame all the
reports of MA. These are prepared for tracking
financials on an internal basis.
Those accounts involved under FA like P&L,
B/S, cash flows, disclosures etc. are mandatory
to prepare (Groot and Selto, 2013).
When looking at the users then MA is used by
internal stakeholders of Tech Ltd only which
include employees, managers, owner, CEO etc.
Accounts prepared under FA are used by
external stakeholders like customers,
government, shareholders etc.
Apart from these all, there is not any
requirement of publishing and auditing of the
management accounting reports.
In the financial accounting, Tech Limited must
need to go through auditing as well publishing
procedure in legal manner.
II. Significant of MA for making business decisions
Management accounting has a pivotal place in the workplace of Tech limited because it is
highly supportive for taking internal decisions. It helps to frame budgets which lead to forecast
about the future financial information. Under this, if has been estimated that revenue will decline
in the next period then decisions for enhancing is taken. Apart from this, data related to the stock
available in the working environment of Tech Limited also assessed through MA. Further, if it
finds that total inventory is higher, then corrective actions can be undertaken. In order to forecast
cash flows in the enterprise also management accounting is an important aspect. As the cash
flows will decline within every month under cash budget then strategies for boost up are framed
(The Importance of Managerial Accounting in Decision-Making, 2014). On the basis of this it
can be said that MA is significant for Tech Limited. Variance which is a tool of assessing
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business performance is also a part of MA. It helps to known that at which aspect like material,
labour, cost, profit etc. Tech Ltd not able to meet budgeted data. Therefore, an effective decision
to grab and eliminate the issues can be taken in the firm properly. Further, it comprises with
several systems and leads to generate reports of different financial transactions like cost,
receivables, budget etc. Therefore, performance of the firm within relevant industry cam be
assessed and effective decisions made accordingly.
III. Cost accounting systems
Expense or cost is a very sensitive aspect for each and every business entity. While
producing chargers and any electronic gadgets when costing enhanced over the years then
directly create negative impact on profit generation capacity. Further, in order to manage this
situation and boost up profitability, cost accounting system is used by the management. It is
taken into consideration in order to assess actual expenditures involved within working
environment of Tech Ltd firm. When looking at the requirements then, used for estimating costs
of production (Bryer, 2013). On the basis of total expenses, decisions for determining pricing
level of that product are made. For instance: if cost of special chargers is high at the end of year
then price will be charged as per the situation. In addition to this, in order to frame strategies for
managing and reducing costing this system is needed to cited entity. Along with this, profitability
analysis is also done by on the basis of cost accounting system in a proper direction.
IV. Inventory management systems
Stock is a big matter of concern for the company because when it remains in the
workplace with higher level then influence to the sales revenue. Therefore, inventory is required
to manage and reduce in proper way within Tech Limited. Apart from managing, it helps to cited
firm in order to track orders, deliveries as well as sales of the stock in the firm. On the basis of
this it can be easily identified that how much stock or products manufactured are sold at the end
of year. It is required for the organisation for assessing as well as tracking levels, sales, orders
and deliveries of stock. In addition to this, for creating order for specific work in the
manufacturing company as well as generate bill of materials also this is used (Soheilirad and
Sofian, 2016). Under this, valuation of stock level is also done by considering major three
methods like LIFO, FIFO and weighted average.
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V. Job costing systems
In the firm when products and services manufactured are different from each other in
sufficient way then job costing system is considered. In order to assess level of expenses
occurred at each job products it is highly used. In the present case study, Tech (UK) Limited
company is producing two goods in two batches like special charger and electronic gadgets.
Further, to known that in which batch, cost level incurred up to which extent the job costing
approach is used. It consists with basically three kinds of information which involve direct
material, direct labour as well as overhead expenses (The job costing system, 2015). When
production procedures is accomplished within workplace then implemented properly. The cost
accounting shows whole expenses of the products manufactured. On the other side, the present
explained system gives information about each product produced in every batch which leads to
support for taking profitable pricing decisions.
Price optimisation system
A system of MA by which an enterprise makes pricing decisions of goods and services is
known as price optimisation system. Further, it is generally used by Tech Ltd in order to opt an
attractive price of the special mobile chargers as well as electronic gadgets.
B) Presenting the financial information
I. Various reports of managerial accounting
In order to present information related to financials there are some reports prepared by
the management. The reason is that it helps to make all the financial statements and publish in
the market properly. Under the part of managerial accounting, various reports involved which are
explained below:
 Account receivables report: The Tech limited firm selling its special chargers and other
electronic gadgets on credit. Further, amount will be received in the future which known
as credit sales. Further, under this report, those products which are sold at the credit to
consumers, that amount is recorded. At the end of an accounting period, total credits are
recorded in the account receivables reports which transacted in liabilities side of balance
sheet.
 Budget report: Another system of reporting which is budget helps to estimate financial
information for next year. There is different kind of data forecasted under budget which
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include sales, cash position, production, material, direct labour etc (Khodzytska and
Ivchenko, 2014). It is used in the firm for framing strategies for achieving desired
objectives in an appropriate manner. Base taken for preparing different budgets is past
financial statements like P&L, B/S, cash flows etc.
 Sales revenue report: According to this reporting system, company able to know that
how much amount generated by the firm excluding all the costs. Further, it shows
capabilities of the Tech Limited company in order to know level of financials. Under this,
those amounts included which are earned from selling the chargers and gadgets. In the
accounting it is known as turnover as well. Total of the sales is recorded in the profit and
loss account and considered as a base for assessing profitability position.
 Production report: Apart from the above, a report in which level or units included
which are manufactured at the end of year is known as production report (Joshi and Li,
2016). On the basis of this, Tech Limited able to assess that, company is how much
capable for producing products utilising required resources as well as raw materials.
II. Importance of presenting information in an understandable manner
In order to analyse financial performance of a particular organisation, statements and
accounts related to financial transactions are considered by people and stakeholders. When these
are proper and easily understandable by the local communities then they can make decisions for
this. On the other hand, if financials of the business entity like Tech Limited are not presented
appropriately then they cannot analyse its performance. Apart from this, in order to make
investment in Tech Limited firm shareholders or investors always consider to the profitability
position. At the time of making investment decisions if overall financials are not properly
presented then unable to know that whether it will be profitable or not. In addition to this, a
candidate when going to apply in the firm for job then also consider various financials. The
reason is that, higher the level of profit at the end of year leads to provide more salary and
allowances (Bertz and Quinn, 2014). Henceforth, it can be said that to present financial
statements in proper structure is supportive for stakeholders for making suitable decisions
towards the Tech firm.
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M1 Evaluating benefits of MA systems
Systems of MA like cost accounting and job costing are beneficial for the Tech (UK)
Limited enterprise for analysing total cost of the production and expenses associated to
manufacture each product under job or batch. Price optimisation is supportive to select one
particular price at which huge number of the customers give response for purchasing goods and
services. Furthermore, the stock management system is highly advantageous for the selected
company to manage inventory level and boost up stock turnover ratio.
TASK 2
I. Statement of P&L on the basis of absorption costing
Particulars Amount (in GBP) Amount (in GBP)
Sales 1500*35 52500
Less:
COGS 1500*20 30000
Adjustment for over absorption 2500
Gross profit 25000
Less:
Sales & Admin
((10000+(15% of 52500)
7875)) 17875
Net profit 7125
A method of assessing net income of the firm in which all the costs involved like fixed or
variable or any other is known as absorption costing. It can be visualised from the above
statement that Tech (UK) Limited firm generated net profit of worth of 7125 GBP at the end of
September 2010. The reason is that, it is not able to manage and decline indirect expenses which
create financial burden on it. Apart from this, it shows clear picture or scenario about the
profitability position of selected firm. On the other side, if Tech Limited not considers absorption
method then some costs will not cover in the profit. As the above account indicates net loss, the
company will charge higher prices in order to recover loss or total expenses incurred in the firm.
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II. Statement of P&L on the basis of marginal costing
Particulars Amount (in GBP) Amount (in GBP)
Sales 1500*35 52500
Less:
COGS 1500*15 22500
Gross profit 30000
Variable sales & Admin cost 7875
Variable contribution margin 22125
Less:
Fixed S&A cost 10000
Fixed production overhead cost
(5*1500) 7500
Net profit 4625
Another approach used by the company for making calculation of net income generated
at the end of month is marginal costing. According to this, only variable expenses which incurred
in the firm are involved. When making comparison with the above stated method then it is little
or very sometimes used by majority of the entities. The reason is that it not helps to cover all the
expenses and create burden on the entire workplace (Hald and Thrane, 2016). It has been found
from the marginal costing method that, Tech Limited earned net income i.e. worth of 4625 GBP
at the month ending September 2010. As per this, the cited firm performs well in electronic
industry as compared to absorption method.
Calculation for over/under absorption
Particulars Amount (in GBP) Amount (in GBP)
Fixed overhead absorption 15000
Actual fixed production overhead 1500*5 7500
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Over absorbed 2500
M2 Reconciliation statement
Reconciliation statement
Particulars Amount (in GBP) Amount (in GBP)
Profit under absorption 7125
Difference in units: closing stock (500*5) 2500
Profit under marginal costing 4625
TASK 3
A) Various budgets and their merits as well as demerits
Budget is a statement which prepares by most of the firms in order to estimate financial
information for the next accounting year. There are different types of such statements framed
which are such as cash, sales, production, material required, direct labour overhead and many
more. Some important budgets like sales and cash are explained along with pros and cons below:
Financial budgets
Cash Budget:
The budget which leads to estimate cash position of the firm for upcoming year by
considering receipts and payments bis called as cash budget. In order to frame it past financial
statements are used by the management of Tech UK Limited. Further, some pros as well as cons
of cash budget are mentioned below:
Pros:
 It helps to the company for knowing about cash incomes as well as payments of the next
fiscal year.
 It leads to create an effective coordination among various organisational functions or
departments within Tech Limited firm.
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 Apart from this, to assess that in upcoming times how much level of cash will be
available with the entity, cash budget is useful tool.
 It is a helpful technique for the management in order to think for upcoming situation and
make the entire company highly efficient (Merits and Demerits of Cash Budget, 2016). Further, for minimising costing aspect as well as maximising level of profitability the
cash budget considered by Tech Limited.
Cons:
 On the other side, if various functions of the firm are not coordinated with each other
properly then budgeted data cannot achieved.
 It totally focused on the subjective estimations only and ignores to other aspects.
 In order to frame and operate cash budget in Tech Limited firm, creates high financial
burden. Hence, it is costly or expensive method for the businesses.
 Moreover, in order to meet estimated cash position high time frame required which affect
productivity of Tech Limited entity.
Capital expenditure budget:
A budget which reflects amounts as well as timing of the fixed assets in order to purchase
by a company is known as capital expenditure budget. It is usually considered to make expenses
on long term or fixed assets like plant, machinery, equipments etc. On the basis of this the firm
easily able to analyse rate of return at the end of completing the whole project. It helps to the
Tech Ltd for making decisions of the long-term strategic investments at the workplace (Capital
expenditure budget, 2017.).
However, it is not helpful to cited company in order to make short-term investment
judgements at the workplace. It takes huge time for preparing budget along with applying in the
firm which create negative impact on the efficiency and productivity of the Tech Ltd.
Balance sheet budget:
A report which is used by the management accountants in order to forecast assets,
liabilities and shareholder's equity for the next year is known as balance sheet budget. On the
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