Management Accounting Report: Financial Problem Solving and Techniques

This report delves into the realm of management accounting, exploring its various systems, including inventory and cost accounting, and the benefits they offer. It examines different management accounting reporting methods, such as budget, financial, performance, and cost managerial accounting reports, highlighting their significance for informed decision-making. The report further analyzes cost analysis techniques, comparing absorption and marginal costing methods to prepare income statements. It also evaluates planning tools used in budgetary control, outlining their advantages and disadvantages. Furthermore, it addresses how organizations adapt management accounting systems to tackle financial problems, emphasizing the integration of these systems with organizational processes. The report uses Smithfield Consultants Limited as a case study to illustrate these concepts, providing practical examples of how management accounting aids in achieving organizational goals and sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and its different types of systems..................................................1
P2. Different methods used for management accounting reporting............................................3
M1. Evaluation of various benefits of management accounting systems....................................4
D1. Management accounting system and management accounting reporting are integrated with
organisational processes...............................................................................................................5
TASK 2............................................................................................................................................6
P3. Appropriate techniques of cost analysis to prepare an income statement.............................6
M2. Management accounting techniques and financial reporting documents.............................9
D2. Financial reports which accurately apply and interpret data for a range of business
activities.....................................................................................................................................10
TASK 3..........................................................................................................................................10
P4. Advantages and disadvantages of different planning tools used in budgetary control........10
M3. Usage of different planning tools and their applications for preparing and forecasting
budgets.......................................................................................................................................12
TASK 4..........................................................................................................................................12
P5. Organisations adapt different management accounting systems to respond to different
financial problems......................................................................................................................12
M4. Management accounting in response to financial problems which leads organisation to
sustainable success. ...................................................................................................................15
D3. Various planning tools to resolve financial problems.........................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is a process of preparing the confidential reports that is
beneficial for the top managers to track the activities leading towards the fulfilment of
organisational goals (Management accounting, 2018). These are the reports which provides all
the relevant information for the purpose of formulating short term and long term strategies by
taking appropriate decisions. Such technique helps in formulating policies for day to day
activities as well as for the future activities. Such accounting is a framework which includes all
the other fields of accounting which aims to inform the management regarding to the various
functions of business. It manages all the obstacles which arises at the path of completing various
tasks (Ward and Calabrese, 2018). To study the practices of managerial accounting, Smithfield
Consultants Limited is selected. The selected organisation was incorporated in 2003 located at
London, Unite Kingdom which provides financial along with consultancy services to private as
well as public business entities.
In the following report broad information regarding to management accounting, different
types of management accounting, various methods used for accounting reporting with benefits,
appropriate techniques used for cost analysis for preparation of income statements are clearly
mentioned. It also involves different planning tools with benefits and drawbacks as well as role
of management accounting in overcoming from the financial issues.
TASK 1
P1. Management accounting and its different types of systems.
Accounting is a kind of system which is related to the recording of financial transactions
in a systematic manner. The main objectives of accounting is to identify and recording all the
financial transactions in proper books of accounts to get detailed information about the financial
positions. Such system helps in having control over the assets along with liabilities to disclose
the profits together with losses with the reason of advising tax related matters during an
accounting period.
The management accounting is evolved for the basis of providing all the necessary
information regarding to the accounting to the managers for taking effective decisions along with
executing the strategies and plans for controlling, communicating, coordinating various activities
and motivating all its employees. Such accounting helps in assisting the executives in planning
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different activities and formulating various future plans to control the performances. Such system
provides various alternative solutions to overcome the business problems. It lays down various
ways to evaluate the effectiveness and efficiency to achieve the targets. It emphasizes on
forecasting future events by analysing past situations in order to be prepared for the future. The
Smithfield Consultants Limited applies various management accounting systems which are as
follows:
 Inventory management system: This is a framework which acts as a supervision along
with monitoring the available and required inventory in any organisation. Such system
helps in keeping the sufficient required inventory to perform the operations smoothly
without any delays. The tracking helps in reducing the loss of obsolescence and wastage
of the available inventory with the business entity. Inventory management system is
essentially required in Smithfield Consultants Limited to track its inventory related to the
stationary items as well as the available inventory stock of capital for performing the
business operations with its clients (Vom Brocke, 2014).
 Cost accounting system: It is a system used by different organisations to estimate the
associated cost of the different products available with them for determining profitability
analysis, controlling costs along with valuation of the inventory. Such system helps in
guiding top level managers to ascertain as well as analysis of various costs associated
for the purpose of reducing various costs to achieve maximum profits. The Smithfield
Consultants Limited requires such system for examining the cost structure and
establishing cost effect relationships by dividing the costs of various products.
 Price optimization system: It is a technique which uses mathematical analysis to
evaluate the customers and clients perception towards different prices and services via
different channels. Such system describes various applications which directly or
indirectly helps in setting prices. It provides a structure for effectively determining the
prices in such a way which facilitates the achievement of profits of the business entity.
Such system plays essential role in Smithfield Consultants Limited understand the
buying pattern along with analysing the perception towards the services provided by the
enterprise to its clients (Tucker and Lowe, 2014).
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P2. Different methods used for management accounting reporting.
Management accounting reports are helpful in examining resources usage, presenting
clear image related to financial health together with position in the dynamic and competitive
market. These reports helps in phrasing new plans, strategies as well as making effective
decisions which benefits the business processes in short term and long term. Such reports are
helpful in providing the required information to various investors as well as tracking the cash
flows to monitor the changes (Smith, 2017). Such reports helps the small business owners to
analyse the business performance along with departmental performances for coordinating various
activities in order to control various costs for taking critical decisions for the enhancement of the
company. The managers of Smithfield Consultants Limited uses various reports to strengthen the
position in the market. Some of the reports are as follows:
 Budget reports: These reports are prepared by utilising the previous financial plans for
making projections for future. It includes the list of all expenditures and incomes during
an accounting period. An organization develops strategies to complete its tasks within the
budgeted amounts. These provides a structure to plan the organisational future earnings
and preparation of financial statements. Smithfield Consultants Limited composes such
reports to predict the cash flows and allocating the resources in various activities as well
as preparing the basis for judging the performance.
 Financial reports: These reports acts as statements which reveals detailed information
related to the financial progress, performance and position of the business. These are
prepared in systematic and meaningful manner which helps in analysis that are essential
to wide users for taking required decisions. The financial reports of Smithfield
Consultants Limited are useful to govern the organisational cash flows as well as useful
for various investors and lenders to measure the financial health of the entity (Schaltegger
and Burritt, 2017).
 Performance reports: These provides a brief summary of the performance of business
entity as well as its employees. These includes the detailed statements which helps in
measuring the results of various tasks related to their success over some specific time
period. The managers of any business analyses these reports very attentively to observe
the deviations and providing some ways to overcome them for the reason of maximising
profitability. Smithfield Consultants Limited prepares the described report to construct
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strategic decisions as such report provides a clear image in relevance to health along with
performance of the concerned firm.
 Cost managerial accounting report: These reports are helpful in providing figures in
numerical terms of the total cost associated with the production of products as wee as
services. There are various direct or indirect costs associated with the manufacturing of
product such as material costs, overhead costs, labour costs as well as various other costs.
The managers of Smithfield Consultants Limited prepares such reports to establish
various policies, strategies required in future as these reports presents the organisational
performance and profitability (Ross, 2017).
M1. Evaluation of various benefits of management accounting systems.
Management accounting system Benefits
Inventory management system  Such system helps in improving the
warehouse management by maintaining
transparency as well as efficiency in the
selected organisation.
 It benefits Smithfield Consultants
Limited in maintaining the required
stock as well as placing the order before
the requirements to eliminate the
hurdles of performing operations.
Cost accounting system  When different economic conditions
occurs, the selected organisation takes
corrective measure with the help of cost
accounting to formulate various
strategies according to the needs and
demands of the clients (Rieckhof,
Bergmann, and Guenther, 2015).
 Such system helps the selected firm to
measure the efficiency and maintaining
it by making provisions to improve
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them at the time required.
Price optimization system  Such system helps in evaluating the
customers and clients perception
towards different prices and services
via different channels.
 It benefits the managers of Smithfield
Consultants Limited to set the prices of
its commodities after analysing the
attitudes of its clients along with
customers (Renz, 2016).
D1. Management accounting system and management accounting reporting are integrated with
organisational processes.
Management accounting system and management accounting reporting are closely
related with the processes of an organisation. The management accounting reports provides
information related to operational as well as financial performances. The management
accounting systems helps in planning and controlling the operations for the purpose of taking
effective decisions. Both plays important roles for each other. The managers of Smithfield
Consultants Limited applies such relationship of management accounting system and
management accounting reports in their procedures of the operation. The management
accounting systems are used for the preparation of various financial reports which defines the
health as well as position of the selected entity. Managers carefully examines various available
reports t
TASK 2
P3. Appropriate techniques of cost analysis to prepare an income statement.
Absorption cost: It is that cost which includes all the relevant fixed as well as overhead
expenses related to production of a product (Nilsson and Stockenstrand, 2015). This method
helps in preparation of tax reports, financial reports and leads to provide accurate results in
calculation.
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Marginal cost: It is that cost which is incurred on producing an extra unit of a product. It
leads to change on total cost and profit for making an additional unit of product and helps in
decision making process (Moore, 2014).
Working Notes*-
Calculation of sales (25*10000) - 250000
Calculation of good sold- 140000
(Direct material+ Direct labour+ Variable manufacturing overhead+ Fixed manufacturing
overhead : 50000+30000+20000+40000)
Calculation of selling and manufacturing expenses- 60000
(Fixed + variable selling and manufacturing expenses: 30000+30000)
Income statement by marginal costing method
Particulars Amount
Sales
Less: Marginal cost of sales
Contribution
250000
130000
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Less: Fixed cost
Net income
120000
70000
50000
Working Notes*-
Calculation of marginal cost of sales - 130000
(Direct material+ Direct labour+ Variable manufacturing overhead+ Variable selling and
administration expenses: 50000+30000+20000+30000)
Calculation of fixed cost - 70000
(Fixed manufacturing overhead+ Fixed selling and administration expenses: 40000+30000)
Interpretation- From above numerical, it can be analysed that company is getting the
net profit of £ 50000 from the marginal costing method. It is calculated with the help of marginal
cost of sales which is of £130000 and fixed cost that is of £70000.
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Interpretation- As per the above numerical it has been interpreted that company is getting the
loss of £75000 through the marginal costing method. As well as marginal cost of sales is of
£130000.
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M2. Management accounting techniques and financial reporting documents.
Management accounting techniques plays essential role in generating financial reports as
well as statements. Organisations prepares financial statement such as profit and loss account,
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