Management Accounting Report: Baker Perkins Case Study and Analysis

This report delves into the intricacies of management accounting, focusing on the application of various systems and techniques within the context of a case study of Baker Perkins Ltd. It explores the fundamental requirements of management accounting systems, including job order costing, inventory management, price optimization, and cost accounting. The report examines different types of management accounting reports such as accounts receivable aging reports, performance reports, inventory management reports, budget reports, and cost managerial accounting reports. It also discusses the benefits of implementing these systems. Furthermore, the report highlights how management accounting tools are used for financial analysis and reporting, cost analysis, and budgetary control. It provides an overview of how organizations utilize management accounting systems to address financial problems and employs planning tools for effective budgetary control. Overall, the report provides a comprehensive overview of management accounting and its practical application in business operations.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................................3
ACTIVITY A..............................................................................................................................................3
PART A....................................................................................................................................................3
Management accounting reports and types:..........................................................................................5
Determination of manner of integration of systems and reporting within process of business entity...7
Costs using appropriate techniques of cost analysis to prepare an income statement using marginal
and absorption costs:.............................................................................................................................7
Correctly use of techniques of management accounting and generate financial reporting documents:
..............................................................................................................................................................12
Interpret financial reports prepared and data for a range of business activities:.................................12
ACTIVITY 2.................................................................................................................................................13
Explanation of different planning tool used for budgetary control......................................................13
Comparison of manner by which organizations are using management accounting systems to respond
financial problems:...............................................................................................................................16
Analysis of the way in which management accounting lead to respond financial problems................17
Use of planning tools to respond financial problems:..........................................................................17
CONCLUSION.............................................................................................................................................17

INTRODUCTION
Management accounting is systematic process to prepare and present different types of
reports and accounts. It is related to internal system because it provides reports to internal
management (Laudon and Laudon, 2015). On the basis of these reports they were taking optimal
decision and set core structure for monetary decision. It assess to staff members in effective
manner and control to fiscal data to determine them for effectively attain of business and trade
objectives. The main purpose of the report to facilitate and bring new changes within enterprise
to easiness in complex trade functions. To better understand of the report selected organisation,
Baker Perkins Ltd is a British engineering company. It was founded in 1918 and manufacturing
and process services to the food industry through the world. It is mainly dealing into bread
mixing and forming equipment for plant bakeries. In the report consist of different type’s f
management accounting system as well as techniques of management account reporting which
can help to conduct business activities and operations in effective manner. These are important
part of any organisation and applying method f costing to calculate profit with the help of
marginal and absorption costing method. Apart from the report, determine various types of
planning tools which can help t prepare of different types of budgets to estimate of revenues and
expenses. Additionally, with the help of accounting tools solve to financial problems of the
company.
ACTIVITY A
PART A
Management accounting system and their fundamental requirement
Management accounting: Management accounting is a way of applying professional
knowledge, skill, technique and concept in preparation of accounting statements in a manner
which helps the managers in formulation of plans, objectives, targets etc. for the growth of
company. It focuses on providing good quality information to the directors that help them in
collecting accurate, reliable, complete data. There is no legal requirement to prepare
management accounts for an organisation. It can act as a future planning tool for managers if
effective and informative decisions are taken for the welfare of organisation. This is required by
administration to keep a check on utilization of funds, resources etc. with the help of standard
costing and variance analysis. Baker Perkins appoints high qualified people who can design,
develop its products so that maximum profit can be achieved with the use of management
accounting tool.
Management accounting systems: This is defined as a system of measuring, providing,
evaluating operational and financial information that motivates behaviour of employees as well
as helps to achieve organisational objectives. Every business needs management accounting
systems to determine cost of products, availability of stock in warehouse etc. It is confidential

information related to the decisions made by directors for the growth of company. This is
required by managers in formulation of strategic plans & actions, goals, targets etc. Baker
Perkins uses this system to implement business strategies considering quality of the products.
The company has installed a security check for its inventory which determines freshness of items
with the help of management accounting systems (Plumb and et.al., 2017).
Job order costing system: This is defined as a system which is used to record cost of
different jobs performed by organisations. In Baker Perkins it is used by managers to analyse
different processes which can be performed according to client's requirement. It is a very
important tool for companies as this helps in determining cost of each and every product or
service. This involves providing cost to every department like payroll, manufacturing, production
which further distributes to employees, direct material, labour, overhead, raw material etc. One
of the major practices followed by Baker Perkins is to assess what the consumer wants as they
are the ones who will use and give reviews about the products.
Inventory management system: It is defined as a system which records inventory with
the use of different software that help in tracking, recording etc. of goods. One of the used tools
is Info plus which takes control of overall stock, warehouse operations and shipping of products.
Various methods are used to obtain value of goods which include LIFO: Last in, first out which
records most recently produced items that are sold first, FIFO: First in, first out where oldest
items are recorded as sold first, Weighted average cost method which uses an average to
determine the amount that goes under COGS and inventory etc. With the help of this system, a
company can improve its cash flow position, reduce dead stock and labour cost. This is required
by supervisors to check availability of items at warehouse, optimal levels of stock, and order
goods before lead time etc. Baker Perkins uses inventory management system to keep a quality
check of products offered to customers. It also uses efficient labour which carry an
understanding of how much quantity should be used to prepare biscuits, bread etc. by which it
results in reduction of labor cost (Hilton and Platt, 2013).
Price optimization system: It is a tool by which mangers can determine price of
products at different levels varying according to demand & supply factors. This is used in
deciding value of products while maintaining their quality as per industry standards. The practice
of optimizing cost is followed by many industries like retail, banking, airlines, manufacturing,
engineering etc. It uses different pricing strategies to optimize price levels such as competitive,
value-based, penetration etc. by increasing short-term profits. This is required by managers to
obtain a profitable position of an enterprise. Baker Perkins applies this system to the products by
increasing production of biscuits that are in high demand by public. The company also uses
competitive pricing to be able to design attractive packaging and maintain quality of goods than
competitors.
Cost accounting system: It refers to a system of classifying cost associated with
different type of products in such a way that every unit receives amount of consideration as per

the need of department. They can be direct material, labour, overheads. This involves
determining value of fixed as well as variable cost used in production of goods & services. It is
required by authorities for accurate allocation of cost among each department and stabilizing
liquid position of a firm. Baker Perkins uses cost accounting system to measure fixed and
variable items used in making of goods. It also brings out various schemes like BOGO,
providing free cookies with a minimum purchase of $2000 or issuing vouchers for daily shoppers
(Hopper and Bui, 2016).
Management accounting reports and types:
Management accounting reporting: It is defined as a process of reporting where
different reports are prepared by administration to evaluate performance of employees working
in an organisation, optimal inventory levels, stability of funds etc. These reports carry financial
information related to a company's accounts during an accounting year. It is used by several
organisations to evaluate fiscal performance of employees as well as various activities performed
by a company. These are required by all firms to prepare management accounting reports along
with estimating any gains or losses that may arise during the preparation process. In this context,
Baker Perkins maintains management accounting reports for each and every department i.e.
Production, sales, manufacturing etc. Some of the techniques of reporting are explained below:
Accounts receivable aging report: It refers to a periodic report which categorizes the
money owed by customers, including duration to which an amount has been outstanding or
unpaid. This involves calculation of debtor collection period which states the number of days
required by a customer to pay dues. It plays a very important role while calculating working
capital cycle for an organization. It is required by companies to tighten their credit terms in case
bad debts are not recovered for a long period of time. Baker Perkins prepares accounts
receivable aging report to monitor any defaulters that may arise during an accounting year. The
company offers some financial incentives to suppliers so that they are able to pay on time.
Performance report: It is defined as a report which evaluates performance of employees
working at a firm. This addresses them to achieve organizational objectives, targets, goals etc.
made by the managers of a company. It involves comparison of actual figures with budgeted
amounts. In this type of report, a business enterprise set benchmarks, establish KPI to measure
overall efficiency of company's operations. This is required by directors to outline best efforts
made by workers at an organization. Baker Perkins prepares performance report to evaluate
ratings for its products given by customers. The company also provides financial benefits to
employees which motivates them in giving effective and efficient output (Stein and et.al., 2013).
Inventory management report: It refers to a report which records, stores, orders
inventory from the supplier and place it at the warehouse. This report varies for every type of
organization i.e. sole proprietor, company, limited liability partnership etc. It ensures that all
damaged or obsolete stock is replaced with good items, sent back to the supplier or disposed off.
For evaluating performance of this report, store supervisors are kept by companies which make

sure that proper inventory count is done and orders are placed on time to avoid stock-outs. This
includes calculation of inventory turnover which states the duration at which goods should be
produced by the supplier. These are required by managers to ensure that they have ordered the
goods a week before the lead time. Baker Perkins make biscuits, bread, cookies, breakfast cereals
etc. in bulk quantities as these are required by people on the day-to-day basis with the help of
inventory management report.
Budget report: It refers to a report which shows a company's inflow and outflow
position of income, cash over a specified period of time. This is an estimation of earnings and
expenditure that is required to run day-to-day operations of an organisation. A budget report
analyses spending power of a company as well as customer and then prepares a forecast for the
forthcoming year. These are required by directors to compare actual figures with budgeted data
for an entity. Baker Perkins allot funds to every department based on past year's budget which
gives an estimation of how much money will be required to function a unit (Turban Volonino
and Wood, 2015).
Cost managerial accounting report: This report summarizes cost associated with
different products & services such as fixed, variable and overhead cost. A cost report gives a
clear idea of liquidity along with profitability position of the company. It consists of providing
managers with funds respective to various levels of production such as raw materials, finished
goods etc. A proper understanding of all expenses can be attained by considering hourly labor
cost, inventory wastage etc. These are required in calculation of profit as well as overheads using
techniques like marginal, absorption, activity-based costing. Baker Perkins prepares cost
managerial accounting report to keep a track of funds allocated in making of bread, biscuits,
breakfast cereal etc.
Benefits of management accounting system
Different Types of system Benefits
Price optimization system The benefit of this system to understand the perception
of the clients regarding to their products. According to
that set price of products and generate more profit.
Baker Perkins gets advantage of this system and set
different price of food items as per the requirement of
customers.
Inventory management system It is very important system for manufacturing due to
track the record of production process. Through this
system manage stock level in effective manner. For food
processing need to store food products that time apply
particular system.
Job costing system The particular system related to specific job role and
provides advantage to understand of the cost of direct
labor, material as well as overhead. With the help of this
system Baker Perkins has been divided cost as per the

role and rewarded t employees for motivation.
Cost accounting system This system can help to firm for eliminate unproductive
cost activities. If trend is changing in food processing
that time company analysis the cost of different
products. It is beneficial for Bakers Perkins to analysis
the cost of food items. When market activities change
that time help to apply changes and calculate original
cost of an organization.
Determination of manner of integration of systems and reporting within process of
business entity
Due to select different types of management accounting system and reports a manager
focuses on organizational process and prepares effective strategies. These systems and reports
are defining about the business situation and understand how to influence on their performance.
Then they will take decision which is directly related to process. As accounting process provide
of quantitative information to management (Lavia López and Hiebl, 2015). On the bass of this
information improve performance and different systems like cost accounting set cost of different
products, inventory management system maintain stock level in production process. Such types
of management accounting reports are providing information to top management then take will
take decision for further investment.
Costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs:
Cost – It is a term of monetary value that has been spent by a company in reference to produce
something. It is amount of particular product and service which is paid to get something.
Marginal costing – It is a costing method that will use to calculate cost of company and
prepare income statement. In this method classified expenses in particular structure into fixed
and variable expenses. There are fixed expenses and costs focus on their sources and taken as
period costs. As a result all variable manufacturing expenses are charges with particular unit. It
analysis the effect of variable expenses on net income and per unit product cost.
Absorption costing – The particular method is part of costing and apply in organisation to
calculate net profit. In this method cannot classified cost of fixed overhead as fixed cost and
present them in production cost. Mostly organisation does not adopt particular method due to
lack of practical approach (Leitner, 2013).
ANNEX (A)
Income statement by marginal costing method:

Particulars
Q
u
a
r
t
e
r
1
Product A Product B
Sales 2566500 1440000
less: unit variable costs
Direct materials 935250 320000
Direct labour 391500 480000
Prime cost 1239750 640000
less: Variable production overheads 108750 80000
Contribution 1131000 560000
less: Fixed costs 410000 410000
Total profit/loss 721000 150000
Particulars
Q
u
a
r
t
e
r
2
Product A Product B
Sales 1003000 1719000

less: unit variable costs
Direct materials 365500 382000
Direct labour 153000 573000
Prime cost 484500 764000
less: Variable production overheads 42500 95500
Contribution 442000 668500
less: Fixed costs 482000 482000
Total profit/loss -40000 186500
Working note:
1.
Total variable cost per unit 51.5
COGS
Production cost 257500
Less: closing stock -25750 231750
2.
Per quarter standard production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 68200
Absorption 6800
Income statement by absorption costing method

Particulars Quarter 1
Product A Product B
Sales 2566500 1440000
less: Cost of sales
Opening inventory - -
Direct materials 935250 320000
Direct labour 391500 480000
Variable overheads 108750 80000
Fixed costs 410000 410000
less: Closing inventory -650 1844850 -4000 1286000
Gross profit/loss 721650 154000
Particulars Quarter 2
Product A Product B
Sales 1003000 1719000
less: Cost of sales
Opening inventory 650 4000
Direct materials 365500 382000
Direct labour 153000 573000
Variable overheads 42500 95500
Fixed costs 482000 482000
less: Closing inventory -3500 1040150 -2900 1533600
Gross profit/loss -37150 185400
Working notes:

1.
Total variable cost per unit 51.5
COGS
opening stock 25750
Production cost 303850
Less: closing stock -149350 180250
2.
Per quarter standard production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 80476
Absorption -5476
ANNEX (B)
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y

Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749