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 ...Read More

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

Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
Correctly use of techniques of management accounting and generate financial
reporting documents:
To calculate cost for an organization adopts various types of costing techniques in management
accounting. It can help to calculate of net profit for a year so company knows about the financial
performance and take appropriate decision for further investment purpose. These are reflecting to
financial statements in direct manner. An organisation can use method of costing such as marginal and
absorption costing method to search out material information and proper profit value from budgets and
other estimates. Marginal costing helps to attain net operating income profit value from different types of
budgets and help t identify of fixed and variable costs. With the help of absorption costing method
understand of gross profit and cost of gods sold so that selling price of the products can be decided
(Modell, 2014).
Interpret financial reports prepared and data for a range of business activities:
To calculate profit for the company apply both methods marginal and absorption costing. It is
analyzed from both methods get different result due to apply different approach of fixed cost in both
methods. After the calculation it is getting that through marginal costing get result 721000 and 150000 for
product A and in quarter second 40000 and 186500 for product A and B correspondingly. From the other
side absorption costing net income in quarter one 721650 and 154000 for product A and B respectively.
In the quarter second is 37150 and 185400 for product A and B respectively.
ACTIVITY 2
PART A
Explanation of different planning tool used for budgetary control
Budget – It is a formal statement where record the forecasted amount on the analysis basis.
These are related to different types of department and estimate amount of sales, purchase and
other items. The budget is prepared for specific period of time and it will help to managers to
determine all the funds that are allotted to various operational sections. In Bakers Perkin prepare
budget to estimate income as well as expenses for future period of time.

Budgetary Control – It is a controlling process where management controls of budget process
and aware for cost activities. This process can help to control of overspending and guide how to
follow budget for achieve set objectives and goals of the company. In Bakers Perkin strictly
follow all rules for accomplish their goals and generate more profit.
In reference to execute of a budget it is followed in all the business entities. As per the
requirement prepare effective strategies and fulfill the needs of company. All the members in
management of entity develop several schemes and present in front of top management. Firstly
the analyzed then approved after corrections. At the end of budgets it is generated and
implemented after the corrections by managers.
Different Planning tools – To prepare and forecast of budget apply different types f planning
tools which can help to run organizational process n effective manner.
Capital budget
This budget is developed by business entities for the reason of recording all the capital
expenses. It is also called as capital budget and help to manager for analysis profitability of
various projects that are going to be taken by the company or already taken. In Bakers Perkins
manager develop it and take decision regarding to further investments. It is mainly focused into
all the opportunities that are having tenure of more than a year (Nielsen, Mitchell and Nørreklit,
2015).
Merit – The particular budget provide advantage to management to take decision regarding to
future investments. It is beneficial to analysis of risk Into investment opportunities and show
how to influence it business process in negative and positive manner.
Demerit – If according to this budget take wrong decision so it can provide bad situation and
company goes into worst situations like huge losses. It is totally based on the assumption and
show impact on actual results.
Master Budget
There are define several types of budgets which is produced as per the requirement of an
organization. The master budget prepare for short summary and prepare for short period of time.
In Bakers Perkins manager develop of particular budget for get summary of all the financial
projections which is connected to the financial year. Here is merit and demerit of particular
budget - Merit – This budget provide summary in short time period so management easily take
decision regarding to company. They can easily reveal their goals and objectives for earn
profit, expenses, cash flow and revenues (Senftlechner and Hiebl, 2015).

 Demerit – It is including of all the types of budget in order to origin problems in between
of stakeholders to determine of transactions in detail. To execute it managers apply
certain assumptions that may not prove correct over the period.
Zero Based budget – It is kind of budget which starts from from Zero and from starting
analyzed all departments to direct manager for justify each and every expenses recorded in the
books. For each financial year a new zero based budget is produced where outstanding amounts
are ignored. Management of Bakers Perkins formulate of Zero based budget in order to
determine costs and needs of every section of company and then allot funds as per the
requirements. The main aim of the budget to execute and re evaluate of all the items in cash in
flow statement and finds reason of expense which are taking place. There are defined about the
advantage and disadvantage o the the particular budget - Merit – The advantage of this budget to provide funds in efficiently manner due to
justified of expenses. With the help of this budget fro starting analysis of all departments
and get their strength and weakness. It will guide for right decision for improvement for a
company. This budget compares new and old projects of organization in reference to
measure success.
 Demerit – The main disadvantage of this budget to starting from zero and never take past
budget as a base. For prepare of this budget need to large amount of efforts and time of
management employees. It does not provide accurate information regarding to past years.
Annex (C)

NPV: -
Project X = Dis Cash Flow – Initial Investment
= 5416.647 – 5000
= £416.647
Project Y = Dis Cash Flow – Initial Investment
= 7182.647 – 8000

= - £817.353
Analysis of uses of different planning tools:
To determine of formulate of strategies regarding to process of company need to apply
different planning tools that can help to understand future activities. There are various budgets
are applied as planning tools and take decision regarding to business activities. In Bakers Perkin
uses of Zero based budget and master budget for analysis future situation and take appropriate
decision regarding to company. Master and capital budget mainly applied for transactions in
reference to key objectives of a company.
Comparison of manner by which organizations are using management accounting
systems to respond financial problems:
Financial problem – it can be described as a situation which is face by company due to
lack of monetary resources for organizational operations. The top management take essential
decision t respond of all such types of issues through effective tools and techniques. There are
defined problems of Bakers Perkin to formulate business activities in effective manner. They are
following as - Improper money management – When manager of company cannot focus on the
spending of money that time create of this problem. Due to this problem company face
critical situation and easily cannot invest further (Soin and Collier, 2015) .
 Late payments by clients – Many times clients of a company can not pay on time so as a
result company debtors increase and create problem of lack of liquidity. So need to create
proper credit policy and take one on time from clients.
KPI (Key performance indicator) – It is a financial tools whch can help to identify f
financial problem n company. With the help of this measure performance of company in
financial and non financial manner. It is determined of errors in organizations ability to arrange
and utilize of monetary resources and recognize of unexpected expenses. In Bakers Perkin apply
this technique to identify the problem of improper money management in company.
Bench-marking – the particular technique manly applied to for the reason of comparison
of various policies and strategies of particular organisation. It s applied by manager to of Bakers
perkins to recognize the problem of late payment by clients through comparing with other
company
Financial Governance – It is described as a set f principles which is important to focus
on the business entities due to implement of accounting books. It can help to Bakers Perkin to
sort out of financial problem of improper money management to record all transactions and set

strict credit policy for creditors to solve the problem of late payments by clients
(Wickramasinghe and Alawattage, 2012).
Comparison between Bakers Pekins and Focusrite plc
Bakers Perkins Focusrite Plc
A manager of the company use price
optimization system to set optimum prices for
their products as well as services. For solve
the problem of late payments by clients
through pricing strategies. When customer
will receive commodities on right time then
they will be satisfied and make payments on
time.
There are company applied inventory
management system to arrange inventories in
effective manner.
To deal with the financial problem of
improper money management applied cost
accounting system and record all transactions
in accounting books.
The particular company apply job costing
system in order to determine specific job role.
It can help to deal with the problem of direct
labour, material and overhead.
Analysis of the way in which management accounting lead to respond financial problems
The manager of Bakers Perkin apply different types of management accounting system and
techniques like KPI, bench marking and financial governance. There are with the help of
these tools identify financial problem and find appropriate solution. This can help to lead
for sustainable success. There are recognizing problem and take appropriate actions against
improper money management and such tools managerial personnel can identify adverse
situation withn business and thereafter carry out new changes through strategic decisions
(Ward, 2012) .
Use of planning tools to respond financial problems:
A company can use various planning tools to respond for financial problem in order to prepare
and forecast of budget. There are applying planning tools like capital, master and zero base
budget. These are helping to forecast to future cost and expenses and help to get success.
CONCLUSION
As per the above report it has been concluded that in present time every organization can
use management accounting to maintain business activities in effective manner. It is systematic
processes that will conduct prepare and present report to top management. On the basis of these
reports they can take decision and smoothly run of organizational process. There are applied
different types of management accounting systems such as job costing, cost accounting,
inventory management and price optimization which is related to various activities and provide

optimum results. Several types of management accounting reposts are related to different
departments and provide detailed information. To know profit of the year of a company apply
costing method such as absorption costing and marginal costing. From both methods get
different results. To prepare and forecast of budgets apply different types of panning tools which
can help to conduct activities. These tools are applying as a strategy that help in present and
analysis future income and expenses. To solve financial issues f the company applies different
types of system to get sustainable success.