Management Accounting Report: Apple House Guest House Performance

This report focuses on the application of management accounting principles to analyze the financial performance of Apple House Guest House. It begins with an introduction to management accounting, emphasizing its role in helping businesses overcome financial challenges and achieve their go...Read More

MANAGEMENT
ACCOUNTING

INTRODUCTION
Finance plays a significant role in the business as this helps in rescuing management from
the financial crisis faced by an entity owner. Apple house Guest house has been selected for the
given report which is used in analyzing the overall performance of this small scale entity in
attaining al desired aims and targets. Small scale entity has higher scope in the initial phase as
they spire to grab higher market share by enhancing their current skills and the capabilities in
order to achieve all the goals and the objectives within a given time period. This report also
states about various management accounting system and reports prepared in the management in
order to communicate easily with the external market to consider all standard's requirement in
improving the current business practices. Income statement's of this small based business will be
prepared using absorption and marginal costing method whose profit generation will differ from
each other as they both taken into consideration the fixed costs of the business differently.
Current assignment emphasises on selecting various planning tools whose major motive is to
enhance the current business practices of the business in order to grab higher market advantage
in the external entity. Financial problems are regarded as one of the important issues in relieving
all the current problems by simplifying existing organization structures in the better way to grab
higher market share. Aim of the business is to achieve all desired aims and the objectives to
enhance current capabilities of an entity in order to satisfy various consumers.
P1 Explain management accounting and different types of management accounting system
Management accounting is an important tools and technique adopted by an individual in
order to achieve desired aims and the objectives within a given time period. Primary concern of
the management is to ascertain the initial cost incurred in the business enterprise are required to
get reduce as this will decrease the income and the revenue of an entity that affects the overall
performance of the organization. Primary concern of the business is to enhance its skills and the
capabilities in order to grant ultimate advantage to its variety of customers existing the external
market. It is regarded as one of the important process in which data will be collected from the
external business environment in collecting different kinds of costs incurred in the business
(Lambert and Sponem, 2012). Various costs incurred in the business includes fixed and variable
costs that are important costs to be considered by the management in increasing overall sales and
the revenue in the business. Costs evaluation is essential that helps in generating higher income

for the business by eliminating all the costs incurred in the business enterprise. Costs is taken as
negative influences imposed on the business in order to bring out the unique talent of an
organization. There are various management accounting systems to be adopted by an
organization that helps in enhancing overall skills and the capabilities of an enterprise is given as
below:
Cost accounting systems-Cost sheets are prepared by an entity which helps in ascertaining all
the cost currently incurred in the business in order to gain higher market advantage on its variety
of competitors exits in the external market. Cost is the primary concern of an entity which needs
to be identified in order to gain higher market advantage over various customers exists in the
external market. There are two important costs incurred in the business such as fixed as well as
variable costs incurred in the business which need to be identified as large amount of costs will
suppress the quality of an entity (Bebbington and Thomson, 2013). Costs can be determined by
preparing cost sheets using both marginal and absorption costing that helps an entity owner in
order to ascertain the current costs incurred in the business which needs to be identified. Various
costs incurred in the business such as variable and fixed costs that are essential components in
developing all the products or services tat will be offer in front of all the customers in the
external business environment. The negative influence of all the costs included in the business is
that it affects the overall performance of an entity which needs toy be identified in the initial
phase to generate higher market advantage for an entity in the near future.
In an entity is its essential to records all the costs in the business which is important in
order to generate higher sales and the revenue in the future by offering all their services to cater
al the needs and the expectations of various customers.
Inventory management- The valuation of all the stock is important as utilization of all the
inventory is important in order to increase current sales of the business. Valuation of all the
inventories is important as this would help an entity in order to gain higher market advantage as
inventories are properly recorded along with is correct valuation using various methods like
FIFO, LIFO and average cost method to facilitate its users to apply any method out of the above
according to their interests and choice as it is essential for the business to manage all the
inventories. The various ways and means are used by an entity that helps in creating higher
market advantage by enhancing their current skills and the capabilities to ensure its higher

productivity in the near future. The productivity of an entity is highly based on the usage of all
the inventories. The inventories are properly managed in the business organization in order to
accomplish all desired aims and targets framed by an entity as their major objective is to cater al
the needs and expectations of various customers by treating all consumers as king of the market
in the best possible manner (B Douglas Clinton CMA and CFM, 2012).
Just in time method is used as one of the important inventory management approach in
which inventories are purchased just to meet the sales order as the inventories are not pile up in
the business as this will save the warehousing costs to be incurred in firm for storing all the
inventories. The storage of inventories is important for Apple house guest house who purchases
vegetables and other kitchen consumable in bulk quantity which will be kept in cold storage
house to keep the freshness in all he ingredients as raw materials used in the kitchen are
perishable which will b procured in cold storage for lesser period in order to ensure higher
savings of an individual in their overall business.
P2 Explain different methods of management accounting report
Controlling is one of the important functions of the management in which employer an
organization will place controls on its current sanitation structure in order to improve the overall
performance of an entity. Being a small scale entity Apple house guest house are required to
emphasize on their current business operations such as staffing salaries, allocating of daily
routine work duties, purchasing of consumables, paying fees to the delivery van to sales or
purchase products or services of an entity (Pondeville, Swaen and De Rongé, 2013).
One of the segment of controlling functions is reporting in which business information ae
collected in order to enclose all of them in the report formats to communicate all kinds of
important discussions with the top management. Management will make important decisions in
the business after reviewing all the reports prepared y the lowers level employees in an entity
who focuses on all facts and figures collected by an individual related to the current aim of an
enterprise which gets fulfilled when an employee accomplish all the tasks and duties in the best
possible manner. The role of the business entity is gather higher information related to an entity
for accomplishing al tasks in given time frame. There are various reports prepared y n individual
in communicating important facts and figures with the management of Apple house guest house
s given as below:

Performance report- The performance of the current guest house is essential as employees are
held responsible for increasing or decreasing the current performance of an entity in relation to
various parameters. These parameters include external market competition, current features
about the products or services offered to different customers the outside entity whose needs will
get fulfilled by the business within a given time. This guest house is located in England Near the
famous airport Heath-row airport which helps in attracting various visitors who come to UK for
different purposes such as business meetings, vacations, pilgrimage centers and wedding
destinations. London being a famous tourist destinations helps in attracting wide umber of
visitors who arrives to this place in exploring the exotic beauty of all the places. The attractive
looks of all these places will help an entity in order to generate higher outcomes in the near
future as heir primary motive is to grab higher market opportunities (Chenhall and Moers, 2015).
The performance of the organization can be increased by adopting all these features in designing
different products or services for an entity as their desired aim is to get higher level of customer
satisfaction by catering all the needs and the expectations of different customers exists in the
external market.
Budget reports-The nature of budgetary reports is best appropriate for an entity in recognizing
present abilities in ensuring higher business performance of an enterprise in the near future.
Budget is that document tat helps in predicting the future performance of an entity in order to
determine all the business areas which is essential in order to take external market opportunities
by recognizing current talent of an entity. Cash budgets prepared by an entity in order to
determine the movement of cash in the business as it is important component in meeting al inds
of short term obligations imposed on the external accounting. Cash budgets determine the
position of an entity by ensuring its survival in the external market by ascertaining the deficits or
surplus generated by an entity in the near future as this would be helpful for the business in order
to know the future performance of an entity in advance to prepare itself to handle complexities of
the near future.
P3 Prepare income statements under absorption costing and marginal costing
Particulars Absorption costing Marginal costing
Direct Material 6 6
Direct Labor 5 5

Variable production overhead 2 2
Fixed production Overhead 3 0
Total cost per unit 16 13
The determination of per unit cost is important in order to know the current level of costs
incurred in the business as higher the costs lower will be the income and revenues generated by
an entity in a particular period (CPIM, 2014). The evaluation of all the resources in the business
is important to regulate the overall business performance of an entity in relation to all the
external market difficulties currently faced by an entity that needs to be decreased with the
passage of time. Ascertaining per unit cost is essential to know its existing capabilities as with
the increase or decrease in the total units of the business the direct impact will be created on the
total amount of costs to be incurred by an entity in the near future which will be decreases with
the time.
Table 1: Income statement under absorption costing
Description Amount(in GBP)
Sales (35*600) 21000
Less: COGS
Opening inventory (700*16) 11200
- Closing inventory (100*16) (1600)
9600
- Over absorbed fixed overhead (500)
GP 11500
Less: absorbed costs
Sales overhead 600
Administration costs 700
Selling costs 600
Total absorbed costs (1900)
Profit 9600
Interpretation

Important method used in determining the available cost incurred in the business that will
be helpful for an entity in order to develop he prices of all the products or services currently
offered by an enterprise to ts variety of customers. This kind of costing emphasises on variable
as well as fixed costing as for developing the price of products all factors of cost related with the
product need to be included in order to provide ultimate advantage to the business owner. The
aim of every business owner is to earn higher profit which is only possible to earn higher amount
of profit in the near future. This approach is also regarded as the full costing technique which
considers both kinds of costs incurred in an enterprise that will be helpful for an entity in order to
get higher competitive advantage over its variety of challenges imposed by the external market to
suppress the capabilities of the business like Apple house guest house (Sleihat, Al-Nimer and
Almahamid, 2012).
Being a small scale retailer the pressure of overall industry will influence the current
performance in order to increase their capabilities according to the industry standards in order to
remain ahead among all the players of the market. The major aim of the absorption costing is
allocated all the manufacturing costs among the current business to accomplish all the tasks and
duties within a given a time period as it is important for an entity in order to take external market
opportunities by improving their overall set of skills and the capabilities. It gives emphasises on
three important criteria of allocating costs such as Direct material, directs labor and overheads
which are regarded as complete costing which will cover both fixed and variable method in
enhancing the overall performance of an entity.
The results of the income statement's states that an entity has incurred profit of 9600 GBP
as it considers all kinds of costs in improving he current market performance as their major
objective is to gain higher market advantage by enhancing their overall position in the external in
order to grab higher opportunities (Macintosh and Quattrone, 2010).
Table 1: Income statement under Marginal costing
Description Amount(in GBP)
Sales (35*600) 21000
Less: COGS
Opening inventory (700*13)
9100
-Closing inventory (100*13) (1300)

Contribution 13200
Less: other costs
Sales Overhead 600
Fixed production overhead 2000
Administration cost 700
Selling costs 600
Net profit 9300
Interpretation
Marginal costing is another important topic used by an entity in improving the overall
performance of the business as they held liable for increasing the business performance by
considering only variable costing. The sales mix can be developed by an individual to enhance
all the testing qualities of an enterprise to strengthen the current business as their main aim is to
accomplish higher sales target. Marginal costing is also renowned as the contribution costing in
which the feasibility of various products or services will be tested using this particular technique
as it would be helpful for an enterprise in order to grab higher market opportunities in the near
future. All costs are ignored other than variable costing as this technique's assumption stats that
all the those costs that increases or decreases the sales are recognized in advance to improve the
current business performance of an entity (Pant, 2016). It is essential in order to grab higher
market opportunities as they held responsible for enhancing current sills and the capabilities of
an individual in order to consider all those costs which decreases the potential order the business
in grabbing higher market share in the external business environment. Break even point concept
is related to the marginal costing in which higher performance will be evaluated using this
particular approach. This is regarded as that point where cost will be recovered by an entity at
particular level of sales unit produces by the business. So, an entity are required to surpassed
current level of sales units in order to earn higher profit otherwise the business will be shut down
as no business owner just want to meet all the costs in their business.
The basic difference lies in the absorption and marginal costing is related with the overall
treatment of fixed cost in the business. In absorption costing, fixed costs are treated as products
which will be included while designing of the products but this is differs in the marginal costing

systems in another costing systems under marginal costing systems, fixed costs is taken as period
costs which will be excluded from the total sales as this is just taken into consideration in order
to evaluate the value of closing inventories o cost o goods sold in the business Like Apple house
guest house (Vosselman, 2014). It is essential for an entity to recognize its capabilities in order to
take higher advantage over its external market users.
Working Notes
Calculation of over/under absorption of fixed production overhead
Actual fixed production overhead 2000
Absorbed fixed production overhead (700*3) 2100
Over absorbed overhead 100
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control
Revaluation accounting- It is one of the planning tool used in the organist which is used to
determine the current business performance of an entity. The revaluation incurred in the price of
products are identified as increase in the variable costs will also increase the overall price of the
products which is not suitable for the business in order to satisfy its various users of the business.
The revaluation incurred in the business enterprise are classified into two types such as positive
or negative included in the business system of an organization (Burritt and et.al., 2011). Apple
house guest house being a small scale restaurants are required to adopt this particular accounting
in identifying all the revaluations incurred in the business as raw materials are purchased in order
to produce final dish so it is essential for an entity to consider all negative or positive impacts of
the revaluation occurred in the business. The revaluations can be positive or can be negative as if
its increases the variable cost of the business the is negative for an entity but at the same time if
revaluation in the value of land of the business it is regarded as positive for an entity. The nature
of the future revaluation in the business will increases or decreases the overall amount of profit
incurred in the business entity.
Decision making accounting- The primary concern of the top management of Apple house
guest house is to recognize all the costs currently incurred in the business. Management

accounting principles suggest that it helps an entity in making important decisions in the business
for the beneficial of the organization in order to grab higher market advantage in the external
business environment (Kaplan and Atkinson, 2015). Decisions are taken by an entity on the basis
of both kinds of information collected y an individual after analyzing prospective areas of the
business such as qualitative and quantitative information supplied to an entity in order to grab
higher benefit ova all the consumers. Decisions will be used by the management in which
particular situations that may occur in the future are analyzed in the present to analyses of overall
impact on the future entity. The impact of the future uncertainty will be predict benefit the
business in the best possible manner. An entity is required to focus on the skills and the
capabilities of the organization as their primary responsibility is to eliminate all the current
weaknesses of an entity as this can poses against the strength of the business enterprise. Top
management of Apple house is required to collect information about its competitors as this helps
in crafting strategies to beat all the competitors in the external market. Being a small scale entity
the identity of the business is already suppress by cost of the industry players who dominate the
firm by capturing overall market in order to restrict their performance (Håkansson, Kraus and
Lind, 2010). The ultimate goals of the top management of Aple house guest house is to rectify its
performance by taking specialized services of the external market in order to achieve higher
competitive advantage in the external market.
Cash budget
It is the great budgetary control tool that reflect the overall cash which is going to use in
the operations of the organization (B Douglas Clinton CMA and CFM, 2012).
Advantage:
 It supports in monitoring the cash flow effectively thus unnecessary expenditures can be
minimized.
 Cash budget supports in identifying whether cash balance is appropriate or not to meet
with obligations. Through cash budget it can utilize its fund effectively.
Disadvantage:
 For preparing the cash budget management has to research a lot for each operational
expenditure thus, it is time consuming process.

 Sudden complication can arise any time and due to this cash budget can be failed to meet
with its objective.
Capital expenditure
It is also known as capital budgeting that can be used as budgetary controlling tool.
Advantage:
 It helps in making sound investment decisions with the help of IRR, NPV etc.
 With the help of this tool cited firm can identify risk and opportunity in the business. It supports in making adequate control over its expenditures (Håkansson, Kraus and Lind,
2010).
Disadvantage:
 It takes long time to make an effective decision.
 Wrong capital budgeting decision can affect durability of the organization.
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems
Problems are regards as the burden on an entity which needs to be identified I order
supporting an entity in the tough times when the cash inflows are blocked and cash outflows are
higher which indirectly decreases the brand iage of an entity. Important asset of the business is
the brand image or goodwill maintained by an entity by catering variety of needs and the
expectations of various customers located in the external market. Financial problems occurred in
the busies due to shortage of finance available in the fir in order to meet all kinds of short term
obligations of the business which created pressure on the business. Advance technique will b
adopted by an entity in order to improve its performance of the business with the passage of time
as their major objective is to meet desired aims ad he objectives of the firm which will be
completed by allocating different kinds of tasks and duties in particular time period (Hiebl,
2014). There are various ways and methods to be used by an entity in order to overcome all
kinds of financial problems incurred in the business is given as below:
Key performance indicators-This is that technique in which the performance of an entity is
regards as the major aspects to be fulfilled in the overall business tenure. The major goals the
objectives of an entity owner is to considered various parameters especially designed for

improving overall performance of an entity. This is regarded as the final action plan in which
present resources are analyzed to predict future performance of an enterprise as their main
motive is to grab higher market opportunities by analyzing the present financial resources in a
given time period. It can be of two types such as financial and non-financial depends on the
current problem faced by an entity as this controls the overall capabilities of the business. The
higher employee turnover will get reduced by increasing salary and wages of an employee
working in the business for the betterment of the organization (Arroyo, 2012).
Benchmark- This is regarded as one of the best industry records maintained y various
employees are regarded as records which inspires other individuals to reach specific targets in
relation to all the aims and targets of an entity. The higher business targets can be achieved using
this particular approach as in this method he external market challenges imposed on an entity to
test the caliber of all the employees in the organization. The primary concern of the top
management is to remove all the current weaknesses lies in the system that can be achieved in
the less period.
CONCLUSION
It can be concluded from the above assignment that financial resources is regarded as the
important source for improving the current business of an entity. Management of al the financial
resources is important that enhances the current capabilities of an entity in order to get higher
competitive advantage over its variety of customers located in the external market. This project
is about the determination of profit of Apple house guest house using absorption and marginal
costing. It can be said that profit of an entity is higher in absorption costing as the difference of
300 GBP in the profit arises due the treatment of fixed costs as in method it is treated as period
and in another method it is regarded as period costs which creates differences in the overall
amount of profit generated by the business in a particular financial year. This project also
emphasizes on selecting various tools and technique used by the management in eliminating all
the financial problems. This report also emphasizes on planning about the future of an entity that
how Apple house can expand their business by transforming their weaknesses as one of the
market opportunities in the same entity. Different planning tools are also used by an entity that
helps in improving overall performance of an entity in order to grab higher market advantage as

this helps in generating higher market revenue by planing about the future of the business which
is important in order to attain all the goals and the objectives of the business enterprise.