Management Accounting Report: Analysis of C&K Developments Limited

This report provides a comprehensive analysis of management accounting principles and their application within C&K Developments Limited, a construction company. It begins with an introduction to management accounting, exploring its concept and essential systems, including inventory management, job order costing, and price planning. The report then delves into various reporting methods, such as item cost reports, budget reports, and pro forma cash flow statements. A significant portion is dedicated to cost analysis techniques, specifically marginal and absorption costing, with detailed calculations of net profit using each method. Furthermore, the report examines the benefits of management accounting systems, their integration within organizational processes, and the advantages and disadvantages of planning tools used in budgetary control. The analysis includes an evaluation of these tools and their application in preparing forecasting budgets and solving financial issues, concluding with a discussion on the role of planning tools in addressing financial problems. The report provides a practical understanding of how management accounting aids decision-making and financial management within a business context.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Concept of management accounting and essential requirements of its systems....................1
P2 Methods of management accounting reporting......................................................................2
M1 Benefits of management accounting systems and their applications...................................3
D1 Integration of management accounting system and its reports in organisational process....4
TASK 2............................................................................................................................................4
P3 Ascertainment of costs using techniques of cost analysis.....................................................4
M2 Range of management accounting techniques......................................................................6
D2 Interpret data for a range of business activities.....................................................................7
TASK3.............................................................................................................................................7
P4 Advantages and disadvantages of planning tools used in budgetary control.........................7
M3 Analyses of planning tools and their application for preparing forecasting budgets...........8
D3 Evaluation of planning tools.................................................................................................9
TASK 4............................................................................................................................................9
P5 Financial problem and techniques to solve these problem...................................................9
M4 Benefit of management accounting to solve financial problems..........................................9
D3 Planning tools for solving financial issues............................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is a special branch of accounting which deals with managerial
operations and functions performed in an organisation. To better understand the topic of
management accounting, a construction company is selected that is C & K developments limited.
This organisation is a small private limited company which deals in constructing domestic
buildings. Main aim of this report is to identify significance of management accounting concept
by analysing its various techniques and systems. In this project report, various management
accounting systems are analysed along with methods of reporting. Costing techniques such as
marginal and absorption are used to ascertain net profit and break even point. Budgetary control
and its several planning tools are evaluated in order to solve financial issues. Techniques of
producing financial reports are also discussed in this report. Planning tools are analysed along
with their advantages and disadvantages to ensure better treatment of financial issues (Amidu,
Effah and Abor, 2011).
TASK 1
P1 Concept of management accounting and essential requirements of its systems
C & K developments limited is a construction company and as their management
accounting officer, the concept of management accounting and its systems are discussed below
in order to provide reliable information to their general manager.
Management accounting:
It is a process of preparing and presenting managerial accounting information in form of
reports. These accounting operations are the day to day activities which are performed by
personnel of an organisation. This process helps management to analyse business costs which are
incurred in managerial operations. This concept is an aid to managers as it plays a significant
role in decision making. This process is concerned with internal management of a company
(Carlsson-Wall, Kraus and Lind, 2015).
Types of management accounting systems and their essential requirements
Management accounting systems are a framework which provides an overview about
internal information of a company. These systems assists in developing and interpreting this
information so that in can be served to various stakeholders such as employees, directors and
shareholders. Some of these systems along with their requirements are given below:
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Inventory management system – This system helps in managing all the inventory and
stock which is available to the company. Inventory involves raw material, warehoused material,
stock in work in progress and finished goods. In the case of C & K developments limited,
inventory is raw material which is used by company to construct buildings. All the materials of
this company is managed by managers by using techniques of LIFO. Under LIFO technique, last
in stock is used first and under FIFO, first in stock is used first. This system is essentially
required by companies which has ample of inventories (Dražić Lutilsky, 2012).
Job order costing system – This system helps an organisations to record every order
which is received by the organisation. In the case of C & K developments limited, management
of this organisation records all their orders in order to maintain records for cost involvement in
each order and profit acquired from each order.
Price planning system – Under this system, organisations allocate prices to their
different products which are manufactured or distributed by them. In case of C & K
developments limited, this system is essentially required by them as it helps to determine suitable
pricing strategy which should be allocated by them in order to earn profit and satisfy their
clients. This sytem enables planning of prices of products which are manufactured by the
company.
Cost accounting system – This system is concerned with ascertaining various costs
which are involved in organisational operations and activities. Determining cost involvement is a
critical task to perform as this cost is classified into variable, semi variable and fixed cost. C & K
developments limited uses this system to determine cost involved in their operations related to
construction. This system is essentially required by a company as it helps in ascertaining cost in
various activities and projects along with conducting profitability analysis. . This system consists
three types of cost that is normal, standard and actual. Standard costing helps in predicting future
cost involvement whereas normal and actual cost helps in ascertain cost which is actually
incurred by the company.
P2 Methods of management accounting reporting
Management accounting reporting is a process of preparing various reports which consist
information about management and its operations. These reports are prepared by the manager of
C & K developments limited in order to serve them to internal stakeholders such as directors,
snior executives, employees and more. Some of these reporting methods are mentioned below:
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Item cost report – This report is prepared by the management accounting officer of a
company which consists all records for inventories such as opening stock, closing stock and
inventory involved in work in progress. Cost of all the items used in manufacturing the finished
products are recorded in this reporrt. This report even has cost of stock which is incurred by an
organisation. Main aim behind developing this report is to transact all inventories in a report so
that it can be easily accessible whenver it is needed by top management staff of the C & K
developments limited. By developing this report, managers can get access to all the stock which
is avalible to the company to conduct their organisational operations.
Budget report – This report includes all the budgeted and predicted information which is
estimated by managerial acountants of a company. Under this report, various budgets are
prepared in order to ascertain future events, expenses and incomes. In case of C & K
developments limited, management accountants set financial goals which are based on their
projections and estimates. These budgets are prepared by using trend analysis and past
experiences. Main aim behind preparing this report is to serve reliable information to internal
stakeholders about future projections.
Pro forma cash flow - Pro forma cash flow is essential to analyse the shortage of cash in
the future so that company can prepare by obtaining additional debt or equity fund to offset the
estimated shortfall. It is the estimated amount of cash outflows and cash inflows in one or more
period of time in future. C& K development Limited can use this information to develop annual
budgeting and forecasting process and it is prepared for the cash flow information (Granlund,
2011).
Performance report – This report is mainly focused to performance of the company. In
this report performance of employees and overall company is determined in order to determine
efficiency and effectiveness of an organisation. Performance is reffered as efficiency of a
particular employee along with overall performance of a company. In case of C & K
developments limited, manager and HR manager prepares this report in order to serve it to
internal stakeholders such as directors and senior executives.
M1 Benefits of management accounting systems and their applications
System Benefits
Cost accounting system C & K developments limited is benefitted by this system as
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they can ascertain their cost involvements in their
organisational operations. By using this sytem, company can
ascertain which activity is more cost incurring and profitable.
Inventory management system By using this system, company can determine cost of their
inventory which is available to them. It helps C & K
developments limited to ascertain transperancy in their
inventory management.
Job order costing system This system helps in determining cost involvement in a specific
job. This system is more beneficial for C & K developments
limited as it has various jobs or projects to be perform.
Price planning system Under this costing system, prices of different products and
services are ascertained so that company can attain benefit of
profit maximisation and customer satisfaction. C & K
developments limited uses this system to allocate prices to their
constructions.
D1 Integration of management accounting system and its reports in organisational process
Management accounting systems and reports are a integarted system for management
accoun ting of any company. These reports are based on the systems used by the company. For
example: In case of C & K developments limited, managers uses inventory management system
to control stock available to them and then they record all data of inventory in inventory
management report to ensure accurate and relaible informnation which is required to be served to
internal stakeholders. Other reports such as job cost report is integaterd and related with job
accounting system. Similarly, budget report is integrated with cost accounting system as this
sytem helps in ascertaining standard cost, actual cost and normal cost (Johnson, 2013).
TASK 2
P3 Ascertainment of costs using techniques of cost analysis
Cost analyses is a process of measuring cost and units which are produced by an
organisation. The main aim of this analysis is to ascertain differnt types of cost such as variable
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and fixed which are incurred by a company. Cost analysis has various techniques which helps C
& K developments limited to determine cost involvement such as marginal and variable.
Managers of C & K developments limited uses two types of cost analysis technique.
Using these techniques, cost and net profit is calculated below:
Marginal costing – This costing technique helps a company to determine marginal or
varib ale cost which is incurred by a company in a specific period of time. This technique
completely writes off all fixed assets against contribution. Marginal cost can be determined with
the combination of direct material, direct labout, direct expenses and variable overheads. This
technique helps in classifying fixed and variable cost and alos helps in valuation of inventory.
Main aim behind using this technique is to determine price of their products and ascertain
profitability (Marginal costing. 2018).
Absorption costing – Under this costing technique, manufacturing costs are abosrbed by
units which are produced. In this costing technique, manufacturing costs are deducted from
selling price and all selling and distribution costs are deducted from gross profit earned by the
company. Main aim behind using this costing technique is to ascertain all the costs which are
incurred by the company.
Calculation of net profit by using marginal costing method:
Variable cost – These costs are involved in operational activities of an organization.
These costs are usually of low value and are ascertained by the sum of direct material, direct
labor and direct expenses.
Fixed cost – These costs are static and dose not change like variable costs. These costs
are usually higher in value and is incurred by the organization regardless the situation where a
business firm is unable to earn any profit from business operations.
Particulars Amount
Sales revenue 33000
Marginal Cost of goods sold: 9600
Production 12800
closing stock 3200
Contribution 23400
Fixed cost 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
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Sales 33000
Cost of goods sold 14025
Gross profit 18975
Selling & Administrative expenses 3300
Net profit/ operating income 15675
Break even analysis – This is a process of analysing the break even point and sales of a
company. Break even is a situation when organisation face no profit and no loss in an accounting
period. Break even can be calculated by comparing fixed costs with contribution of the company.
a. Total number of product sold
Sales per unit = 40
Variable costs = 28
Contribution = 40-28 = 12
Fixed costs = 6000
BEP in units = (6000/12)500
b. Calculation of break even point in accordance to sales revenue
Sales per unit = 40
Variable costs = 28
Contribution = (48 – 28) 12
Fixed costs = 6000
Profit volume ratio (Contribution / sales * 100) = 30%
BEP in sales = (6000 / 30%) 20000
c. Calculation for getting desire profit of 10,000
Profit = 10000
Fixed costs = 6000
Contribution = (10000+6000) 16000
Contribution per unit = 12
Sales = (16000 / 12) 1333.33
Margin of safety - This is a safety margin which allows a company to earn profits. This
level is considered as a principle of investing which helps in determining risk involved in an
investment. It is a difference between actual sales and break even sales.
d. The margin of safety, if 800 products are sold
Actual sales in units = 800
Break even sales in units = 500
Margin of safety = 37.5 (800-500/800)
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M2 Range of management accounting techniques
Management accounting technqiues are the tools which are used to record and
determine cost which is incurred by a company. C & K developments limited uses marginal cost
which is decsibed below along with historical cost:
Marginal cost – Marginal cost is a tool which helps C & K developments limited to determine
their variable cost and also helps in classifying fixed and marginal cost. By using this tool
company can calculate their cost involvement in organisational operations and activities.
Historical cost – Under this type of management accounting technique, C & K developments
limited records all their assets on historical cost in order to ascertain reliable cost of acquisitions
and depreciation. This technique is used to against replacement cost.
D2 Interpret data for a range of business activities
Cost is determined using two costing methods which is marginal and absorptional. Under
marginal costing technique, net profit is calculated as 17500 whereas according to absorptional
technique, net profit is ascetained as 15675. This difference between the profits of same firm is a
result of abosrption of cost. As in only absorptional costing, both variable and fixed costs are
absorbed.
Break even analysis of this company is also conducted which reflects that break even
point o f this company is 500 units with sales of 20000 dollars. Margin of safety of this company
is 37.5. In order to earn profit of 10000 this company has to manufacture 1333.33 units.
TASK3
P4 Advantages and disadvantages of planning tools used in budgetary control
Budget - It is known as the estimation of total cost, earnings and resources that are going
to be incurred in near future time. A budget used to work administrative tools, as it works as
effective plan of action in order to attain organisation aims and objectives in more effective
manner. There are various types of budgets which will be taken into account for the purpose of
managing overall operations of the department. Some of them are operating, cash, sales and
production budgets. A forecasts the financial results and financial performance of a company for
one or more future periods (JOSHI and et. al., 2011).
Budgetary Control:
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It is a system of management control in which, actual income and spending are compared
with the standard spending and incomes. It helped C & K developments limited company to
determine whether the arrangement are working according to the set standard. There is certain
useful centre that consists of effective procedure to cop-up with different budget needs.
Production budget:
Production budget can help C&K Development Limited to analyse that how much units
can be produced in one day, one month or year. It is prepared on the basis of sales budget.
Advantages:
 It is helpful to ascertain the cost of production.
 By analysing and estimating the production budget wastages in production can be
minimise.
Disadvantages:
 Accurate cost of production can not be identified through the production budget.
 If sales budget of C & KA Development Limited is not appropriate then production
budget can be prepare accurately.
Financial budget:
Financial budget can help C&K Development Limited to estimates the requirements of
finance in the organisation.
Advantages:
 It helps to analyse the need of finance for the short and long term in the company.
Disadvantages:
It is not estimated accurately if C&K Development Limited does not know how much amount of
fund is require by the organisation
Planning is one of the necessary tools and techniques that can be taken into consideration
for controlling various issues that are arises in an C & K developments limited. The company
need to control their budget by the help of using various planning tools such as:
Forecasting tools:
It is said to be one of the reliable process of formulating estimated data and their
outcomes for the purpose of evaluating the current trend in the market. It has been found that
estimating for future cannot be too easy because it is uncertain. It is essential for an organisation
to design their future project effectively.
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 Advantages - The primary benefits of using this tool is to deliver C & K developments
limited valuable information to business which will be effectively helpful in future
decision making.
 Disadvantage - It is entirely relying upon qualitative estimation which will be depend on
subjective inputs thus, not been accountable for long term process.
Contingency tool:
It refers to a course of action designed to assist C & K developments limited respond
effectively to an important future activity that may or may not occur. These types of plans are
general considered as plan B, because it can also be helpful as an alternative for action in case of
any contingent situation arises in an organisation. Like, unexpected requirement for a bandage on
a hike (Klychova, Faskhutdinova and Sadrieva, 2014).
 Advantage - It is basically recognising company limitation and formulating to deal with
things that cannot be avoided such as hardware failures and other events.
 Disadvantage - Contingency method being complex used to present issues in testing the
precepts of the theory. Like, it is essential that some methodology is available with the
managers in order to make empirical testing.
Scenario tools:
It is an effective management tool that is framed in order to allow an organisation to
analyse the efficacy of various strategies, tactic and plan under a wide range of better future
environments. By this analysis, manager can see how to take actions on the additional costs,
human resource and supply availability within an organisation (Handy and Polimeni, 2017).
M3 Analyses of planning tools and their application for preparing forecasting budgets
Planning tools such as forecasting, contingency and scenario planning tools helps in
preparing budgets for C & K developments limited. Forecating tool is technique which is based
in trend analysis and it helps in estimating future expenses and revebnues which are required to
develop budgets. Other tools such as contingency and scenerio helps in developing future plans
for prevention.
D3 Evaluation of planning tools
Planning tools such as scenario, contingency and forecasting helps in solving financial
issues such as quality of products and performance of employees. C & K developments limited
has a issue with their employees performance due to which they use scenerio planning so that
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they can ascertain range of future possibilities which can go wrong due to poor performance of
their personnel (Mistry, 2014).
TASK 4
P5 Financial problem and techniques to solve these problem
Few financial problems are mentioned below which are faced by C & K development
limited are mentioned below:
Improper revenues and expenses projection: This is one of the major problems which
a C&K development limited can face for the company to flourish towards success it is very
important for the entrepreneur to have acknowledge about revenues and expenses of the
business. If the organization is fairly young then it will be very difficult to predict the revenues.
But the expenses of an organization can be easily estimated because it usually remain same
form month to month, except unforeseen event. It is very important for a C&K development
limited to be financial prudent because finance are the life blood of an organization. And if the
projection of a expenses and revenues is not accurate the it may prove to be a financial hurdle
for a C&K development limited company.
Quality control: For an organisation which operates in manufacturing industry, the most
crucial issue is to maintain and control quality of their products. This problem directly effects
profitability and productivity of an organisation. C & K developments limited, faces this hurdle
while operating.
Measures to overcome these above challenges:
Benchmarking: One of the most important measure to overcome the above challenge is
through benchmarking . It will prove to be the best measure for C&K development limited
company as it will measures the performance level of the product and services. Moreover it will
help in pointing out the major changes that will have the most effect over the company.
KPI(key performance indicator): It is one of the best measure to overcome the
financial challenge of a C&K development company (Appelbaum, 2017).
Airdri C&K development limited
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Management of airdri uses the accounting
approaches of benchmarking to resolve the
financial problem of lack of money
management. As they adopt the policies
followed by other companies within the
same industry (Zainun Tuanmat and Smith,
2011).
In airdri, manager overcomes the issue of
more expenses than spending by Appling
the accounting approaches of KPI.
Manager of this company apply the
approach of benchmarking to resolve the
financial problem related to good sales but
no profit.
In C&K development limited solution
management apply the just in time
techniques to overcome the problem of
more spending on promotion activities.
M4 Benefit of management accounting to solve financial problems
Technqiues of management accounting helps an organisation such as C & K
developments limited to attain sustainability in their activities and operations. By using
technique of KPI, an organisation can gain finnacial sustainability and by using benchmarking a
company can attian performance sustainability (Banker and et.al., 2018).
D3 Planning tools for solving financial issues
Management accounting is a concept which has various techniques of solving financial
problems such as KPI and benchmarking. C & K developments limited uses benchmarking to
solve their issue of employees performance as they set or benchmark a fixed performance which
must be attained by all the employees.
CONCLUSION
From the above project report, it has been concluded that management accounting is the
most important aspect for a company as it helps in managing all the operations and activities
which are conducted by an organisation. Various systems and reporting techniques are discussed
along with several tools and techniques which helps a company to evaluate their actual
performance and profitability.
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