Management Accounting Report: Mittelstand Case Study Analysis

This report provides a comprehensive overview of management accounting, emphasizing its crucial role in business decision-making, particularly for small and medium-sized enterprises (SMEs) like Mittelstand. It differentiates between management and financial accounting, highlighting the significance of management accounting in generating timely and accurate financial and statistical information. The report delves into the importance of management accounting in cost analysis, production decisions, and data utilization. It explores three key management accounting systems: budgeting and budgeting, marginal costing, and ratio analysis, outlining their advantages and disadvantages. The report also critically evaluates the benefits of management accounting systems, including budgeting control, marginal costing, and standard costing. The report examines the effectiveness of management accounting in dealing with financial problems and contributing to business success.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
PART A...........................................................................................................................................1
1 Importance of management accounting in decision-making process for improve
performances...............................................................................................................................1
2. Three types of management accounting system used for report of management accounting.2
3. Critically evaluates benefits of management accounting system............................................3
4. (a) Absorption costing and marginal costing techniques........................................................4
4. (b) Supportive calculation and demonstrate profit in each method........................................7
4. (c) Produce reconciled statements of profit and loss..............................................................8
SECTION 2......................................................................................................................................8
PART A...........................................................................................................................................8
(a) Compare different management accounting methods...........................................................8
Comparison among the different three tools.............................................................................11
PART B..........................................................................................................................................12
Effectiveness of management accounting to deal with financial problems..............................12
Assess problem to respond towards financial problem, management accounting to lead with
business success........................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES .............................................................................................................................14

INTRODUCTION
Management accounting is the important part of every business which include procedure
for develop report and account. It helps to managers to make effective financial statements to
take day to day operations (Otley and Emmanuel, 2013). Further, short term plan can also be
made in successful way for ascertain more effective results. In this context, report based on the
Mittelstand which is small and medium enterprise which deals in machinery, auto parts,
chemicals and many electrical equipment’s. For gaining insight knowledge of the company,
present report covers understanding of the management accounting system. Furthermore, it
includes use of planning tools that are used in management accounting. Moreover, it discusses
about ways of management accounting which applied on effectiveness of financial outcomes.
SECTION 1
PART A
1 Importance of management accounting in decision-making process for improve performances
Management Accounting-management accounting involves the process of preparing
various reports and account in order to get timely and accurate financial and statistical
information for making various short as well as long term decisions (Bebbington, Unerman and
O'Dwyer, 2014). For instance sales report generated buy using management accounting is
utilised by various stakeholder in order to gain knowledge about profitability of organisations.
These reports typically present data related to cash receivable, payable, cash in hand, raw
material, stock in hand etc.
Financial accounting-Financial accounting is the process which is conducted to keep
track in firm financial transaction. Financial report is produced by financial accounting system in
which various transaction are recorded in summarised way and presented in systematic manner
as well in proper format. Example of financial report are income and expenditure account,
balance sheet etc.
Difference between management accounting and financial accounting
Financial accounting Management accounting
Financial accounting is focussed on financial 1. Management accounting has focus on
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activities carried out by organisations.
2.Some set standard are required to be
followed in financial accounting.
3.Financial accounting aim at providing only
quantitative data.
4.It helps manager in analysing financial
position of company.
operational reports which are distributed within
a company.
2. There are no set standards in management
accounting.
3. Management accounting provide\s both
quantitative and qualitative data.
4.It provides assistance to manger in making
various decision (Otley and Emmanuel, 2013).
Management accounting profession involves partnering in the management for decision-
making. In addition to this, it is the system of devising plans and performance that provides
expertise for financial reporting and formulate management plans (Bebbington, Unerman and
O'Dwyer, 2014). In order to contributing development, competent framework has been taken
significant in Mittelstand for decision-making. They are as follows:
Cost analysis: In the management accounting information system, there are different
types of important elements helps in business to perform functions of cost assessment. With the
help of this method, Mittelstand can take decisions to sell specific type or product and services.
Moreover, it also serves information for cost level and extent relevant results on it (Ammar,
2017). For example, management accounting system helps in to take decisions for marketing
efforts and plans as well. In this the chosen organisation, manager has aim to take decisions to
use alternative mode of the advertisement. It will assist to assess common cost which can be
helps in conducting research (Otley, 2016).
Ascertain decision to produce or buying: Another importance of management
accounting is ascertained decision to face several problems and issues that relate to buying
product or its production (Freedman, 2017). In this aspect, Mittelstand need to assess cost for
production and compare it with purchasing product. Therefore, it will help to take decisions for
select the best alternative from several points. In this using system, management accounting
business also decide to produce cost component that needed for buying products from others.
Data utilization: With the help of different tools and techniques of the management
accounting, budget, variance and many other things will be calculated that helps to take decision
for future outcomes (Northcott, 2014). In this aspect, employees of Mittelstand need to take
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participation to collect information. For example, with comparing actual performance and
standards, monetary aspects can be measures. Therefore, it will be helpful to find cause for
assess deviations that occurred in financial aspects. With taking consideration in this process,
business unit will easily able to enhance strategies and policies for financial performances
(Soderstrom, Soderstrom and Stewart, 2017).
Technique activity based costing: Activity based costing helps in the organisation to
assess activities which needed to perform functions for manufacturing industry. Specific
products and services can be develop in systematic way in Mittelstand through getting
information about individual customers. In addition to this, it is the good method in which
awareness can be created that are highly profitable for sales and profits as well (Avery, 2016).
2. Three types of management accounting system used for report of management accounting
There are different types of management accounting system can be used by the enterprise
which explained under here:
 Budget and budgeting: In the present aspect, each enterprise place very important place
to prepare their budget plan with estimating expenses and income. In the budget,
managers allocate fund to perform activity that required for smooth functions (Taylor and
Scapens, 2016). However, it also demonstrates direction for employees to create way for
investment. Budgeting is the most important method which helps in management to
ensure optimum utilization of resources. In addition to this, in Mittelstand budgeting also
provide deeper knowledge towards management about the several areas which suitable to
take action for improvements. In this aspect, budgeting tools and techniques helps in
respect to ascertain high profitable outcomes to prepare suitable framework (Jazayeri and
Ahmed, 2016). In the inflationary condition, budget also prepare for future outcomes and
results in successful manner. It is highly possible for the firm to predict effective future
situation into the right direction. Further, uncertainties can also be cater which influence
to utility of budget. Success of budgetary system also affect to the top management.
Therefore, higher management fails to provide enough fund to each department
(Hyndman, 2016).
Advantages of budgets
 Budgeting system plays an important role in efficient allocation of resources such as it
helps in planning investment.
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 It enables management to identify various risk and analyse various opportunities and
provides the way to capture such opportunities. For example it provides the prevention
and cure for various risk (Otley and Emmanuel, 2013).
 Budgetary-control system provides the various method to control various activities and it
assists organisation in various planning process. For instance it assists management in
planning various expenses.
 Budget provides direction to convert various resources into profitable channel.
 Budgetary system provide opportunity to management to decentralise their authority
without losing any control.
Disadvantages
 The limitation of budgetary system is that it is based on estimation.
 This system consumes lot of time and its is cost consuming too.
Marginal cost: Marginal cost analysis used in the business to assess effective pricing
strategy to assess break-even point and assess actual profit as well. With conducting break-even
analysis, Mittelstand can easily assess actual profits and loss which encounter in the business. It
also drives number of units that needed to produce and sell to assess desired profits (Quinn,
2014). In this way, marginal costing method provides high freedom over and under the
absorption of overhead.
Advantages
 This system is simple and easy to operate.
 This system assist enterprise in comparing various cost.
 It enables organisation to make effective decisions.
 It helps in analysing the contribution of various product in generating profit.
Disadvantages
 It only provides data related to total cost, it does not provide separate data related to fixed
and variable cost (Otley and Emmanuel, 2013).
 This system do not include evaluation of variable overheads.
Ratio analysis: This tool helps to the organisation to assess financial health and performances in
effective aspect. This will help to forecast, making plan and performing many other activities in
Mittelstand. Ratio analysis assists to getting information to generate more profits by the
enterprise over the expenses (Hiebl, 2017). In addition to this, liquidity ratio entails extent in
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which organisation has enough amount of money to meet with current liabilities and obligations
as well. Ratio analysis performances in term of controlling directly measures expenses so that it
is the main method which used for analysis performance in cost control (DRURY, 2013).
Advantages
This system helps in identifying the efficiency of working capital.
 It assists business unit in examining its current financial position.
 This system provide aid to management in preparing various financial estimations for
future.
 This system facilitates task managerial control (Jazayeri and Ahmed, 2016).
 This system is very useful for bench marking purpose, to compare working performance
of organisation with its competitors performance.
Disadvantages
 The ratio analysis system may have narrow focus on certain elements of enterprise
financial performance.
 Certain ratios may get influenced by the accounting methodology used by firm.
3. Critically evaluates benefits of management accounting system
In this aspect, following are certain benefits of management accounting information
system in Mittelstand:
Budgeting control: This technique of the management accounting assist to encourage
each personal to work in effective manner and accomplish predetermined goals as well. With the
help of performing several activities in different department, Mittelstand can control their
operations to pursue it in the large extent (Mokhtar, Jusoh and Zulkifli, 2016). However,
budgeting control tool is very helpful to provide effective assistance in the firm enhance
coordination in different personnel in each department (Venkatesh, 2017). Therefore,
performances level can be assessed as per the expectation level to management to find
responsibility level. In addition to this, tool and techniques also assists to ensure smooth
functioning in business activities and operations.
Marginal costing: This costing helps in the business to exerting control over the cost
level in the large extent. In the marginal costing, arbitrary allocations of fixed cost easily
ignored. In addition to this, it is the easiest method to determine number of units which
Mittelstand offers to customers for recover initial amount. When level exceeded so that
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organisation able to accomplish their profit margin. This type of technique assists to create
relationship between cost and volume of profit margin (Bebbington, Unerman and O'Dwyer,
2014). With assessment of break-even point, the chosen enterprise will easily focus on efficiency
and sales efforts for development.
Standard costing-It refers to the tool for preparing, managing, controlling cost and
calculating cost management performance. Standard accounting process includes estimating
various cost of material and other fixed and variable cost that might be required in production
process. For instance setting standards regarding particular amount of money required in product
process of specific item (Bebbington, Unerman and O'Dwyer, 2014). This process is required to
prepare budget for production process.
Advantages :
 This method can be used fir reducing various cost and also for controlling various
expenses.
 It assists manger in taking various decision related to production process.
Disadvantages
 It is time consuming process
 This costing system require regular update.
 There are number of resources required by this costing system such as labour, time.
 This system of costing is quite expensive.
Ratio analysis: Ratio analysis is the most important method that used for assessment of
facts and figures that present in financial statements such as income. Further, it could be
observed that income statements is the direct cost that evaluates cost of production that covered
in the enterprise (Soderstrom, Soderstrom and Stewart, 2017).
4. (a) Absorption costing and marginal costing techniques
Absorption costing: It is the costing which known as the different names such as
complete the full costing. In this method, there are different types of sort of costs which taken in
account namely on fixed and variable cost. Beside this, variable expenses also gather valued
which get changed with variations that are observed in manufacturing of products in Mittelstand.
In the present costing, there are different kinds of things has been used for absorption costing for
specific job at the production place (Mokhtar, Jusoh and Zulkifli, 2016). It laid down to the
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major attention on several minor distribution of the varied sort of the expenses in business unit. It
is the best method to cater effective results.
Calculation of absorption costing for quarter 1 and 2
Quarter 1 Quarter 2
Less Units £/Units £ £ Units £/Units £ £
Sales 66000 1 66000 74000 1 74000
Cost of
sales
Opening
inventory
0 0.85 0 12000 0.85 10200
Production 78000 0.85 66300 66000 0.85 56100
66300 66300
Less
closing
inventory
-12000 0.85 -10200 -56100 -4000 0.85 -3400 62900
Gross
profit
9900 11100
Less
other
expenses
-5200
Selling
and
distributio
n costs
5200 5900
Net profit 4700 -1200
Over/
under
-2800 4700
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absorption
Reconcile
d profit
1900
Quarte
r 1
Quarte
r 2
Quarter 1 Quarter 2
Total fixed cost 16000 16000
Fixed cost absorbed 66000*0.20 13200 74000*0.20 14800
Under absorbed -2800 -1200
Marginal costing is the important method to calculate costing which used by the
management accountant at chosen workplace. In this method, variable expenses can be taken
into the consideration to choose the product in Mittelstand. Variable cost defines as to the
expenses which get changed with alteration to produce units in manufacturing plant (Soderstrom,
Soderstrom and Stewart, 2017).
It must be developed that after pursuing the calculation of variable cost, per unit remains
constant. However, when unit increases variable cost and expenses also changed over the time.
Marginal costing determines technique that used by the accountant to identify impact of the
variable expenses on the overall production in Mittelstand. With the help of present approach,
break-even is the best approach which helps in identifying number of units which must sold to
cover the cost of production. On the basis of present results, it is the method in which specific
number of unit collected at one place (Mokhtar, Jusoh and Zulkifli, 2016). Marginal costing
method also used for developing valuation of inventory on cost incurred for creating same value
as well. Therefore, it can be stated that there is wide importance of variable cost method.
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4. (b) Supportive calculation and demonstrate profit in each method
In the present report, profit could be ascertained with using several methods such as
absorption and marginal costing method. In this way, it has been observed which has different
amount of profit that generate in both methods. It can be observed that absorption costing is the
best method in quarter 1 to enhance profits which increasing but in the second quarter it creates
negative results that reflect on the firm to earn more profits and revenue (Soderstrom,
Soderstrom and Stewart, 2017). Mittelstand using two types of approaches such as absorption
and marginal costing method. With the help of several ways, inventory valuation can be done
which is more useful for business operations.
In addition to this, it can be stated that there is wide difference in fixed and variable
expenditure. With evaluating the both approaches, it can be stated that there are several reasons
due to which differences comes in profits which computed with using absorption and marginal
costing method (Bebbington, Unerman and O'Dwyer, 2014). In case of marginal costing method,
inventory declined and cost also reduce which lead to enhance profits. Further, it has been noted
that expenditure incurred on the inventory also variable in nature. In the case of absorption
costing method, inventory also enhance to get more profits in the organisation. It is the reason
which approach to get more profit also changed (Mokhtar, Jusoh and Zulkifli, 2016).
SECTION 2
PART A
(a) Compare different management accounting methods
Budgetary control-refers to a system of controlling various costs by preparing various budget ,
coordinating with different departments and establishing responsibilities, comparing actual
performance with budgeted in order to achieve objective of profitability for an organisation.
Budgetary control refers to the way manger utilize budget to monitor and control various
activities within enterprises. Budgetary control system assist manager in framing various
performance related goals (Bebbington, Unerman and O'Dwyer, 2014). For instance manger can
use this technique for comparing actual performance with standard performance.
Budget:Budget refers to the statement that provides estimation about various income and
expenditure for a set period.
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Budget playing very important role which made for projection by the managers to develop cash
inflow and outflow with specific variable. Budget for the various products has been given in the
following context:
Sales budget-Refers to the statement that provides estimated data related to sales in units,
estimated revenue generated from sales. Sales budget allows management to analyse its
economic condition (Jazayeri and Ahmed, 2016). For example management will consult sales
department for setting future goals related to sales.
Table 3: Sales Budget
Interpretation:
Sales budget is prepared to make effective projection about the revenue which can be
earn through organisation operations and functions. From the above table, it has been seen that
revenue of the enterprise continuously enhancing around 2800000 to 3000000. Therefore, it can
be stated that sales of the firm will increase continuously.
Production budget- Production budget contains calculation of number of units of products
required to be manufacture. This production budget is prepared for pushing manufacturing
system. This type of budget is prepared generally on monthly or quarterly basis. It assist
management in planning for fulling material requirement (Otley and Emmanuel, 2013). For
instance XYZ enterprise plans to produce any innovative item in the future, all of which falls
into specialised product category its outline are as follows:
Table 4: Production budget
Interpretation:
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