Management Accounting Report: Pavestone Concrete Products Analysis

This report delves into the core concepts of management accounting, focusing on its application within the context of Pavestone, a concrete product manufacturer. It defines management accounting and explores different types of management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems. The report also examines various management accounting methods such as performance reporting and account receivable reports. Furthermore, it details the benefits of management accounting systems and their integration with organizational processes. The report then analyzes cost calculation techniques, including absorption costing, and discusses the advantages and disadvantages of different planning tools, such as budgetary control. Finally, it addresses how organizations adapt management accounting systems to respond to financial problems, providing a comprehensive overview of the subject.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Define management accounting and different types of management accounting systems ...3
P2 Different methods used for management accounting............................................................5
M1 Benefits of management accounting systems and their application ....................................6
D1 Management accounting systems and management accounting reporting is integrated.......7
TASK 2 ...........................................................................................................................................7
P3 Calculate costs by using appropriate techniques of cost analysis..........................................7
M2 Management accounting techniques and financial reporting documents.............................9
D2 Financial reports that accurately apply and interpret data...................................................10
TASK 3..........................................................................................................................................10
P4 Advantages and disadvantages of different types of planning tools....................................10
M3 Use of different planning tools and application for preparing and forecasting budgets.....12
D3 Tools for accounting respond appropriately to solving financial problems........................12
TASK 4..........................................................................................................................................12
P5 Organisations are adapting management accounting systems to respond to financial
problems ...................................................................................................................................12
M4 Responding to financial problems, management accounting.............................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a process of evaluating business and operational costs in order
to formulate internal financial report, accounts and records. This information aid managers in
decision making process for accomplishing firm's goals and objectives. Management accounting
encompasses with formulating and providing timely financial and statistical information to
management as they accomplish day to day operations. Furthermore, Management accounting
reports are also usually confidential and acquired for iinternal decision making process only
(Abugalia, 2011). The present assignment is based upon Pavestone which manufactures and
distribute concrete products for commercial, contractor, residential and retail consumer markets.
The firm also offers stone and brick paving products,, i.e. patio stones, concrete pavers, free
standing wall system etc. Apart from this, the present assignment is going to be described types
and methods of management accounting system. Various techniques of cost accounting which
helps to prepare an income statement will also discuss. Furthermore, readers will also come to
know about advantages and disadvantages of planning tools of budgetary control. There will be
discuss the role of management accounting system to respond towards financial problems.
TASK 1
P1 Define management accounting and different types of management accounting systems
Definition – Management accounting is a branch of accounting which provides critical or
necessary information to top management in a systematic way. It will assists to perform their all
operations and functional areas, i.e. planning, organising, directing as well as taking business
decisions in proper way.
In present corporative world, management accounting has become an essential part for
management. Its a process of developing managerial reports and statements in order to obtain
accurate financial information which is required to complete daily business operations as well as
take short term decisions (Basel, 2012). Management accounting supports to set performance
standards of company with actual outcomes; it also creates monthly and weekly reports for
internal people of an organisation, i.e. employees and managers. It determines, evaluate, assess,
interpret and communicate information which enable Pavestone to pursue its strategic goals and
objectives. Although, management accounting is differ from financial accounting, while
financial accounting render information to people inside and outside of the organisation whereas

management accounting aimed is to assist managers inside the organisation as they can take
make or buy decisions.
Furthermore, management accounting also helps in forecasting or predictions regarding
investments, diversification into market segments and make or buy decisions. This implies to
make forecast about future trends within business. It is essential for management to make
predictions toward cash flows and recognise its impact upon company's operation's in future.
Management accounting comprises with formulation of budgets and trend charts so that
managers can decide how to allocate resources
 Information provided through management accounting is changes in stock, raw material,
financial data and then analysis the entire information in order to make imperative
business decisions (Management Accounting, 2015).
 Management accounting system are effective and flexible in nature for obtaining accurate
data and information. It will be beneficial for Pavestone to accomplish all operations and
working activities in fast and accurate manner.
 This accounting practice is also beneficial for staff members of the company as they
continuously get aware with financial position of the company at market-place. This
helps them to work for obtaining firm's goals and objectives.
Types of accounting system
Cost accounting system- This accounting system is beneficial for companies to evaluate
estimated product costs with the assistance of using profitability analysis, valuation and cost
control approach. Along with this, cost accounting system is acquired by manufactures thus to
keep track of production activities by using a perpetual inventory system. It helps to determine
flow of inventory in business organisation in different stages of production. In context of
Pavestone, cost accounting system aids to estimate the cost of their products for conducting
profitability analysis, inventory valuation and cost control. There are different types of cost
accounting methods, such as – job order costing, process costing, activity based costing system
etc.
Inventory management system – This management accounting system helps to keep
track of goods by evaluating entire supply chain in which a business operates. It covers all
aspects from manufacturing to retail, movements of stock one place to another and warehousing
to shipping. It allows to make better decisions and investments. Two main tools of inventory

management system are – Just in time approach and EOQ (economic order quantity.
Furthermore, inventory management system is a combination of technology and processes which
oversee in monitoring and maintenance of stock of the company.
Job costing approach – The system is tend towards accumulating information about
costs linked with production or service job. This kind of information is needed to submit in cost
reimbursement contract. In addition to this, job costing system is an excellent tool which tracks
specific costs required to perform a job and examine them whether or not these costs can be
reduced later (Christopher, 2016). The approach provides information regarding following
accounting activities – materials, labour and overhead.
Price optimisation system- It is an activity in which companies determine how to
maximise prices of products to which consumers are willing to pay. While optimising prices, it
is essential to find out a perfect balance between profit and value cause values of products and
services are changing at fast pace. Price optimisation system has acquired by Pavestone in order
to select an effective price of its products which also covers entire production cost and provide
huge financial benefits to company.
P2 Different methods used for management accounting
In context of small business organisations, management accounting system allows
companies to recognise their existing financial position and take corporative decisions
accordingly. Management accounting deals with the future and is futuristic in approach, while it
focuses on forecasting and decision-making. It is prime obligation of top management to disclose
financial records among employees as they work to obtain firm's goals and objectives.
Management accounting also prepare and deliver information to managers of Pavestone as they
can take short term or daily basis business decisions. In addition to this, management accountants
are placed to render information which enable to meet changing needs of managerial functions
(Ding, Dekker and Groot, 2013). This succession supports company to review the accounting
information which facilitate planning process.
There are several types of management accounting systems which allows management of
Pavestone to track necessary information about company. Following is defined various methods
of management accounting which are stated as under -
Performance reporting system : It is one of the important method of management
accounting which linked with project communication management. Performance reporting

system entails with collecting and disseminating schemes, data, demonstration of future growth,
optimal utilisation of available resources and prepare an ongoing project plan. An annual
performance report will help Pavestone to identify performance of each employee. It aids top
management to evaluate whether or not staff members are working in right direction for a given
project. It is used to compilation of working activities thus to obtain strategic objectives in a
given time period.
Inventory management report: - It is based upon measuring entire supervision of non-
capitalised inventory and products. Inventory management report is made to control upon stocks
which are undertaken by companies. The report is prepared in the end of financial year and
disclose opening and closing account balance of the company. In other words, it often provides a
brief description about inventory account or supply of products in a same time period which
makes easier to understand for managers to take future business decisions (Edwards, 2013).
Furthermore, different tools or techniques are taken into account for valuing stock, such as –
EOQ, Inventory turnover ratio and ABC costing. In Pavestore, inventory management report will
ensure availability of materials in sufficient amount whensoever it is needed, thus to produce in
an effective and efficient manner.
Account receivable report: The report has made upon periodic basis and classified
overall accounting report of the company as per the range of outstanding invoices. Account
receivable reports aids to determine overall financial position of Pavestone thus to make
effective investment decisions. It can be done through primary tools which allows to collect
unpaid invoices from debtors. Accounting receivable report is used by top management in order
to identify efficiency of credits and collection functions. It can be used as a tool for estimating
potential bad debts, which are then used to revise the allowance for doubtful accounts.
M1 Benefits of management accounting systems and their application
Management accounting system Benefits
Cost accounting system  It helps in give the economic
development as well as financial
stability.
 It eliminate losses, inefficiencies and
wastes.

Job costing system  It aids in determine cost of production.
 There is no under or over overheads
recovery (Stergiou, Ashraf and Uddin,
2013).
D1 Management accounting systems and management accounting reporting is integrated
Pavestone company uses the different kinds of management accounting system and also
its reporting for the better planning as well as control to enhance the profit level. This
organisation use its necessary resources in a manner that it they can deal with any kind of
unpredictable events which can develop the negative affect on performance level of business.
Pavestone business firm use this system to control the cost and focus on the target the new
consumers.
Type of reporting Integration with organisational process
Job costing This will help in identification of overall cost
associated with products and services provided
by organisation. This will aid in reduction of
expenses.
Inventory management system This will aid organisation to effectively
manage their stocks for their optimum
utilisation and to attainment of optimum results
TASK 2
P3 Calculate costs by using appropriate techniques of cost analysis
Costs refer with value of amount which is being paid by an individual for getting
something. While production, managers are required a wide range of raw materials and other
inputs from several suppliers in order to produce new and innovative products. Costs is one of
the key factor to perform all business functions or operations in systematic manner. In Pavestone,
cost includes all necessary amount in order to get an asset in place and ready for use. For
example, the cost of an item in inventory also includes the item's freight-in cost. Along with this,
in accounting terms costs consists with monetary value of expenditures for equipments, inputs,

labour, products, supplies etc. Costs is an amount which recorded as an expense in financial
statements (Henri, Boiral and Roy, 2016).
There is given different costing methods which are taken into consideration for calculating net
profits or revenues of a business association. Absorption costing – It is a managerial accounting method of expensing which involved
all costs relate with production of a specific product. Absorption costing contains fixed
and variable, both costs which an absorptional rate. In addition to this, the method ensure
that all incurred costs must be recovered through selling price of goods and services.
Absorption costing comprises fixed and variable costs for the motive of effective
valuation which contributes in net profit of per unit.
 Marginal Costing – It implies additional costs which is involved in producing an extra
unit in manufacturing process that is reckoned through total variable costs against one
unit. Marginal costing help managers to take various decisions, i.e. discontinuing of
products or services, replacement of machines etc. It will also aids to determine suitable
level of activity via break even analysis which put an impact raising or diminishing
output level on firm's overall profit (Hillier, Grinblatt and Titman, 2011).
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200 + 1200 + 1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300

Net profit/ operating income 15675
Break even analysis – It allows company to find out what is required to be sold in order
to cover production or operational cost. Break even analysis is a stage where there is a situation
of no profit and no loss; it is based on fixed cost of products.
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
B. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
C. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
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

Margin of Safety – It represents difference between actual sales and BEP sale. Margin of
safety implies to reduction of sales which occurs before getting break even point. It also define
differentiation between market and internal value of products. Here, Margin of safety is 37.5.
M2 Management accounting techniques and financial reporting documents
Different kinds of accounting techniques are mention below which are used through
Pavestone organisation:
Marginal costing- It refers to decrease and increase in total manufacturing cost rune for
make the additional unit of products (Schäffer, 2013). Under this, output costs consists labour,
variable overheads and direct material.
Standard costing- These are used as the target costs and developed from analysis of
historical data.
Historical costing- It refers to original asset cost that is recorded in accounting
transaction of an organisation.
D2 Financial reports that accurately apply and interpret data
On the basis of calculation, it has been clear that method of marginal costing will more
effective as comparison to the absorption costing. At the time of calculate net profit through
marginal costing, result was £17500 and result of absorption costing method was £15675.
Difference among both method profit is £9600 because of modifications in the variable cost
(Talha, Raja and Seetharaman, 2017).
TASK 3
P4 Advantages and disadvantages of different types of planning tools
Budgetary control refers to system of the management control under which actual income
as well as spending are compare with the planned spending and income. Under this, manager use
the budgets to control and also monitor the operations and costs in mention accounting period. It
is a procedure for management to decide the performance along with financial goals related
budgets, compare actual budgets and also adjust performance (Mat, Smith and Djajadikerta,
2016). Budgetary control is helpful in control the cost that consists develop of budgets,
establishing responsibilities, coordinating departments, compare the actual performance with
budgeted and also act on outcomes to attain the more profit level. The main aim of budgetary

control is to eliminate the wastage and enhance the profitability. It assures planning for the future
through setting up different budgets, expected and needed performance of company that are to be
anticipated. In addition to this, it is continuous procedure that helps in coordination and also
planning. It gives method to control the budget in an effective and better manner. It is planned to
help management for allocation of authority and responsibilities to help in preparing plans and
estimation for future context. In Pavestone company, budgetary control needs expenditure of
money, effort and time. So, it is not easy to make the different types of budgets in company due
to complexities arise in forecasting the budgeting. There are various kinds of planning tools
which are used in budgetary control mention below:
Contingency tool- It is use through Pavestone company to prepare any kind of possible
events which can occur in future. It is executed through company in order to identify the future
risk that have some possibility to be occur (Salehi, Rostami and Mogadam, 2013). This planning
tools helps in deal with any kind of issues which arise in the future. In addition to this,
contingency tool is used to know about outcomes of plans which are implemented through
company on sudden basis.
Advantages Disadvantages
 IT helps in distributing the liabilities
between staff members for their each
work.
 It aids management of Pavestone
organisation to prepared for any kind of
uncertainty.
 This planning tool is rigid in nature and
it works slow if there is need to make
changes in trends..
 It is costly planning tool and each
organisations are not able to use and
apply this tool.
Forecasting tools- Forecasting begin with the certain assumptions depends on
experience, judgement and knowledge of management. It helps in forecast the data and
information related to budget. This planning tool facilitated management of Pavestone company
in its attempts to deal with risk of future based on the primary data from previous experience and
also current trends analysis (Schäffer, 2013). In context to this, forecasting planning tools used to
identify the demand of consumers about goods and services in future context of company.
Advantages Disadvantages

 It gives reliable as well as accurate data
or information to managers which aids
them in the process of decision making.
 Forecasting tool of planning assures
increase use of necessary resources
through identify the weak business
area.
 It is not necessary that it will provide
the accurate results.
 It is complicated or complex planning
tool.
Scenario tools- This planning tool is used to evaluate the possible future issue and
consequences through including the better possible outcomes (Sharma, Lawrence and Lowe,
2013). It is mainly executed through company to estimate the modifications in position of an
organisation at the market place. Under this, manager of Pavestone firm use this planning tool in
the process of decision making to identify better way to increase profit level for business.
Advantages Disadvantages
 Scenario tool of planning is used
through the financial planners of
company in order to deal with the
future crisis.
 Scenario tool is used to create the
external information and data of
company that aid in decision making.
 There are different complexities are
faced by company at the time of
executing the scenario planning tool at
workplace.
 In context to implement this tool, there
is more time and cost required. But
Pavaestone is small size company so it
has minimum cost for hire staff
members for specific analysis.
M3 Use of different planning tools and application for preparing and forecasting budgets
Planning tools are used through Pavestone company to identify the different factors such
as demand or needs of consumers and also prepare for the future financial crisis. The different
planning tools helps in the budgetary control and also provide the reliable data on the basis of
previous data as well as future trends.