Management Accounting Report: Financial Analysis for AZIO Keyboards

This report provides a comprehensive analysis of management accounting principles and their application within AZIO Keyboards, a manufacturer of electronic keyboards. The report begins with an introduction to management accounting, its essential requirements, and different types of management accounting systems, including cost accounting, price optimization, MIS, job costing, and inventory management systems. It highlights the importance of integrating these systems for effective decision-making and outlines the roles and principles of management accounting. The report then explores different methods used for management accounting reporting, including job cost reports, inventory management reports, and performance reports, emphasizing the need for understandable financial information. Task 2 delves into costing techniques to analyze profit and loss, including microeconomic techniques and cost-volume-profit analysis. The report further examines the benefits of management accounting systems and their integration with management accounting reporting. It concludes by discussing advantages and disadvantages of planning tools used for budgetary control and how organizations adapt management accounting techniques to respond to financial problems. The report aims to provide insights into financial management and strategic decision-making within the context of AZIO Keyboards.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and essential requirements of different types of management
accounting systems.................................................................................................................1
P2. Different methods used for management accounting reporting.......................................3
M1. Benefits of management accounting systems and their application within association. 5
D1. Integration of management accounting system and management accounting reporting.5
TASK 2............................................................................................................................................6
P3. Costing techniques to analyse profit and loss for organisation........................................6
M2. Range of management accounting techniques and produce appropriate financial reporting
documents...............................................................................................................................8
D2. Financial reports accurately applied and interpret data for a range of business..............8
TASK 3............................................................................................................................................8
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.....................................................................................................................................8
D3. Planning tools for accounting respond appropriately to solve financial problems........10
TASK 4..........................................................................................................................................11
P5. The way organisations are adapting management accounting techniques to respond
financial problems................................................................................................................11
M4. Responding financial problems management accounting can lead organisation to
sustainable success...............................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
Management accounting (MA) refers to accounting that is utilised by manager of an
organisation in order to make effective decisions. These determinations are being made by
management in order to betterment of performance of controlling functions. This sort of
accounting can help administrators of a company so that they can frame structure of business in a
befitting manner depending upon hierarchical aims and objectives (Bradbard, Alvis and Morris,
2014). The present assignment is based upon AZIO which is a manufacturer of keyboards. This
firm is a manufacturer of electronic keyboard and having around 48 talented employees. Report
will also include cost perspective and different methods to measure the profitability of company
and losses that are being faced by them. Assessment will focus on advantages and disadvantages
of various types of planning tools used for budgetary control. Lastly, it will put light on
usefulness of management accounting techniques in order to reduce all the financial problems.
TASK 1
P1. Management accounting and essential requirements of different types of management
accounting systems
Management accounting
It is referred to as stipulation of financial information that are utilised by company in
order to develop business. According to Christ and Burritt, (2017), management accounting is
defined as a process in which preparation of report along with accounts which aid company in
becoming more accurate so that administration can take effective decisions for both long and
short term success. In other words, management accounting is a procedure that includes different
things like analysis of business costs, operation and preparation of company's financial report
which will help managing directors and managers in decision making process.
Management accounting system:
Managerial accounting system is defined as a process of analysing business costs as well
as operations require in order to prepare internal financial report, records, and statements which
will helps managers to take decisions for accomplishing business goals. It is an instrument that
has been made in order to deliver data which can be utilised by management of AZIO so as to
make effective strategies and policies which help company to accomplish set targets. It is being
found in modern world, most of business firms uses Management Accounting system which are
1

having heavy manufacturing plants. This system may aid AZIO in reducing or measuring the
cost of manufacturing process. On other hand, it has also been examined internal MA systems
vary from company to organisation depending on sector in which are dealing in or operations
they are doing. With help of this, AZIO may easily make changes as per functionalities
depending upon numbers that has been computed in management accounting financial reports of
industry (Christopher, 2016). Some of the management accounting systems are Cost-accounting,
inventory management, job-costing and price optimising systems which helps company to
improve its financial performance.
Importance of integrating MA systems:
Modern business world is filled with high digital technology and if company may use
different traditional approaches in order to prepare financial reports then it may consume time of
them. There are certain traditional approaches, i.e. bookkeeping that cannot be afford by
companies. Main intent of MA within AZIO is to support rivalry determinations while looking at
collection, processing, and communicating information. This data is majorly e used by AZIO's
manager so that proper planning, control, and measurement of business can be done with the
help of different strategies.
Role and principles of management accounting:
Management accounting includes principles which aids in managing financial
performance and supports management to take imperative business decisions thus to obtain high
competitive edge (D'Onza, Greco and Allegrini, 2016). Some of the principles are given below: Influence: Effective utilisation of this tactic help manager in influencing staff members
so that they follow all the judgements that has been made by the company. Relevance: Financial information is gathered by managers of AZIO that can help
him/her in making right decisions at correct time. Value: Adequate acquisition of management accounting at AZIO will help them in
computing the current value of organisation.
 Trust: Formulating effective information will help AZIO in building trust among staff.
On the other hand, major role of MA is that it can help managers of AZIO in preparing
financial reports. By using financial reports, managers can easily measure operations and
manufacturing cost of business (Granlund, 2011).
Different types of management accounting systems:
2

Cost accounting system: This kind of system plays a crucial role in context of running
business in a successful manner. Cost accounting system is being utilised to compute
expenses related with products and services of company which has been manufactured. This
help management to analyse the profitability, inventory evaluation and many other things.
Price optimisation system: Price optimising system is being considered as a process
which finds the best price of product and services. On other hand, it also aid in maximising the
prices according to number of customers' that company have (Henri, Boiral and Roy, 2016).
Management information system: MIS refers to a computerised database that includes
all financial data which stored for a longer period of time and utilised by AZIO to analyse
current performance from past.
Job costing system: It is being considered as a system that helps in assigning the
manufacturing cost to different commodities that has been made by AZIO. Developing a
keyboard with good quality and assigning expenditure to it is being considered as something that
can help AZIO in fixing prices of the keyboard.
Inventory management system: If AZIO follows this tool in proper manner, it will help
the company to track or maintain the inventory, sales and delivery levels. The method will help
in reducing stock price (Jacobs and Cuganesan, 2014).
Differences between financial and management accounting:
Financial accounting Management accounting
This type of accounting is regulated by rules
like principles i.e. standardised in nature.
Management accounting is established and
followed by entrepreneurs which is not at all
standardised.
Financial accounting keeps its focus on
economic conditions of company and data
which is being used stays historical in nature.
On the other hand, administration accounting
consists of both historical and future data so
that proper planning can easily be done by
AZIO.
Financial accounting keeps its focus on
financial years.
Apart from this, management accounting keeps
their focus on different time horizon.
3

P2. Different methods used for management accounting reporting
Presenting financial information:
Business account require to be accurate and up to date which help individual to have
appropriate knowledge and information about financial position of firm. For this, it is essential
that proper statement is formulated which specifies data about income and expenditure of firm.
(Johnson, 2013).
Top personnel formulates financial statements that are Balance sheet, Profit & Loss, Cash flow
and other records to inform members and other people about usage of money in different
activities. It is necessary that accountant provides data to investors, employees and other
individuals which are either directly or indirectly connected with firm. Company have
shareholders who invests money in business to gain return in respect to their funds. For this,
management require to provide them information about use of money and profit generated. This
helps administration to make changes in system and utilise capital properly.
Reasons that information should be understandable:
Management require to formulate financial statements in accordance with format which
is prescribed by authorities. It is necessary that information is presented in a format which is
understandable by shareholders, members and other people who have connection with firm.
Management even require that data is not misinterpreted and wrong conclusion are made by
individual.
Different types of managerial accounting reports
These are various types of report which help organisation to have complete information
about financial position of firm which are described below:
Job cost reports: This method of reporting outlines the cost of assembling and generation
of goods and services (Mistry, Sharma and Low, 2014). It is one of the essential methods as it
deals with less occupation and activities segments within precise manner. It is the basic process
which finds out incomes as well as cost point of view.
Inventory management reports: This method specifies breaking down inventory
management reports for effective generation anticipating. AZIO is having capacity is decide the
level of stock which is made of water craft within deliberate manner. By using these detailed
strategies management is having capacity to recognize its manufacturing cost as well as time
which is initiated at per unit in a specific time period (Morden, 2016).
4

Performance reports: These reports recognize completion and execution of project and
business is share out with managers and executives of enterprise. It is the assignment which is
lawful accomplished as far dealing with solidifying and reports them in solitary configuration.
Account receivable reports: It is being found that, managers of company mainly plays a
crucial role for enterprise which are mainly linked with investigating the total to be collected
from indebted particular person after a limited period of time.
M1. Benefits of management accounting systems and their application within association
Some of benefits of different management accounting systems are given below:
MIS system: Major benefit of this system is that it helps in storing large number of
financial statements in database for a long period of time which can be utilised at any time by
AZIO whenever it is needed.
Price optimisation system: Benefit that has been given by this system is that it can help
AZIO in fixing up the price of product which has been made by them.
Job cost system: This sort of system can help organisation in reducing all the expenses
of different sections like stores of the company and assists in making effective decisions through
which they can reduce all the job related costs.
Inventory management system: Major benefit of this system is that it directly aids
AZIO in making effective decisions through which they can maintain their stock and reduce
chances of overstocking situation.
D1. Integration of management accounting system and management accounting reporting
According to Klychova, Faskhutdinova and Sadrieva, (2014), both management
accounting system and management accounting reporting plays a crucial role in context of
business organisation when they are looking forward to maintain the cost of products or
inventory. Both of them are majorly coordinated in a befitting manner which help organisations
in maintaining or arranging different procedures & functions, so that objectives can be attained
in right time. Apart from this, management accounting system if combines with reports it will
directly help out AZIO in uncovering techniques through which company can reach to
conclusion in an effective and efficient manner.
5

TASK 2
P3. Costing techniques to analyse profit and loss for organisation
Microeconomic techniques
Cost
Cost is refer to as amount of cash given for an asset of the company. It consists of all the
costs which is important to get an asset within the place as well as ready for use (Riisgaard and
Gibbon, 2014).
Cost volume profit
It is analysed to find out how modifications in cost as well as volume impact an
organisation’s operating net income. These analyses are performed by various assumptions
which involves sales price per unit is constant, total fixed cost, everything produced is sold and
so on.
Flexible budgeting
This is type of budge that adjusts depending upon the changes within volume of activities.
This is very much sophisticated as well as useful than static budget.
Cost variances
It is the difference within planned budget and cost real amount. There are main part of
standard costing which can be used for producing. It majorly shows a minimum two variances
which are direct labour, manufacturing overhead and direct material (Sánchez-Matamoros,
Araujo Pinzon and Alvarez-Dardet Espejo, 2014).
Marginal costing
It is the technique of costing i.e. variable cost is charged to cost units. At time of fixing
cost for period is accomplished written off against its contribution.
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
6

Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Absorption costing: A type of costing system which connected with cost related to
inventories including general cost of AZIO.
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 is being found that this analysis is being utilised in order to
compute equilibrium point. With the help of this analysis, both total revenues of AZIO and total
expenditures equal can be done (Klychova, Faskhutdinova and Sadrieva, 2014).
 Total number
of product sold
Particulars Amount
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
Particulars Amount
Sales per unit 40
Variable costs VC = DM + DL 28
7

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
Particulars Amount
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: This is also one of the essentials aspect in terms of maintaining the
desired amount of production level.
D. The margin of safety, if 800 products are sold
Particulars Amount
Actual sales in units 800
Break even sales in units 500
M2. Range of management accounting techniques and produce appropriate financial reporting
documents
Marginal costing: It is being analysed that organisation can consolidate data i.e. linked
with computation of cost along with manufacturing units. It is being calculated with production
along with management so that business can get expanded in much effective and efficient
manner.
Absorption costing: This type of costing helps in providing equal opportunities, so that
reduction can get done of all the expenses which were putting impact on AZIO's profit margins.
Through this, company can easily hit their targets.
8

D2. Financial reports accurately applied and interpret data for a range of business
As given by Schaltegger and Csutora, (2012), it is being found that there are two major
methods which can be utilised by AZIO's production. With help of effective financial report,
loss can be reduced to zero through which company can make alterations as per requirements. As
computed above, numbers which has been gathered are calculated with help of marginal costing
method. Profit under this was computed was £17500 on other hand, £15675 is amount which
was being considered as absorption costing.
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary control
Budgetary tools are determined as a process that helps company in utilising entire money
that are available to them in a cost effective manner. This consist of certain factors like data
making arrangements, formulating budgetary reports etc., so that all task are completed in a
better way. Thus, it can be said that with the help of budgetary tools, arrangements can be done
in a systematic manner (Springer, Berlin, Heidelberg.Riisgaard and Gibbon, 2014). Therefore,
some of the budgetary tools that company can use are explained below:
Forecasting Tools: It is determined as a fundamental apparatus that helps company in
figuring out various figures and data with the help of a chart for example: income chart of
business. This is done with the accordance of PC programming which assist in shaping statistical
figures in a graphical representation. Thus, it makes easier for managers in analysing current
business operations and its performance in a better manner.
Advantages: With the help of forecasting tool, company can get appropriate data that can
be used for research so that to enhance profit margins.
Disadvantages: Forecasting doesn’t give appropriate information about past data because
of which anticipation of future with the help of insignificant data may be not helpful in making
future predictions and other business operations.
Contingency tool: This kind of tool assists company in collaborating useful data by
eliminating components and factors which don’t add value or provide benefits to firms. Thus, it
helps in illuminating data in an appropriate manner (Bradbard, Alvis and Morris, 2014).
9

Advantages: Its biggest advantage is that it helps organisation in evaluating data in a
better manner so that it can be further used for making plan of action and strategies for
betterment of company
Disadvantages: Due to tools and technologies that are required for analysing data are
high at cost can be one of biggest disadvantages. Other than this, it is invariable in nature.
Scenario tool: It is planning tool that provides complete range of scenarios that can occur
in future. Thus, it inculcates elements that can possibly happen and further evaluates trends of
uncertainties. In this a detailed study of past experience is done so that a better analysis can be
made which can further provide better solutions in terms of increasing profits and productivity.
Advantages: It provides company with appropriate data by considering past, present and
future scenarios. As a result, with the help of this better strategies for improving company’s
growth can be done. Further if any kind of issues are being faced then manager have plans to
overcome with the situation (Granlund, 2011).
Disadvantages: Impact on budget can be one of the disadvantage as company for
executing its activities may require skilled and knowledgeable candidates which may need ample
number of money for hiring.
SWOT ANALYSIS
Strengths: 43 talented employees and effective manufacturing process of keyboard is said
to be two strengths of AZIO. In terms of financial status, employees are one who delivers proper
services to customers which helps this company to become one of leading company of UK.
Weaknesses: Using traditional approaches like handmade bookkeeping is being
considered as a weakness for this organisation which have impacted negatively on their decision
making process.
Opportunities: Expansion of business at international level is being considered as an
opportunity for AZIO. Along with this company needs to focus on management accounting so
that financial reports can be prepared in much easy manner.
Technology: Due to insufficient capital for business expansion, company cannot use
updated Technology. In order to sustain at market place of UK for a longer period of time it is
required for them to develop products and services as per the needs of customers so that profit
margins can be increased.
M3. Use of different planning tools and their application for preparing and forecasting budgets
10