Management Accounting Systems, Reports, and Financial Analysis

This report provides a comprehensive overview of management accounting, including its definition, types, and importance within organizations. The report delves into various management accounting reports, such as accounts receivable aging reports, budget reports, and performance reports, highlighting their significance in decision-making. It explores different costing methods, specifically absorption and marginal costing, and demonstrates their application through income statement preparation. Furthermore, the report examines the role of management accounting systems and their integration within organizational processes, using the Feel Good Drinks Co. as a case study to illustrate practical applications. The document also discusses planning tools and their limitations within budgetary control, as well as comparing organizations to solve financial issues with the help of accounting systems. Overall, the report offers valuable insights into the principles and practices of management accounting, emphasizing its role in financial analysis and organizational management.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Description of management accounting and its types...........................................................3
P2. Analysis of wide range of management accounting reports.................................................5
M1. Role of management accounting systems. ..........................................................................6
D1.Way in which management accounting systems and reporting are integrated within
organisational process.................................................................................................................7
TASK 2............................................................................................................................................7
P3. Preparation of income statements as per the costing methods..............................................7
M2. Management accounting techniques to produce financial reporting documents...............10
D2. Interpretation of produced income statements...................................................................10
TASK 3..........................................................................................................................................10
P4. Description of limitation and importance of planning tools of budgetary control.............10
M3 Planning tools for preparation and forecasting of budgets.................................................12
TASK 4..........................................................................................................................................12
P5.Comparison of organisations to solve the financial issues with the help of accounting
systems......................................................................................................................................12
M4. Management accounting to solve the financial issues.......................................................14
D3. Planning tools to solve the financial issues........................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
The management accounting is also known by managerial accounting which is aligned
with a procedure of gathering, analysing, interpreting & spreading quantitative and qualitative
information to internal users (Drake, Roulstone and Thornock, 2016). Under this accounting, the
combined information of monetary and non monetary aspects is being used in order to produce
reports that plays a significant role in effective decision making for managers and board of
directors. In current time period, this accounting is being seen as one of crucial part for better
allocation and utilisation of monetary & non monetary resources. In the project report, term
managerial accounting is explained in detailed manner as well as its various types such as cost
accounting system, price optimisation system and many more. In addition, multi-pal kind of
accounting techniques and planning tools are described. For better understanding of this
accounting in context companies' operations a company is selected that is Feel good drinks co.
This company is located at Islington, London in United Kingdom. They are operated in the
aspect of production of wide range of fruit juice. By help of this company, importance of
management accounting are in context of decision-making making is mentioned.
TASK 1.
P1. Description of management accounting and its types.
Management accounting is being defined as a process of producing internal reports with
help of combined information of quantitative and qualitative aspects (EBRAHIMI and
MOGHADASPOUR, 2015). These prepared reports are too beneficial for companies in order to
take corrective actions and planning. As per the analysis of mean of this accounting, it can be
assessed that this is useful only for internal users of companies. It is so because external users of
companies can not be benefited by help of prepared reports under this accounting. In the aspect
of above company, Feel good drinks company they are implementing different types of
accounting systems in their operations and functions , some of them are explained below :
 Price optimisation system- It may be defined as a system of evaluating the variation in
demand on different pricing levels. This system of accounting is widely used by
companies in tailoring prices of their served products in consideration of how their
customers will react on set price pattern. Basically, under this system companies get an

idea of determining the price at a level which is acceptable to all targeted customers. It is
being done by analysis of various external environmental factors such as demand of
products in market, customers orientation towards companies' products and many more.
Hence, it is essential of companies for keeping prices at an effective level as accordance
of market condition and customers' approach. In the case of above chosen company, Feel
good drinks co. they apply this accounting system for setting of prices of their
manufactured juices. As well as for providing products to their customer segments as per
their expected pricing level.
 Cost accounting system- This accounting system is also known as costing or product
costing system (Murthy and Rooney, 2018). In general way, it can be defined as a type of
accounting system that is associated to effective projection of cost of products and
services. This accounting system is essentially needed by companies for prediction of
cost is to make better analysis of profitability level as well as for controlling of costs. So
as per the above evaluation of this accounting system, this can be find out that it is
essential for companies in order to managing and estimating overall expenses of various
operations. Such as in above respective company , Feel good drinks co. their managers
focuses to implement this accounting system for keeping cost of juice manufacturing
under standards. In addition for tracing the information of each organisational activities
and functions in descriptive manner and as per it, they try to control costs.
 Stock management system- It is an accounting system that is aligned with process of
tracking record of stock which ordered, purchased and used in production. Under this
accounting system, the valuation of stock is being done by help of different methods such
as last in first out, weighted average and many more. As well as it is being coordinated by
production and purchase department of companies. This is so because by help of it they
manage activities related to inward and outward of goods. Thus, it is essential for
companies in estimating of need of material for production which is being done by
evaluating availability of quantity of stock in warehouses. Like in aspect of above
respective organisation, Feel good drinks co. they apply this accounting system to know
about qualitative aspect of needed material for juice production which are sugar, fruits
and many more.

 Job order costing system- This system of accounting is being defined as a systematic
framework for tracking cost and income on basis of “job” which is involved in
compilation of any specific task (Nwogugu, 2015). Basically, it is essentially needed by
companies for getting estimation of each produced unit or any item. In the above selected
company, Feel good drinks co. their financial managers implement this accounting
system for an assistance of calculating each produced juice packet that leads to setting of
price at a better level.
P2. Analysis of wide range of management accounting reports.
Management accounting report- Management accounting report is an kind of complete
picture about the organisation regarding its performance, it is a complete holistic view of
business finance (Berry, Broadbent and Otley, 2016). It proved very much beneficial for small
business owners who takes strategic insights with help of crucial documents. There are various
kinds of management accounting reports that proved beneficial for organisation in taking very
significant decisions that are as follows:
 Account receivable ageing report- Respective report is very much crucial for any kind of
business that provides credit to their consumers. It helps in providing complete overview
according to their age by separating categories into differently such as 30,60 and 90 days
late. In context of Feel good drinks co. they use respective tool of management
accounting to adjust their policies and procedures for acknowledge their consumers
repayment capabilities and recover payment from them in proper manner.
 Budget report- Budget report is one of most fundamental kind of report in managerial
accounting which helps business owners to acknowledge and control cost across the
organisation in case of unified organisation which possess various departments (Barnard
and Mostert, 2015). In context of feel good drinks co. they evaluate the expenses or
expenditures in previous years that helps to estimate the budget in upcoming year and
evaluate areas to cut cost to recover all expenses in proper manner. So all are very much
important to estimate anticipated cost which associated with a particular future project in
an organisation to get optimum kinds of outcomes.
 Performance report- Performance report collect important information related with the
work performance by analysing it, creating reports and sending them to the respective
stakeholders that involved in reporting performance. Performance report is a major part

of communication management plan which provides all relevant information that needed
at every tier of organisation by stakeholders in a detailed format. In context of feel good
drinks co. they design reports by using one of most appropriate method to reporting
activities. During the process of performance reporting, with the work related context and
kinds of performances are evaluated and combined with respective report to gather
potential outcomes.
 Cost accounting report- Cost accounting report helps to determine the cost of products,
various processes and projects in order to evaluate the financial statement of an
organisation (Rickards and Ritsert, 2018). In context of feel good drinks co. they with the
help of respective reports they can get assistance from management in planning and
controlling of cost and processes internally.
 Inventory management report: For a manufacturing firm respective reporting system is
very much crucial as with the help of it manager easily can analyse the current level of
inventory within the organisation by evaluating the current demand and supply. In
context of Feel good drinks co. helps to evaluate or prepare documents regarding the
level of inventory to produce products and services in sufficient quantity. It proved
beneficial to track status of products and services in proper manner to deliver right kind
of value to the ultimate consumers.
M1. Role of management accounting systems.
Importance of price optimisation system- This is associated to setting price of
manufactured products and services on the basis of demand of customers. In the aspect of above
company, this helping them in determination of price of their juice at a level which is acceptable
by all customers.
Importance of cost accounting system- It is aligned with process of predicting futuristic
expenses of operations (Krause and Tse, 2016). In above Feel good drinks co. this system helps
to their finance department in order to keep the cost lower as well as to allocate financial
resources effectively.
Importance of stock management system- Under this accounting system, quantity of
available material at warehouses is traced and report is provided to production department. In the

above company, their production team take benefit from this accounting system for managing
inventory of juice manufacture such as sugar, fruits etc.
Importance of job order costing system- This system is linked with assessing per unit cost
of manufactured products. Under above company, Feel good drinks co their sales department
evaluate per unit cost of their produced juices.
D1.Way in which management accounting systems and reporting are integrated within
organisational process.
In the MAS vital types of accounting systems are included such as cost accounting
system, job costing system, inventory management system and many more (Corvellec, 2018). All
of these are aligned with company's operational process. This can be understand by example of
above clothing, fashion enter limited company. Such as cost accounting system is interrelated
with finance department as well as inventory management system is linked with production
department. Same as the MA reports are also interrelated. Like the account receivable ageing
report is aligned with finance department for collection of debt amount on time. Hence, the
above description states that MAS and MA reports are interrelated to the company's process.
TASK 2.
P3. Preparation of income statements as per the costing methods.
In the companies, various kind of methods are used by accountants to prepare income
statements. Majorly, there are two types of costing methods that are absorption and marginal
costing. The detailed description of these two methods is done below which is as followings:
 Absorption costing method- It is a type of method of costing under that entire cost of
manufacturing is being assigned as cost of unit produced. In general, in this method total
cost of production including direct material, labour costs are totally absorbed (Fayol,
2016)
 Marginal costing method- This is completely different method of costing in that entire
manufacturing cost is not taken as cost of unit. While under it, fixed expenses are
assigned as cost of period and variable expenditures are taken as cost of unit produced.
Herein, on the basis of given data about “Oshodi plc” income statements are prepared by both of
methods for month of November and December.

Income statement as per absorption costing method for month of November and December
Particulars Per unit
cost In November (£)
Revenue (10000 x 50) 50 500000
Less: Cost of sale ( 10000 x 34 ) 34 -340000
Gross profit 160000
Variable selling overheads (10% of total sale
value) 10000*5 -50000
Fixed selling expense -14000
Fixed Administration Overhead -26000
Under/over absorbed production expenses 9000
Net Profit 79000
Particular Per unit
cost In December (£)
Revenue ( 12000 x 50) 50 600000
Less: Cost of sale ( 12000 x 34 ) 34 -408000
Gross profit 192000
Under/over absorbed production expense -9000
Variable selling overheads (10% of sale value) 12000 x 5 -60000
Fixed selling expenses -14000
Fixed Administration Overhead -26000
Net Profit 83000
Working Notes:
1. Calculation of the cost of sales -
Total cost = 25
Fixed production overhead = 99000
Normal production unit = 11000

cost per unit ( 99000 / 11000)= 9
Total cost of sales ( 25+ 9) = £ 34 for per unit
2. Calculation of the under and over absorption-
Month
(A)
Produced units
(B)
Cost per unit
(99000/11000)
(C)
Total overhead
absorption
(D = B X C)
Fix Overheads
(E)
Over / under
absorption
(F = D - E)
November 12000 9 108000 99000 9000
December 10000 9 90000 99000 9000

M2. Management accounting techniques to produce financial reporting documents.
The management accounting techniques are crucial in order to prepare various kind of
financial statements (Bierer, Götze, Meynerts and Sygulla, 2015). In the project report,
absorption and marginal costing techniques are used to prepare the income statements for month
of November and December. Under both of these techniques, amount of net profit is various by
use of similar data. Though apart from the above methods of income statement preparation, there
are some other techniques such as activity based costing , standard costing and many more.
These techniques are also used in order to prepare income statements in a specific manner.
D2. Interpretation of produced income statements.
There are two income statements are prepared of Oshodi plc as per the given data of
month November and December. Under absorption costing method, the net profit is of £ 79000
for month of November which raised in next month December and became of £ 83000. In
addition, under marginal costing method the net profit is different by taking same data. In this
method, the net profit is of £ 61000 for month of November which increased and became of £
101000 in month of December. Herein, this aspect it can be seen that reason of difference is
assignment of costs in both methods. In absorption costing technique, all production cost is
considered as cost of unit while in marginal costing method, fixed and variables costs are
categorised in different way.

TASK 3.
P4. Description of limitation and importance of planning tools of budgetary control.
Budgetary control- This can be defined as a kind of technique that is associated with
process of determining monetary objectives of companies by using various kind of budgets
(Höglund and Sundvik, 2016). In descriptive manner, under this technique actual financial
results of companies' different activities is compared by pre set budgets. By this companies get
able to know what are the areas in which they need to focus in an effective manner. For example
in above chosen company, Feel good drinks co. their managers set budgets in order to measure
actual financial situation of various business operations. This technique is based on a vital
planning tools that are used by companies and some of them are described below that are as
following such as:
 Cash budget- It is a type of budget which is produced by companies with an aim of
making projection of futuristic need of cash. This is being done only because of
estimation of items which can lead for receipts of cash and outflow of cash. In
companies, this budget is broadly used for checking availability of additional cash. The
above respective company, Feel good drinks co. is using this budget in their operation of
manufacturing of juice for determination of need of cash for further.
Advantage- Its common advantage is that this budget comply with all kind of organisations. This
is so because cash is needed by each entity and it helps in accurate forecasting of cash.
Disadvantage- Lack of flexibility is the main issue of this budget and due to this companies can
not spread the cash in the time of opportunities of profits.
 Sales budget- This budget is also used by name of revenue budget by companies. It is a
type of budget which is linked with estimating number of units to be sold by an entity in
upcoming time period (Loeb, 2015). This budget makes estimation of future sales on the
basis of previous years' financial information and as per market conditions. It plays a
significant role for managers of companies in aspect of determining future financial
condition. In above , Feel good drinks co. their managers use this budget for making
forecast of sales of their manufactured juices.

Advantage- Its advantage is that on the basis of estimation, companies allocate the resources in
different activities.
Disadvantage- Its disadvantage is that under this too much time consumed and even after
guaranteed outcome is not provided.
 Capital budget- It is a type of budget which is process of assessing companies large
capitalized investments such as about plants, machinery etc. This is used by entities in
order to taking decision about long term investments. Basically, it is very crucial to
companies because any wrong decision can resulted as huge loss to companies. Such as
in above Feel good drinks co. their managers use this for taking large investment
decisions of capital.
Advantage- This budget helps to companies in proper identification of possible risks and
opportunities that leads to selection of projects safely.
Disadvantage- The limitation of this budget is higher cost consuming as well as in some cases
wrong decision can lead to huge loss of financial resources of company.
So these are the planning tools of budgetary control that are crucial for companies for various
kind of functions and activities.
M3 Planning tools for preparation and forecasting of budgets.
This is essential for companies to produce their budgets accurately because all plans and
strategies are based on these (Trenca and Nørreklit, 2017). In this situation, planning tools play a
vital role because under these planning tools various types of budgets are included and each of
them contains financial information which is necessary for budget preparation. This can be
understand as per the example of above chosen company, Feel good drinks co. in that they are
using some planning tools that are cash budget, capital budget etc. These budgets are helping
their accountants to make proper estimation of revenues and costs. Thus it can be stated that
planning tools are associated with the procedure of preparing budgets.