Management Accounting Report: Systems, Techniques, and Planning

This report, prepared for the General Manager of Unicorn Grocery, delves into the critical aspects of management accounting. It commences with an introduction to management accounting, emphasizing its role in planning, decision-making, and control within an organization, particularly highlighting its application in a cooperative firm like Unicorn Grocery. The report is structured into tasks that explore essential requirements of different types of management accounting, various reporting methods such as budget reporting, accounts receivable and payable reporting, inventory costing, and job costing. The report also analyzes marginal and absorption costing techniques and different types of planning tools used in budgetary control. The report then discusses the organization's response to financial problems by leveraging management accounting principles. In essence, this report provides a comprehensive overview of management accounting systems, cost accounting techniques, and planning tools, underscoring their significance in achieving organizational objectives, with specific references to Unicorn Grocery's operational context.

MANAGEMENT
ACCOUNTING

Report
From: Management Accounting Officer
To: General Manager
Subject: To write a report to GM covering management accounting reporting and its various
systems together with various cost accounting techniques and planning tools. Their
implementation can assist in attaining organisational objectivities.

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of its different types...........................1
P2 Different methods used for management accounting reporting.............................................4
TASK 2............................................................................................................................................6
P3 Marginal and Absorption costing...........................................................................................6
TASK 3............................................................................................................................................3
P4 Different types of planning tools used in budgetary control..................................................3
TASK 4 ...........................................................................................................................................5
P5 Organisation response towards financial problems by using management accounting.........5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
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INTRODUCTION
Management accounting is one of the most crucial and difficult task of business
organisation. It is the process that involves identification, analyses and presentation of financial
data. The planning, decision making and control can only be performed well with the use of
information provided by management accounting. It generally involves the methods and
concepts necessary for the purpose of effective planning, to choose best alternative action of
business, and to overall control the performance of firm. Data is gathered by by financial
accounting department and presented in such a manner that best suit managerial needs and
objectives. It also contributes in reviewing policies decisions of an enterprise. Unicorn Grocery
is an cooperative firm, headquartered in England. They follow flat organisational structure and
with the same equal rates of pay. The system of management accounting provides administration
with the reports and useful information that help in aspect of decision making. It thus, support
administration to build up strategies to gain competitive advantage over its rivals.
TASK 1
P1 Management accounting and essential requirements of its different types
Management accounting helps to know the possible causes of profit and loss of business
organisation. It generally studies the impact of factors that influence profitability. It involves
concept of Ratio analysis, Cash flow and fund flow statement, Marginal accounting, Cost-
volume-profit analysis, Budget and Budgetary control etc. It provides benefit of successful
planning and analysis. Making financial information more reliable and useful is the key aim. For
the smooth functioning of business operations, managers have to take several decisions based on
the information available. Management accounting fulfil such requirement of business managers.
Unicorn Grocery is a firm that engaged in providing quality products to its customers.
Administration of such business organisation need effective decisions such as purchase decision
of products. Such grocery stores buy in bulk from their suppliers. Which suppliers have good
relation with the enterprise and up to what extent they will provide goods on credit, their past
history are all seen by manger before taking any decisions. Such information is provided by
management accounting by preparation of accounts payable reports. Manager need information
related to availability of cash, account payable and receivables balances and revenue generated
from selling products. Organisation prepare budgets such as cash budget, purchase budget, sales
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budget etc. to set fixed amount of resources to spend in various operational activities of business
firm. Management accounting contributes in strategies formulation and helps to gain an edge
over its rivals.
Today activities of economy is complex. The competition become cut-throat and to deal
in such dynamic environment need effective decisions. The modern administration focuses not
only in cost ascertainment but allocation of expenditures and controlling them. It will helps in
increasing profitability of firm. Unicorn Grocery needs best strategies to deal with rivals present.
Management accounting helps in determining financial cost, managerial performance etc. It also
suggest ways to improve earning capabilities of business. A manager needs to perform various
managerial function such as planning, organising, staffing, directing and controlling.
Effectiveness in such functions is the essence of business. A manager need to take several
decisions on a daily, monthly, quarterly basis. They needs presentation of information, reports
and massive amount of time to be spent while making decisions. Earlier accounts are prepared
annually, but modern techniques concentrates on their preparation on a daily, weekly and
monthly basis. Such techniques of accounting can be termed as management accounting. These
accounts are prepared in such ways that performance could be compared with budgeted data. If
find any deviations, immediate actions needs to be taken. The management accounting is termed
as such system of accounting that contributes to administrations in complex decisions. Different
types of management accounting can be classified as follows-
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Cost accounting system- Cost accounting system is one of the most important form of
accounting. It helps in determination of cost of products and offering by firm. Unicorn Grocery
needs to ascertain profitability of products and offerings. It helps in valuation of stocks and cost
control. It is also known as cost accumulation method. It assess each step of input cost and
records such cost individually to estimate the overall cost of production and per unit. Unicorn
grocery can able to know which firm's product give more profit to them with the help of cost
accounting. Cost accountants are professionals who manage such system of accounting. Costing
system Contribute to preparation of financial statements.
Inventory management system- Companies like Unicorn grocery need to manage their
inventory on a daily basis. They needs to identify how much stock came in and went from from
store. It is important for manger to have eye on everything involved in inventory management
system. It is one of the stock control technique of accounting. Also future contingencies must be
kept in mind. Wastage of products should be reduced or eliminated. The inventory control is
possible with the effective usage of availability of resources.
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Job costing- Job costing is the method of keeping track of cost of each job. What is the
cost of job performed by an individual in a specific project is identified. It is one of the major
form of accounting. To estimate the cost of work given to particular employee working in an
organisation. Unicorn Grocery have more than 50 employees and how much cost they are
incurring for performing each task is known by job costing. It enables efficiency of work at
performing particular job. Each job is different and must needed to be performed as per customer
specification. It also consider both direct and indirect cost involved in same job.
Price optimisation- Price optimisation is the determination of response by consumers of
products and offerings towards price fluctuations. It is a kind of mathematical analysis and of
utmost importance for an organisation. It includes cost of operations, stocks and historical prices
of products and offerings. It computes the variance arises in demand of products and services in
adaptation of different prices. Thus, company can able to keep pricing level as per targeted
segments. The strategies adopted by an organisation towards pricing is important. It also evaluate
the value generated to customer for the prices he/she paid.
P2 Different methods used for management accounting reporting
Management accounting helps in monitoring performance of business organisation.
These reports are prepared as and when required even on daily basis also. It depends on time
sensitivity and kind of project a business is dealing in. generally reports are prepared on a daily,
weekly, monthly and quarterly basis. The management accounting reports gives complete view
regarding performance of business organisation. These reports are of utmost importance for
businessmen. Unicorn grocery also need to prepare various reports to achieve their targets within
specific period of time. No matter what nature of business an organisation is dealing in,
preparation of such reports are must. This contributes to achieve greater profitability, and reduce
their debt and helps in improvement of financial stability. While financial reports are only
limited to financial statements, management accounting helps in managerial functions of
business. The kinds of management reports differ and based on the information that an
organisation required in definite time frame. These reports are generally prepared by finance
professionals acquiring suitable qualifications. The different methods used for management
accounting reporting are as follows-
Budget reporting- A budget is generally termed as profit plan. Availability of resources
with an organisation is limited. In order to better allocate them and control the cost incurred on
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various expenditure, Budget preparation is done. There may be different kinds of budgets such as
sales budget, cash budget, purchase budget, capital budget etc. These budgets provide business
with the targets that needs to be attain in a given period of time. Extensive research and past
records are needed for preparation of budgets that best fit to firm. It is one of the formal
quantitative plan prepared on a daily, monthly basis. Budget creation process is effective only
with the involvement of employees. It is, thus used to control financial performance of business
concern.
Accounts receivable reporting- The accounts receivable reporting is also essential for
those organisations who supply their products and services on a credit basis. Debtors are current
asset of firm. An organisation needs an overview of Credit balances of such debtors. In order to
make better relationship with customers of products or services, selling on credit basis is must.
These reporting need past history of such debtors then calculating the amount due with them. It
also helps in boosting collection process of company.
Accounts payable reporting- Accounts payable reporting helps in keeping records of
creditors. What amount needs to be paid and on what date is determined by preparation of such
reports. Organisation generally make purchases in bulk. They buy goods on a credit basis. The
period of credit is usually 30 to 90 days. Unicorn groceries like to maintain healthy relation with
suppliers. This will be possible if company pay their creditors on time. The enterprise have their
goodwill in market and in order to keep such reputation paying off creditors in time is important.
Inventory costing reporting- Inventory costing reporting deals with the stock in and out
from warehouses and stores. It is done to eliminate the wastage of stocks (Higgins, 2012). It is a
major kind of reporting in management accounting to determine inventory valuation and control.
These reports are off utmost concern for management. By seeing reports, manager identify how
much more they have to buy. They helps to collect data on inventory costs, labour and other
overheads.
Job costing reporting- Job costing concentrates on valuation of cost of a job involved in
a specific project. It identifies whether the cost incurred by an organisation in such task is
favourable or not. If not, then important strategies needs to be build to tackle the same. It helps
managers to evaluate performance of a job and their profitability. Effectiveness in job
performance will lead Unicorn Groceries towards success. It also addresses revenue generation
from same job in a given project.
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Performance reporting- Every enterprise sets up their targets of performance which
they want to achieve in a specific time frame. Performance evaluation is the assessment of
performance of various operations in the functioning of business. A business has several
departments, each component should be taken care off to improve the overall profitability of
firm. It is basically done by comparing planned targets and actual performance. Balanced
scorecard is a tool used for such purposes. Employees of firm are assessed based on measures
such as sales or profit. Performance reporting also provide information to stakeholders of
company such as creditors, employees, suppliers, customers and government.
TASK 2
P3 Marginal and Absorption costing
Unicorn groceries have to use effective costing methods in this dynamic environment.
These methods of costing are useful for managerial decision making. The brief description of
marginal and absorption costing are as follows-
Marginal costing- Marginal costing refers to ascertainment of marginal cost. Calculation
of fixed and variable cost is done to take appropriate decisions with regards to production. It is
type of accounting system where variable cost are charged to cost per unit. Also fixed cost are
written off. This normally include direct material, direct labour, direct expenses and variable
overheads. Marginal cost is the cost of additional unit produced (Baldvinsdottir, Mitchell and
Nørreklit, 2010). It will not change fixed cost. But variation is there on variable cost. Fixed cost
are of less importance in marginal cost. It helps to provide additional cost for producing one
more unit of product. The main factor that is calculated is Contribution and profit-volume ratio.
Absorption Costing- Absorption costing is a technique of decision making. The net
profit is the major element in such costing. Here both fixed and variable cost are considered by
absorption for total production. Usually cost are partially divided to various centres to evaluate
cost of production. Such costing method is known as full absorption costing. It gives emphasise
on fixed cost while determining profitability of firm (Fullerton, Kennedy and Widener, 2014). It
is conventional method of costing. It is one of the most suitable method of valuation of stock.
Activity costing, process costing and job costing are types of such technique.
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Calculation as per Absorption costing.
Working notes:
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
0
11200
(1600)
21000
(9600)
11400
1

Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
600
700
600
(100) (1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
0
9100
(1300)
2000
1300
21000
(7800)
13200
2

Net Profit
600 3900
9300
The net profit earned by using marginal costing approach less then absorption costing.
The amount of 300 pounds is the difference which is ascertained by using both approach. All the
figures in both methods are treated in same way except closing stock and fixed assets. In
marginal costing, fixed cost is deducted without allocating it on every produced unit but in
absorption costing total cost is divided on every manufactured product (Foster, Hart and Lewis,
2011). The balance of closing stock is another factor behind the variance amount i.e. 300 pounds.
The fixed expenses which are spend by cited company on unsold stock is included in marginal
costing but they will not be treated in present year under absorption costing as they are not sold
in present year. Unicorn grocery adopt absorption costing in their organisation because it shows
correct net profit and it is the right approach for this firm.
TASK 3
P4 Different types of planning tools used in budgetary control
Budgets are important for Unicorn groceries for the effective management of an
organisation. Budgets is a kind of profit plan, it is planning that shows what targets a firm needs
to accomplish and in what frame of time. General time for budget is 3 months to a year. An
enterprise may build up budgets for units, divisions and departments of business. It also acts as a
yardsticks for measurement of performance (Caglio and Ditillo, 2012). Budget is always
prepared for future course of time. It is time consuming process and requires large number of
professionals. Historical data and current status are checked before preparation of any budget. It
is also called as foundation for control. A budgetary control is a technique whereby actual
performance is compared with planned one, if any variance or deviation occurred. It needs to be
reduced or eliminated quickly. Improved budgets are also important for having smooth
functioning of business organisation. It forces administration to look overhead and set out
detailed plans to be accomplished in a given time period. It contribute to enterprise by giving
direction to different operations. It is planning of various aspects of business to be controlled
(DRURY, 2013). The various types of planning tools used in budgetary control are as follows-
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