Management Accounting Report: Analysis of Merlin Financial's Practices

This report provides a detailed analysis of management accounting principles and practices, using Merlin Financial Consultancy as a case study. It covers essential aspects of management accounting, including the utilization of professional knowledge and techniques in preparing accounting information. The report examines various management accounting systems such as cost accounting, inventory management, price optimization, and job order costing, highlighting their benefits and applications. It also explores different management accounting reporting methods, including budget reports, performance reports, accounts receivable reports, and inventory management reports. The report further delves into different costing techniques like absorption costing and marginal costing. Additionally, it assesses the merits and demerits of planning tools used for budgetary control and compares how organizations adapt management accounting systems to address financial problems. The report concludes by emphasizing the interconnectedness of management accounting systems and reports within organizational processes and their role in achieving business objectives.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of its systems.................................1
P2 Various methods used for management accounting reporting..........................................3
M1 Determine the benefits of management accounting system.............................................4
D1 Integrated organisational process with in management accounting system and accounting
reports.....................................................................................................................................5
TASK 2............................................................................................................................................5
P3 Calculation of cost using different costing techniques......................................................5
M2 Apply a range of management accounting techniques....................................................9
D2 Produce financial reports to accurately apply and interpret data......................................9
TASK 3..........................................................................................................................................10
P4 Merit and Demerit of several planning tool used for budgetary control.........................10
M3 Different planning tools and their application...............................................................11
TASK 4..........................................................................................................................................12
P5 Comparison of the way in which organisation are adapting management accounting system
..............................................................................................................................................12
M4 Management accounting can lead organisation to sustainable success by responding to
financial problems:...............................................................................................................13
D3 Planning tools respond appropriately respond to solving financial problems:...............14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting mention about the utilization of the professional knowledge,
techniques, and concept in preparing the accounting information in a specific manner (Chenhall
and Moers, 2015). It will help to top management in the executing plans and policies, controlling
the business functions, decision making, optimizing the use of resources, disclosure to
management and safeguarding assets. In other words, management accounting can be defined as
the processing and presentation of financial and economic data. It would help to determine the
performance of management to implement different types of strategies, making a comparison,
budgeting, and forecasting. To understand in detail about management accounting selected
Merlin financial consultancy, which was established in 1988 and is based in London, United
Kingdom. The company provides financial reviews and Claritas reports as well as advisory
services in the field of mortgages and more on. It provides financial advice to manufacturing and
retail companies such as Airdri Limited, which is an Air Dryer manufacturer.
This report covers several topics like management accounting, systems, it is reporting, use of
various costing methods to calculate net profit. Along with, merit and demerit of planning tools
of budgetary control. Additionally, the way in which the management accounting system applied
to sort out of different financial problems.
TASK 1
P1 Management accounting and essential requirements of its systems
Management accounting – It is a process of determining and communicating financial
data within an organization. The manager of the company evolute the performance of a business
and their strategies to intensify it. Management accounting act of preparing a sense of financial
and costing data and translating that data into useful information for management and officers
within an organization. Marlin financial consultancy helps Airdri limited to applying it on a daily
basis so that the actual performance of an organization can be measured (Fullerton, Kennedy and
Widener, 2014) .
Management Accounting System – It is connected to an internal system which can use
by a company to measure and determine their processes for the management of an organization.
These systems are used by the manager in order to track the record of several functional and
operational sections of a business. There is mention about different types of management
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accounting system which are used by Marlin financial consultancy in the reference to provide
help of stakeholders of Airdri limited to understand the actual status of an organization. All of
them are as follows:
Cost accounting system – The particular system can help a manager for determining various
costs in reference to several activities like manufacturing. Marlin financial consultancy provides
advise to Airdri limited to apply the system to keep elaborated information regarding expenses
that are connected to Air dryer manufacturing and other services. It is essential for a business to
track the record of the direct and indirect cost of business (Honggowati and et.al., 2017) . It is
beneficial for enterprises due to provide help it information in reference all the expenses can be
gathered. The system mainly used as a framework for the analysis of profitability, stock and cost
control. To forecast the right cost is quibbling for profitable operations.
Inventory management system – It is mostly used by a manufacturing company to
manage stock inappropriate manner. This system is applied by Marlin financial consultancy for
their client of Airdri limited in order to keep the track record of all types of raw materials that are
used for production. With the help of a particular system get all detailed information and analysis
of each level of production to know the status of stock. There are three different types of
inventory management systems such as LIFO, FIFO, and AVCO.
 LIFO – In this system recently obtain stock is used for manufacturing activities.
 FIFO – The particular system earlier bought items are used for production activities.
 AVCO – There are goods are used on the average cost basis for manufacturing.
Airdri limited the applied FIFO system in reference to the preparation of the hand air dryer. It
is essential for all types of businesses to provide help to keep detailed information on inventory
which is utilized for business operations.
Price optimisation system – It is applied by every organization to set optimal prices of
their different types of product which are produced by the company. The system applied by
Marlin Financial Consultancy to prepare the record for Airdri limited to provide help to a
manager to set price structure in an effective manner and arrange everything. Different types of
product have different prices which are set according to their quality and usage that will able to
meet the expectation of customers or not.
Job order costing system – The particular system is assigned with accretion cost of
every manufactured unit of a business. Through the job order costing system, Marlin financial
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consultancy helps their customer Airdri limited to follow the system which can help to know the
specific cost of a specific job role. It is connected to every item that will sell out in the market. In
other terms, it is very crucial for the entity to provide help to determine of cost of various items
that are produced according to the requirement of customers (Kaplan and Atkinson, 2015) .
P2 Various methods used for management accounting reporting
Management accounting reporting – It is a process of preparing various types of
management accounting reports to mention different information in reference to the performance
of a company. There are different methods of preparing which are used by Marlin financial
consultancy to kind of several reports for their customer Airdri limited. There are defined
different management accounting reports -
Budget Report – It is part of an internal system that is very important for measuring
performance. It is prepared by every type of business like small, medium and large businesses to
understand an overall budget. Therefore, a company contains a list of all resources which are
carried out by budget. The manager of Merlin financial consultancy uses the report to compare
actual and standard spending of Airdri limited to forecast their performance for an upcoming
period of time. It is beneficial for the company to control all business functions as per the budget
plan. As a result, it can help to analysis that they are capable to achieve their projections that
were done previously.
Performance Report – This report mainly generated to analyze the performance of a
company as well as every employee at the end of the financial term. In the large organization, it
is prepared on the department basis. On the basis of performance, the report prepares strategic
decisions that can help in the future of an organization. The particular report used by Merlin
financial consultancy for Airdri limited so that data regarding employees and business
performance can be recorded. The report defined the strength and weaknesses of each employee
regarding their task. In the end, provide them a bonus and incentive to employees for their efforts
to provide help to achieve organizational goals and objectives. It is beneficial for Airdri to
prepare strategic strategies to intensify performance (Maas, Schaltegger and Crutzen, 2016) .
Accounts Receivable Report – The particular report is developed to prepare a list of the
owed amount of various customers. This report prepared by those companies who can provide
products to the customers on credit. In Marlin financial consultancy, it is used by staff members
to maintain all detailed information of all the outstanding amounts of clients of Airdri limited. It
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is beneficial for a company to an analysis of actual unpaid amounts by customers. It provides
help of an organization can tighten its credit policies so that the situation of late payments from
clients can be ignored.
Inventory Management Report – The main aim of this report to track record materials
at each production level. It is developed by Marlin financial consultancy for Airdri limited to
track record of an organization. It is defined to produce a particular item of how much material
used by the company. It is beneficial for business because it can provide detailed information so
as a result utilize resources in an appropriate manner and reduce wastages.
M1 Determine the benefits of management accounting system
Different types of system Benefits
Cost accounting system This system help to business to keep a record of several
costs connected with the business functions. Airdri limited
with the help of this system calculate direct and indirect cost
which is beneficial for analysis profitability as well as cost
control (Melnyk and et.al., 2014) .
Inventory management system It is beneficial for Airdri limited to track record of inventory
and get detailed information. It will apply a different system
of inventory to sell out in the market. Airdri mainly uses the
FIFO system and it will help top reduce wastages and proper
utilization of resources.
Job costing system It is related to a specific job role so it will beneficial for the
job costing system for the purpose of determining the cost of
various activities that are performed according to clients. It
will provide fair value of costs that are connected to
delivering particular job.
Price optimization system It is beneficial for an organization to set price structure for
different types of projects in an effective manner. This
system provides help to Airdri limited to understand
customer perception regarding their products then set
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optimal prices to increase the purchasing power of buyers.
D1 Integrated organisational process with in management accounting system and accounting
reports
Management accounting systems and reports are interconnected within the organizational
process. These systems and reports are an important part of an organizational process and help to
run business activities in a smooth manner. Different types of systems such as inventory
management, cost accounting and job costing conduct various activities and help to achieve
organizational goals and objectives. These reports are provided detailed information about
business functions and present in front of top management. On the basis of these reports they can
analysis of organizational performance then they will take an appropriate decision that can help
to conduct organization performance in a smooth manner (Nitzl, 2016) .
TASK 2
P3 Calculation of cost using different costing techniques
Absorption costing – This costing method defined the production cost that has been
assigned to the units produced. There are mainly including the direct cost in the manufacturing of
goods and services. The finished product consists of direct material, labor, fixed and variable
production overhead. It is essential for financial and income tax reporting. It can show the effect
of opening and closing inventory. The main benefit of this method that there are defined about
the direct and fixed cost. It can present a more accurate picture to show profitability situation.
Marginal Costing – It is costing technique which is used for per unit to know production
and fixed elements remain constant throughout. It mainly used when an extra unit needs as a
result and there are including direct material, direct, and variable overheads. With the help of
particular technique analysis of marginal cost as well as contribution. The particular method used
by Galway plc for the reason of the decision-making process and helps to understand the value of
each level of manufacturing with the help of break-even analysis. It is beneficial for a company
because it is easy to understand and apply in an effective manner (Lindholm, Laine and
Suomala,, 2017) .
Income statement under Marginal costing method for month of May & June
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Particular May June
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(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
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Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
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G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
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Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
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