Analysis of Management Accounting Systems: Essentra Packaging Report

This report provides a comprehensive analysis of management accounting principles and their application within Essentra Packaging, a manufacturing company. It explores the essential requirements of a management accounting system, including reliability and up-to-date information, and examines various systems such as price optimization, inventory management (LIFO, FIFO, AVOC), and cost accounting. The report delves into the types of management accounting reports, including cost managerial reports, accounts ageing reports, budget reports, and performance reports, highlighting their importance for effective decision-making. It also outlines the benefits of different management accounting systems and their integration into organizational processes. Furthermore, the report discusses cost analysis techniques for preparing income statements, various planning tools, and the adaptation of management accounting systems to address financial problems, emphasizing their role in achieving long-term sustainable success. The report also includes a comparison between management and financial accounting.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................4
TASK 1 ...........................................................................................................................................4
P1 Management accounting system and their essential requirement..........................................4
P2 Type of management accounting reports and its importance to management.......................6
M1 Various type of system and their benefits ...........................................................................8
D1 Management accounting systems reports integrated in organisational processes.................8
TASK 2............................................................................................................................................8
P3 Cost analysis techniques to prepare income statement to calculate cost. .............................8
M2 Range of management accounting techniques....................................................................13
D2 Financial reports that accurately apply and interpret data...................................................13
TASK 3..........................................................................................................................................13
P4 Advantage and disadvantage of various types of planning tool..........................................13
M3 Evaluation planning tool for preparing and forecasting budgets........................................15
TASK 4..........................................................................................................................................15
P5 Adaptation of management accounting system to respond financial problems...................15
M4 Management accounting system lead to long term sustainable success.............................17
D3 Planning tool to avoid financial problem............................................................................17
CONCLUSION .............................................................................................................................17
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is also termed as a cost accounting termed as an managerial accounting.
With the help of this procedure organisation can effectively able to evaluate their cost and
operations that will further guide them to prepare organisation internal financial report
(Anderson and Sedatole, 2013). This, further aid manager to effectively perform their decision-
making process in order to effectively accomplish goals and objectives in best possible manner.
In addition with this, management accounting also aid organisation to conduct their process
which is related to planning, organising, staffing, directing and controlling. Present report has
been conducted on The Berkeley Partnership. Company was founded in the year 1990 and
perform their operations as an Independent management consultancy and have different types of
Client Company. In this report Essentra Packaging is been selected, which is manufacturing
company that use to produce tear tapes, labels, seals etc. In this report formative discussion has
been made on concept of management accounting along with their requirement within an
organisation. In addition with this report include cost suitable techniques with the help of which
organisation can effectively able to perform their decisions. Along with this, report include
merits and demerits of taking use of planning tools with the help of which financial issues can be
overcome.
TASK 1
P1 Management accounting system and their essential requirement
Management accounting system is linked with the process of collection, evaluation and
presentation of non-monetary and monetary information’s and data and showcase them to end
users as per the accordance with requirement. It is essential that management accounting system
must have following characteristic that support in better decision making. With the help of
management accounting Essentra Packaging can effectively able to attain their desirable set of
objectives. Some of these are as follows:
Reliability: All the information that is provided through different system must be reliable
so that essential decisions are made for future improvement.
Up to date: It is the main role of manager to ensure that various system of management
accounting musty holds every information on the same date and accurate time so that actual
performance can be identified.
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It acts as an one of the most important part in an organisation with the help of which company
can able to control their internal organisational system in best effective manner. In addition with
this, with help of management accounting organisation can able to keep their financial records in
well-defined manner (Drury, 2015). There are numerous form of management accounting system
that stimulate organisation towards building their market image. Mentioned below further
explanation of these system are defined below:
Price optimisation system –
Each and every organisation performs their operation with holding a motive which is
linked with increasing their organisation profit. In this regard, they mainly tend towards
structuring their price structure of their company products and services. With the help of this
system company can effectively able to set their products and services price. In relation with
Essentra Packaging it is firstly required for company to take advantage of this system as to
evaluate overall cost as to produce a particular product in order to set a best price of the product.
In addition with this, with the help of this strategy company can easily able to attract large base
of customers that further lead towards increasing profitability of organisation. In this, it becomes
essential for company to evaluate market conditions and identify customer behaviour and
perceptions in context with products and services.
Inventory management system -
It is essential for an organisation to manage their organisation stocks and inventory
record as to effectively manage them and use organisational resources in best effective manner.
With the help of inventory management system organisation can able to maintain regular track of
their stock and production ratio with the help of which they can further able to conduct their
operation in well effective manner while utilizing company material within appropriate ratio. It
further help organisation to decrease their wastage level and produce products and services in
cost effective manner. In addition with this, Inventory management system allow Essentra
Packaging to effectively control their overall base of raw material as to further use them to
increase production capabilities. Along with this, it also allow organisation to control their
excess wastage. Mentioned below there are some techniques with the help of which organisation
can manage their inventory:
 LIFO – As per this method stock which come last will goes out first. Thus, LIFO is
simply last in first out.
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 FIFO – There are stock coming first and sale out first. Thus, it depends that in FIFO
method first in first out take place.
 AVOC – It is calculating cost of inventory on average basis.
Cost accounting system –
With the help of this accounting system organisation can effectively able to concentrate on their
cost which further help them to increase their profit ratio. Cost accounting system is mainly a
systematic set of activities that include understanding, evaluation, entering, services and
summarizing of cost of goods. This accounting system allow organisation to conduct their
process of manufacturing as per accordance with estimated cost. This in turn provides benefit to
organisation as to improve their production level that will further lead towards increase in their
profitability level (Hilton and Platt, 2013).
Job costing system –
With the help of this costing system organisation can effectively able to evaluate their
expenditure that takes place during particular job. This will further provide benefit to an
organisation to extract each and every bit of detailed evaluation of cost which is related with
accounting period. In addition with this, with the help of job costing system organisation can
effectively able to gain information related to assigned job. There are different type of
information data and information that can be acquired with the help of job costing system that
are:
Direct material –
Direct material acts as a most essential part of variable cost with the help of which
organisation can able to evaluate their production unit as to track cost in order to measure
particular job.
Direct labour –
In this factor labour cost can be effectively able to track specific related job. This will
further help to complete their time as per accordance with time sheet.
Overhead -
At the end of every accounting period the total amount of each cost to apply methodology
regarding to allocation.
Management Accounting Financial Accounting
It is mainly for internal parties and are future Financial accounting is for external parties are
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oriented process. mainly based upon historical data.
There is no specific format to design
management accounting system it further
benefits in management of plan, record and
control activities as to offer aid in decision-
making process.
This is required to be in a specific format. In
addition with this, it also helps in making in-
credit rating and financial decisions.
P2 Type of management accounting reports and its importance to management
There are numerous form management accounting report that can be undertaken by
organisation as to effectively keep their record. With the help of this report organisation can
further able to conduct decision-making in best effective format. This will further allow them to
increase their profitability ratio and initiate organisation towards more growth prospective.
Mentioned below there are some reporting system that can be consider by organisation:
Cost managerial accounting report
With the assistance of this report organisation can effectively able to identify their cost
which they spend and expense on their manufacturing process. In addition with this, cost
managerial accounting report allow organisation to have detailed evaluation of the total amount
that has been spend by them on operating business operations. Thus, become essential for
organisation to take advantage of this report, in order to effectively control their cost as to
increase profitability of company. This will further provide them assurance to conduct operations
in well effective form (Innes and Mitchell, 2015).
Accounts Ageing reports: In recent time companies are looking for new tactic and
strategies to increase the sales figure by a good margin. Thus they are distributing goods on
credit basis providing suitable time to customer which makes them satisfy. With the help of this
report manager of Essentra Packaging manager are able to keep a date wise record of customer
those have buy goods on credit. The report also provides them the benefit to determine the list of
customer whose payment is outstanding for the specific period due to which there is no delay in
collection process.
Budget report: This reports mainly contains information about different assessed
spending arranged for various divisions in the association just as records of genuine results at the
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finish of an accounting year. The manager uses these budget reports to compare and determine
the variances between the budget and the real results. In chosen company upper level manager is
responsible for assessing favourable or negative variance with the assistance of budget reports
and taking action depending on the scenario to improve the business growth. With the help of
this report they use to manage the expenses incurred by different cost centres and reasonable
budget estimates if necessary. Usually these reports contain data on market trends and goods cost
patterns and the difference between real projections and forecasts.
Performance report: This report is mainly formulated to evaluate the actual efficiency and
profitability of different business operation and individual. The main part of this report primarily
holds information and data related to that specific work completed by an individual and number
of output produced within particular operation. Manager use to set benchmark in order to
measure the overall performance and make suitable improvement for better future productivity.
In Essentra Packaging the main role of manager to make sure that each operation and worker are
doing and putting their entire effort to deliver the best output for company so that desired results
can be fulfilled. With the help of performance report they also make suitable changes and advice
upper manager to shift the role and duties of weaker employees or make innovation in operation
process so that more favourable outcome can be ascertain during a year (Ittner and Larcker,
2012).
M1 Various type of system and their benefits
System Benefits
Cost Accounting system  This scheme helps to determine costs by managing
unexpected costs and improve profit.
Inventory Management System  To maintain proper record of total inventory
available within company so that goods can be
offered to customer on demands.
Job Costing system  The primary advantage is that it helps businesses
to identify the most profitable employment and
reduce unprofitable activities.
Price Optimisation System  The foremost importance of this system is to boost
client base and profitability through sealing
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products and fair cost.
D1 Management accounting systems reports integrated in organisational processes.
It has been observed that different types of reports and system are both useful and
incorporated in the organizational procedure in order to achieve useful results for improved
enhancement. All systems are crucial for the preparation of genuine reports that are additional
used to create expressive decisions and to resolve distinct business situations. Various reports
like cost, budgets, etc. are used in Essentra packaging to create dependable records of all
economic and other transactions within a particular time span. Furthermore, the manager
prepares the account ageing report so that detailed records of debt payment can be obtained that
directly improve the company's performance in the near future.
TASK 2
P3 Cost analysis techniques to prepare income statement to calculate cost.
Marginal Costing: This costing strategy is essentially related with the significant
procedure in which variable expense is charged to the all-out unit of expense, on the opposite
side variable expense for a particular timeframe gets discount against real commitment during a
time period. It is for the most part infers the additional cost that in incorporated into assembling
an extra unit of item. The recipe to figure minimal expense with the goal that increasingly solid
outcome for net benefit can be determined during a bookkeeping year. The basic formula to
calculate marginal costing is:
Marginal Cost= Direct material+ Direct Labour+ Direct expenses+ Variable overheads.
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
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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
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
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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
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
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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
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
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