Management Accounting System Report: 4Comp PLC Analysis

This report, prepared by a Management Accounting Officer, analyzes the management accounting system at 4Comp PLC. It begins with an introduction to management accounting (MA) and its essential requirements, emphasizing its role in providing crucial financial and non-financial information for effective decision-making. The report then delves into various MA reporting methods, including job cost reporting, operational budget reports, inventory management reports, and performance reports. The core of the report focuses on costing techniques, computing net income using different methods, and evaluating the merits of these techniques within the context of 4Comp PLC. It further explores budgetary control processes, discussing the merits and demerits of planning tools and their effective use in reducing financial issues. Finally, the report addresses the resolution of financial issues through the application of MA principles, offering an evaluation of potential financial challenges and concluding with recommendations for improved financial management at 4Comp PLC. The report highlights the importance of MA in planning, controlling costs, and improving profitability within a business organization.

Management Accounting

Table of Contents
FROM: MANAGEMENT ACCOUNTING OFFICER..................................................................1
TO,...................................................................................................................................................1
GENERAL MANAGER..................................................................................................................1
4Comp PLC COMPANY................................................................................................................1
SUB: MANAGEMENT ACCOUNTING SYSTEM .....................................................................1
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and its essential requirement....................................................1
P2: Methods used for management accounting reporting......................................................3
M1: Merits of MA and its applications..................................................................................5
D1: Critically evaluate management reporting system..........................................................5
TASK 2............................................................................................................................................5
P3: Computation of net income by using various costing techniques....................................5
M2: Different management accounting methods...................................................................8
D2: Analysis of income statements........................................................................................8
TASK 3............................................................................................................................................9
P4: Merits and demerits of planning tools used for budgetary control process.....................9
M3: Critically evaluation of planning tools..........................................................................10
D3: Effective use of tools to reduce financial issues. ..........................................................11
TASK 4..........................................................................................................................................11
P5: To resolve financial issues with the use of MA.............................................................11
M4: Evaluation of financial issues.......................................................................................13
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

FROM: MANAGEMENT ACCOUNTING OFFICER
TO,
GENERAL MANAGER
4Comp PLC COMPANY
SUB: MANAGEMENT ACCOUNTING SYSTEM
INTRODUCTION
Management accounting information are an important aspect of any business organisation
in order to manage their daily financial transactions. A financial manager is held responsible for
managing different organisational activities as well as capital in effectively. In order to do so they
prepare various reports by using accounting systems. “4Com” company uses a variety of
accounting tools and techniques to control and maintain their operations. As, an accounting
officer I have been required to make a report which can provide necessary requirements of using
accounting systems in an organisation.
The project research carries analysis of different costing methods which can help them to
determine positive and negative results. This will help to make valuable decision in order to get
future profitability (Routledge, 2014). This project explains how 4com company is using
budgeting process in accordance to manage their cash-flows and other operating expenses in
order to manager their financial statements. In that context, different methods of budget and its
merits and demerits are discussed under this particular report. The purpose of this project is to
analyse performance evaluation by comparing financial issues with the other company.
TASK 1
P1: Management accounting and its essential requirement
MA is a technique that belong to integration of financial and non-financial statements to
present valuable information to the top management. It is responsible for taking an effective
decision for the betterment of an organisation. MA plays a crucial role in delivering necessary
information to the people of organisation. They nature and scope of accounting is wide because it
consists of different types of accounting data related to the 4com company. It will be lead to
positive decision making if the data provided to the authority is more relevant and accurate. In
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the other words, all the data that are related to the administration can affect the decision making
if the information is not according to the set standard (Ward, 2012). The management accountant
must consider the belongings of shareholders and also, they are accountable for guiding the
company in right direction.
All are done in order to increase the profit and performance of 4com in coming year. The
main purpose of using accounting system is to make proper utilisation of resources which are
used by the company during the year. It will be more effective to determine the total cost
incurred by company in producing a product and services. The MA will be essential aspects in
planning process as it provides right ways to invest in new venture. However, management
always tries to get more profit from its limited resource by using appropriate techniques. In this
process, they incur heavy funds in achieving their target that will be controlled and managed
with the use of different accounting systems. MA help to control costs and losses which are
incurred during production process in 4com plc (Gates, Jean-Louis Nicolas and Paul Walker,
2012). As an account officer, it is my important role to use right accounting system to manager
company financial transactions. 4Com plc is a small business organisation which is associated
with production of electronic products so they need a perfect system to record their daily
transactions. Some of the accounting system which can be used by 4com company are as
follows:
Inventory management system: It is said am automatically controlled inventory system
that is used in order to manage, locate and control objects and material. The main objective of
this accounting system is to track stock levels, order summary, sales report and delivery timing.
It is mostly related with those company which deal in large-scale production of units, 4com is
one of them.
Cost accounting system: It is simply related with the process of collecting, recording,
analysing and evaluating different alternative course of action. The main role of this system is to
provide managers necessary information that are based on cost efficiency and performance
capabilities. In order to determine the cost of a product there are several costs which are used
such as normal, standard and actual costing.
Price optimisation system: It is considered as numerical analysis by an organisation to
estimate how customers will react to various prices for its goods and services through other
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modes. The major objective of 4com company is to determine the price that will meet its aims
such as to increase operating profit during the year.
Job costing system: It is related with that process through which identification of
assigning cost that are incurred on a particular job in which an individual as well as company is
associated with. The job costing system is mainly used where the products produced are
relatively different from each other.
Batch costing system: It is very much similar to job costing in which a lot size of
product is taken into consideration. This is an easy way to identify a product with its number. All
product related information such manufacturing date, time and year are mentioned in it.
Essential of MA is a dynamic techniques that is focused on effective business accounting
policies which are used by the company. It consists of preparation of planning, strategies,
necessary measurement and effective control measures for performance management.
P2: Methods used for management accounting reporting
In an organisation, it is important to have an appropriate accounting system which can
help the company to record its financial transactions (Merchant, 2012). It will be more helpful
for future decision making by taking the information from the available record entries. MA is an
essential part of any business organisation that integrate all departments working for the
common motive. They are mostly associated with internal and external environment that are
affecting the business of an organisation. It concerns with information which is based on cultural
issues and other social factors. In short, data that is related to 4com plc and can impact the
accounting decision making are recorded into MA.
Reporting: It refers as those statement and records which are prepares by the account
department by taking help of events, situation and other investment activities which are
necessary for the growth of the business. In other words, the procedures of delivering
information to the management is said to be reporting. It can help to guide other expertise those
are having necessaries skills and ability to formulated good financial report on the basis of
current and past year position. It is all done in order to get an ideas for future investment that are
made by stakeholders. It assists management to prepare a perfect plan which can help the
company to reach its set goals.
Reporting help the company by providing valuable information to other stages of
organisation level. Whether they are lacking behind with necessary resources and support in the
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ways of achieving their objectives (Bodie, 2013). There are so many statements which are
helpful to the managers in making analysis of company's position. Company effectiveness can
be determine by using proper skills in analysing performances and stability position. Income
statements and balance sheet are the two important statements of the company through which its
identity and growth are determined. During production process it is used an important tool by
which a manager can analyse total cost incurred on producing one unit of product. There are
various reporting system which can be used by 4com plc in their business organisation to
manager there accounting data. In the ways of determining the major reaction or changes in
financial statements of company. Some of the reporting system which are more helpful for 4com
plc in managing their business operations are:
Job cost reporting: It is related with those costs which is incurred by 4com plc in
production of product in a financial year. These are basically associated with as assumption of
revenue generated during the year (Parker, 2011). On the other hand, each job activities are
incurring how much of the profit to the company are analyse by this reporting system. It will also
evaluate those areas which are earning maximum profit with minimum efforts.
Operational budget report: This particular budget reports generate information
regarding the expenses which are incur by 4com plc during production process. It is considered
as one of the major reporting system which help the managers to get complete details of actual
cost beard by company. It included various sub parts such as sale budget, variable budgets and
many more. It can be prepared during month, half yearly or on annual basis.
Inventory management report: This report generally focuses on stock management and
its control. All those physical stock that are used by 4com as managerial reporting to determine
various level of stock availability (Burritt, Schaltegger and Zvezdov, 2011). It includes various
steps which are required to be followed by managers in order to protect and record stock details
in the books of account. There are various tools such as EOQ and ABC costing that can be used
to analyse the results.
Performance report: Accounting can be more effectively use by finance departments to
judge performance of the company. It would be done by taking data of current and past year.
Different information which are related with the employees, team, company goodwill and other
outside competitors are analysed with the help of this report.
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Account receivable report: All the cash related information are recorded under this
report. This specific report is used in order to manage company's cash transaction or relation to
credit amount.
M1: Merits of MA and its applications
In 4com plc the above discussed different accounting system can help them to reach at
their destination. The company can use either of them to manager and control their business
operations. Any organisation whether small or medium-sized are working in order to earn
maximum profit with its limited resources. MA can help the company to increase efficiency so
that future goals can be attain. Other advantages of MA is to increase profitability, performances
and other aspects which are necessary for the growth prospective. With the use of job costing and
inventory costing system they can maintain their position and gain competitive advantages over
other.
D1: Critically evaluate management reporting system
In an organisation, reporting of financial transaction into books of account with proper
correction are essential. Because on that basis necessary decision are relies. The growth and
performance of the company are totally based on this reporting system (Renz, 2016). Some of
them are job costing reporting and performances reporting are considered as two of the important
reporting which can provide more accurate information about the company's performance.
Operating budget reporting is another reporting used by managers to control extra costs which
are done over the production of one extra units. It takes minimum time and cost to manage
regular transactions.
TASK 2
P3: Computation of net income by using various costing techniques
Costing: It is known as, a techniques of accounting which help to provide information
about assembling and recording of all key component of costs incurred to attain a objectives. It is
associated with that cost which is incurred on various activities or a units of work. In simple
words, cost is associated with production of a product and services by 4com plc. It include
various cost such as variable costs, fixed costs and semi- variable cost. It is considered as that
amount which is represented on billing invoice as the cost and recorded in preparation of
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financial statement with the use of expenses and assets (Nixon and Burns, 2012). In relation to
identify net profit 4com can use following of these methods:
Absorption costing: It refers as that method of inter-changing overheads among a
amount of other good or services an a fair basic. All those production costs which are absorbed
with the unit produced. Those cost finished units in stock that will consists of direct material,
labour and combination of variable can fixed overhead.
Marginal costing: It is associated with the cost which are incurred by the company in
order to produce one additional units with the same resources. In this process, it directly varies
with total number of production done by company during the year. It is considered as prime cost
but it does not include fixed costs. It is considered as that techniques which is used to develop
relationship among profit and volume. Under this contribution per unit is taken into
consideration (Caglio and Ditillo, 2012).
Difference between them:
Absorption costing Marginal costing
In this method, apportionment of total cost to
the cost area in relation to estimate the cost of
production.
It is considered as that decision making
techniques which is related with cost incurred
by the company on production of a product.
In this both, fixed and variable cost are taken
into consideration.
Under this only variable cost are taken into
consideration as product cost while FC is taken
as period cost.
All those expensed such as production, selling
and distribution are considered under this
costing.
Fixed and variable cost are used under this
costing process.
With the use of fixed costs profit of the
company get affected.
In this profit volume ratio is used to influence
profitability.
The results are analyse by using Net profit per
units.
Contribution per unit is determined under this
costing method from income statements.
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Income statements through marginal costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
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Income statements through Absorption costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
According to above calculation by taking use of both costing method it has been found
that if 4com is using marginal costing then they are getting a profit of 7500. while they are
considering absorption costing then profit incurred by from actual sales unit of 500 is 7800.
under this situation no any under and over absorption is incurred because there is not any
budgeted sales are used in it.
M2: Different management accounting methods
In an organisation, accounting techniques are more effectively used in order to get
valuable information with the help of financial data (Kotas, 2014). The objectives of business
management is mostly depend upon the use of accounting method in the formulation of future
decisions. There are various accounting techniques which are used by the managers to take
necessary information. It is considered as one of the crucial aspects which are accountable for
the management of actual and standard cost. It has very wide scope because of it dynamic nature.
It is related with historical costs accounting which is considered as getting effective plan.
D2: Analysis of income statements
From the above information which is used in order to compute net profit by using both
marginal and absorption costing methods. It has been found that both methods are useful for the
company in relation to earn maximum profit. With the use of marginal costing contribution per
unit for the company is incur as 11000. From which net profit generated as 7500. if they are
using absorption costing they receive a profit of 7800. It means that company is getting a net
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earning of 300. There is no any over and under absorption situation is under this calculation
because of absences of budgeted values.
TASK 3
P4: Merits and demerits of planning tools used for budgetary control process
Budget: It refers as an estimation of the total revenue and expenditure that are used for a
specific time duration. The main objectives of budget preparation is to determine the future cost
that are going to be invested by the company.
Budgetary control: It is considered as the system which uses budgets as an important
sources of planning and controlling of all those aspects which are associated with production and
selling of product and services. The main objects of 4com plc is to manage and control its daily
operations by using a perfect budget plan (Elsevier, 2015). It is done by using actual and
standard unit through making a positive comparison among them. It is related with
comprehensive control system that help the administration to regulate its business operations.
Process of budgetary control:
Estimation of budget for future: In the initial stage, company need to plan its business
activities by using appropriate ideas from financial department. A perfect strategies can make the
company to earn maximum profit with the minimum cost expenses. It consists of different
factors of costs which is used by company during production process.
Actual costs should be taken into consideration: In the second phase, managers need to
look about the actual cost which are invested by company in its production of products. It
determine the actual performance that are carried and regulated in current year (Callahan, Stetz
and Brooks, 2011). With the use of this manager get two reaction, one which is in favourable
form and the other one is adverse. The positive results are taken and adverse are need to be
analyse for further evaluation.
Examination between actual and standard values: In this procedures, with the
preparation of actual figure the next step in budgetary control process is to determine correct
value by comparing both actual and standard costs. It is will be more productive as the outcomes
are more effective.
Corrective phase: Under this process, all correction and review are taken into account.
The managers are responsible for making evaluating the mistakes and requirement of each
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departments. They need to analyse whether this budget is going to fulfil all the needs of finance
department as well as the performance of company.
Some of the important budget are:
Operating budgets: It is related with the expenses which are incurred by the company
during the production of product and services (Quinn, 2014). The main objective of this budget
is to analyse the total costs and expenses which are incur by the company on producing one unit
of a product. It is prepared with the use of taking information from all concern departments such
as sales, manufacturing and production etc.
Advantages:
It help the company to analyse the cost on regular, weakly, monthly or yearly basis.
The major benefits of preparing this budget is to determine the total cost required for the
future growth and sustainability.
Disadvantages:
Difficult to analyse if the information is in limited access.
It required much time to reach out to a perfect conclusion.
Static budget: It is said to be an estimation of predicated data used at one level of
activities. It is mainly prepared at the opening of budgeted session and last for only the planned
level of task. It is only suitable for planning process (Static budget, 2015.).
Advantages:
It is prepared under certain terms and condition in which all the information are based on
assumption basis that cannot be changed.
Disadvantages
It has limited source of application and is ineffective as a tool for controlling costs.
Cash-flows budget: It is related with the identification of total cash inflows and outflow
during the year (DRURY, 2013). It includes various activities which are responsible for
generating of cash such investing, financing and operating.
Advantages:
Total estimation of cash-inflows and out-flows are determine through using this budgets.
Disadvantages
It ignore cash-flows after the completion of payback period.
It is not considered in the process of measuring profitability.
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