Management Accounting Report: Financial Analysis of Tech UK Ltd

This report provides a comprehensive analysis of management accounting principles and their application to Tech UK Ltd, a company specializing in mobile phone chargers. It begins by differentiating between management and financial accounting, outlining their respective purposes and essential requirements, and then delves into various management accounting systems like cost accounting, performance management, and inventory management. The report explores different financial information and management accounting reports, including budgetary reports, account receivable reports, and costing reports. It emphasizes the significance of these reports in aiding effective business operations and decision-making, particularly in reducing financial issues. The report also covers the benefits of a management accounting system, including its role in cost control, performance evaluation, and strategic planning. Furthermore, the report includes an examination of costing methods, budgeting, and planning tools to address financial challenges within the company. Overall, the report serves as a valuable resource for understanding the role of management accounting in improving financial performance and operational efficiency within a business context.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 (A) Management accounting and essential requirements of its systems...............................1
P2) (B) Financial information.....................................................................................................4
M1) Benefits of management accounting system.......................................................................6
TASK 2............................................................................................................................................7
P3) Income statements using marginal and absorption costing methods....................................7
M2) Reconciliation of profits for financial reporting.................................................................8
TASK 3............................................................................................................................................9
P4) Budget planning and controlling tools..................................................................................9
M3) Planning tools and their usefulness for forecasting budget..............................................13
TASK 4..........................................................................................................................................14
P5) Management accounting reports reducing financial problems of Tech UK Ltd................14
M4) Significance of management accounting for reducing financial problems of Tech Ltd...15
D3) Importance of planning tools for accounting respond appropriately to solving out
financial issues..........................................................................................................................15
CONCLUSION .............................................................................................................................16
REFERENCE ................................................................................................................................17

INDEX OF TABLES
Table 1: Comparison between management and financial accounting............................................2
Table 2: Income statement using marginal costing..........................................................................7
Table 3: Income statement using absorption costing.......................................................................8
Table 4: Reconciliation of profit......................................................................................................8

ILLUSTRATION INDEX
Illustration 1: Stages for preparing budget.....................................................................................12

INTRODUCTION
Management accounting is a multidisciplinary approach used for managing business
operations and increasing effectiveness of any organisation. It includes planning and decision-
making tools like costing, budgeting, investment appraisal for decision making regarding
business operations. This report is based to understand significance of management accounting
for reducing financial issue of Tech (UK) Ltd., it manufactures It provides special charger for
mobile phones and other gadgets for retail outlets in the country. However, being management
accountant of the entity, reports on financial position of organisation can be presented for
decision making and further operations. Including this, difference between financial and
management accounting system as well different costing systems can be described. Moreover,
management accounting reports and their usefulness in decision making process for the entity
will be introduced. Along with this, advantages and drawbacks on different kinds of budgets are
to understood. Similarly, management accounting systems for reducing financial problem of the
organisation is to be understood with the help of this assignment.
TASK 1
P1 (A) Management accounting and essential requirements of its systems
In the case scenario, it has been identified that, there is lack of fund in Tech (UK) Ltd for
its business operations. Therefore, its financial position and other business tools are identified by
which different ideas can be generated to reduce such deficiencies and improving services
(Chenhall and Moers, 2015). However, its systems' essential requirements can be described as
below with understanding comparison between financial and management accounting system:
11 Management accounting vs Financial accounting
Financial accounting deals with management of fund and decisions regarding financial
transactions of Tech Ltd. While, management accounting deals with entire business operations
including fund, inventory, performance of employees and so on. However, under financial
accounting system, decisions are made related to expenditures and revenue on business
operations by analysing financial statements like; profit and loss account, income statement,
balance sheet, cash flow and fund flow etc (Christ and Burritt, 2013). On the other hand, under
management accounting system, recording and reporting of entire business activities is done by
which appropriate decisions are made for upcoming years' so as to manage all business activities
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in long run. Along with this, management accounting is used for internal purposes by managers
and company's employees while, financial accounting is mainly done for stakeholders, bank,
government etc. Some essential comparisons between management and financial accounting can
understand as:
Table 1: Comparison between management and financial accounting
Bases Management Accounting Financial accounting
Purpose For analysing actual
performance of entity and
further decision making on
business operations for
developments..
For recording financial
transactions of the company
and identifying its economic
position.
Nature of information Financial and non-monetary
data are recorded
Financial transactions
regarding business operations
Legal requirements It is not mandatory for Tech
Ltd to record all business
activities (De and et.al., 2014).
It is essential for accountant to
prepare and maintain financial
statements.
Tools Costing, budgeting, variance
analysis, ratio analysis,
inventory and performance
management reporting are its
main tools.
Profit and loss account,
balance sheet, income
statement, cash-flow, fund-
flow and other financial notes
are maintained and
scrutinised .11 Importance of management accounting as decision making tool
Management accounting tools are significant for planning and decision making for
management of entire business activities using costing, budgeting and other tools (Fullerton,
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Kennedy and Widener, 2013). However, some essential management accounting systems and
their requirements can be understood as follows: Financial accounting system: It includes different components to identify economic
position of Tech Ltd and further decision making to reduce expenditures and increasing
sales revenue. However, accountant of the enterprise prepares and maintains financial
statements by which cost incurred on business operations is identified. Therefore,
different ideas are generated tom increase profitability of the organisation and effective
price determination for providing its services (Grabner and Moers, 2013). Cost accounting system: Under this management accounting system, cost incurred on
each financial transaction of Tech Ltd is recorded. In this process, price on
manufacturing, production and further marketing of services are determined for further
decisions. However, recording of costs incurred on purchasing materials, labour cost and
additional overhead is created by which further decisions are made for managed
production and distribution system (Heizer and Barry, 2013). Thus, cost accounting
system is beneficial for appropriate price determination and managing entire business
operations.
 Performance management system: As management accounting is multidisciplinary
approach, it considers employees' performance and plans for increasing their working
efficiencies. It is linked with analysing employees' contribution in achieving effectiveness
of Tech Ltd and planning for organising training and development program is also
determined through this approach (Hope, 2016).11 Cost accounting systems
Under cost accounting system, cost incurred on business operations is identified in terms
of actual, standard and normal costing. It is recognised that actual cost is determined cost
incurred on business operations actually for purchasing raw materials, labour cost and overhead.
However, standard costing shows price which should be appropriate for business operations
(Ibrahim and Yaya, 2016). Therefore, cost accounting system is linked with production and
distribution of goods and services as well.11 Inventory management system
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In this management accounting system, planning for managing inventory for decision-making
regarding business operations. It is useful for reducing wastages and utilizing its inventories
adequately. In this process, decisions are also made regarding placing goods and maintaining
them efficiently. Therefore, variety of ideas are generated for managing resources affect
productivity and profitability of the enterprise. Moreover, decisions are made regarding
maintaining inventories for production and distribution of goods. It is also beneficial for
reducing wastage and allocating proper resources for the business activities (Ismail and King,
2014).
For inventory management, different software is used as; operations management,
logistics, supply chain management to manage products and services efficiently. In this process,
different ideas are generated for maintenance of production, sales and stock of the enterprise.
Therefore, inventory management system is beneficial for business operations of Tech Ltd
adequately (John, Etim and Ime, 2015).11 Job costing system
Under this management accounting system, cost to be incurred on direct material, labour and
additional overheads are identified. In this process, planning to incurred for manufacturing
process and impacts on price determination. It includes decisions regarding purchasing raw
materials, labour and cost on additional overhead is estimated. Including this, it is linked with
price determination, production and distribution system of Tech Ltd and profitability as well
(Kaplan and Atkinson, 2015). Therefore, planning is created regarding business operations and
price determination to produce charger of mobile phone. Thus, job costing method is crucial for
business operations and appropriate decision.
P2) (B) Financial information
11 Management accounting reports
Accountant of Tech Ltd prepare and maintain records of financial transactions affect further
business operations and its profitability. However, different reports are prepared to analyse actual
performance of the enterprise and decision making regarding business activities (Novas, Alves
and Sousas, 2016). Reports are prepared as; budgeting, price optimization and different other
reports which are used for identifying actual business performance and further decision-making
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regarding its operations for organisation's effectiveness. Some essential reports of management
accounting can describe as: Budgetary report: This report is essential to reduce wastage of resources and fund for
production and distribution of goods. In this process, different budgetary reports are
prepared including sales, purchase, cash and capital budgets. Therefore, monetary and
non-economic performance of Tech Ltd is identified on which decisions are made for
management of entire business operations. Including this, various ideas are generated for
reducing expenses and increasing sales revenue of the organisation. Moreover, it is
beneficial for proper management of production and distribution system as well In
addition to this, budget refers as a technique of planning procedure to be followed on for
business activities and effectiveness of the enterprise at higher level (Otto and et.al.,
2013). Therefore, for entire management of business' activities, preparing budget is
significant affect improvement in quality services and making decisions regarding
exchanging goods and implementing planning for further years. Thus, control over excess
of production and wastage of resources can be managed efficiently. Account receivable report: This management accounting report is beneficial for
managing cash flow of Tech Ltd and finding out issues occurred for its cash collection. In
this report, data and accounts are recorded related to cash in hand and proper balance of
production distribution of the enterprise. Moreover, various ideas are generated for
preparing credit policy and maintaining accounts. It impacts on financial position and
non-economic performance of the entity (Quattrone and Paolo, 2016). Therefore, old
debts and credit of the organisation are recognised.
 Costing reports: This report is to record cost incurred for manufacturing, production and
further process of the business organisation. It includes costing for purchasing raw
materials, labour and additional overhead costs for business activities. It is linked with
production and distribution system impact for which decisions are made regarding
business operations. In addition to this, costing for business is identified affect
profitability and management of costs. Along with this, recording of cost on transactions
is created by which management of all activities is created (Tucker, 2016). Apart from
this, costing is of different kinds as; job order, process and other methods for which price
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is determined on goods and services of the enterprise. Therefore, costing method is
essential for productivity and profitability of the organisation for which different ideas
are generated to create balance between its production and distribution system.
Significance of management accounting reports
Preparing and maintaining management accounting reports are needed for effective
business operations and increasing its efficiency. However, actual performance of Tech Ltd is
identified on which decisions are made . Including this, financial and non-economic position of
the enterprise is evaluated for which planning is created to optimum utilization of resources and
fund. It impacts on organisation's effectiveness and decision making to reduce issues and
increasing efficiencies (Chenhall and Moers, 2015).
Moreover, ideas are created to control over excess and reducing wastage of resources and
fund. Similarly, it impacts on production system affect business entity and its operations.
Including this, financial transactions on business operations are determined affect productivity
and profitability for which decisions are made regarding business operations. Along with this, it
is useful for managing entire business operations and increasing its quality services (Christ and
Burritt, 2013). However, by reporting performance of workers, their potential to contribute in
achieving organisation's effectiveness is recognised. Thus, ability and working efficiencies of the
workers are identified for segmenting work among them in the future time. Along with this, it is
useful term for managing all business operations and making decisions to reduce issues and
enhancing efficiencies on larger scale. Therefore, management accounting reports are essential
for further operations and increasing profit level of the enterprise.
M1) Benefits of management accounting system
As management accounting is multidisciplinary approach and works for managing entire
business operations of Tech Ltd. In this regard, variety of ideas are generated for appropriate
decision making regarding business operations and increasing profitability. Moreover, it is able
to create balance between production and distribution system as well demand and supply.
Therefore, management accounting is effective for management of business activities and
improving entity's effectiveness.
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TASK 2
P3) Income statements using marginal and absorption costing methods
Income statement is financial tool used for analysing economic position of the
organisation. Through analysing this financial statement, expenses incurred and revenue earned
are identified It influences profitability and profit earning capacity of Tech Ltd generates ideas
for business operations. It is prepared by using costing methods which is technique of price
determination and incurred expenses for further business operations. This costing is based on
market position, competitiveness and demand for products and services of the organisation (De
and et.al., 2014). Apart from this, costing is of different kinds as; marginal, absorption, activity
based costing and so on. For analysing income statement through marginal and absorption
costing for Tech Ltd can be understood as follows:
Income statement using marginal costing:
Under this costing method, net profit is evaluated through deducting gross profit with
expenses incurred on variable overhead. Therefore, through preparing income statement, short
term decisions are made regarding business operations for the enterprise (Fullerton, Kennedy and
Widener, 2013). In this regard, income statement in terms of marginal costing for Tech Ltd is
evaluated as:
Table 2: Income statement using marginal costing
Particulars £
Sales 52500
Less: Cost of goods sold (1500*15) 22500
Profit 30000
Variable sales and Admin cost 7875
Variable contribution margin 22125
Less:
Fixed S&A cost 10000
Fixed production overhead cost 15000
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Net profit -2875
Interpretation: It is interpreted that Tech Ltd has incurred 22500 on direct material,
labour cost and variable production overhead on which sales revenue is gained as 52500.
Therefore, gross profit of the organisation is determined as 30000. It is quite effective and
indicates that entity can grow further. However, for evaluating net profit, this profit value is
deducted with cost incurred on variable overhead which is 25000. Therefore, net loss according
to marginal costing method is determined as (-) 2875.
Income statement using absorption costing:
Using this costing method, net income is evaluated by deducting gross profit with total
expenses incurred on fixed and variable overhead. Therefore, it is beneficial for decision making
for long time period operations (Grabner and Moers, 2013). In this regard, income statement
using absorption costing for Tech Ltd is mentioned below:
Table 3: Income statement using absorption costing
Particulars £
Fixed overhead absorbed 15000
Actual fixed production overhead 10000
Over absorbed 5000
Interpretation: it is recognised that for evaluating net profit under absorption costing,
gross profit is deducted with total cost incurred on fixed and variable overhead. However, it is
evaluated that organisation has achieved 15000 on expenditures on total overhead is 10000.
Therefore, net profit of Tech Ltd is determined as 5000 which indicates that entity can plan for
further growth in the future time.
M2) Reconciliation of profits for financial reporting
Table 4: Reconciliation of profit
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