Unit 5 Management Accounting Report: Cost Analysis and Planning

This report provides a comprehensive overview of management accounting, focusing on its application within organizations, using Bacovia Supermarket as a case study. It explores various management accounting systems, including cost accounting, inventory management, and job costing, along with their essential requirements. The report details different methods of management accounting reporting, such as budget reports, job cost reports, and inventory and manufacturing reports. It further demonstrates the application of management accounting techniques by preparing an income statement using both marginal and absorption costing methods, highlighting the differences between them. Additionally, the report explains the advantages and disadvantages of different planning tools used for budgetary control. Finally, it examines how organizations adapt management accounting systems to respond to financial problems, offering insights into achieving sustainable success. The report includes an introduction, detailed explanations of each learning outcome, and a conclusion summarizing the key findings.

Learning Outcome Assessmen
t Criteria
In this assessment you will have the
opportunity to present evidence
that shows you are able to:
Ta
Nu
LO 1: Demonstrate an understanding of
management accounting systems
P1 P1 Explain management accounting
and give the essential requirements of
different types of management
accounting systems
P2 P2 Explain different methods used for
management accounting reporting.
LO 2: Apply a range of management
accounting techniques
P3 P3: Calculate costs using appropriate
techniques of cost analysis to prepare
an income statement using marginal
and absorption costs.
LO3: Explain the use of planning tools
used in management accounting
P4 P4: Explain the advantages and
disadvantages of different types of
planning tools used for budgetary
control.
LO4: Compare ways in which
organisations could use management
accounting to respond to financial
problems
P5 P5: Compare how organisations are
adapting management accounting
systems to respond to financial
problems.
Please see that you include the
Turn-it-in report. This work will not
be accepted without the Turn it in
report.
Report attached: Yes
No
If no Reason: %
re
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Unit 5
MANAGEMENT ACCOUNTING
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1:Demonstrate an understanding of managemnet accounting system
P1. Explaining management accounting along with essential requirement of its types.............1
P2. Explaining Different methods of Management Accounting Reporting................................4
LO2:Apply a range of management accounting techniques............................................................8
P3. Preparation of Income statement using different accounting techniques.............................8
LO3:Explain the use of planning tools used in management accounting......................................11
P4. Explaining advantages and disadvantages of different planning tools used in budgetary
control.......................................................................................................................................11
LO4:Compare ways in which organisations could use managemment accounting to respond to
financial problems..........................................................................................................................15
P5. Adaption of management accounting system in responding financial problems...............15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18
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INTRODUCTION
Management Accounting, has become an essential requirement to be implemented within
the organisation as it aids to the organisational success and development. Different management
accounting systems like budgetary control, pricing techniques, costing techniques, etc. provides
organisation relevant information that facilitates decision making process which in turn helps in
attaining business goals and objectives. Present reports talk about management accounting within
organisation and its uses. Small business that is opted for explaining features of this system in a
more appropriate manner is Bacovia Supermarket. Company is based in Wales, United
Kingdom. Reports to the General manager of Bacovia Supermarket has been prepared providing
knowledge about types of management accounting system and its different reports. Further,
income statement has also been prepared using two different techniques along with their
differences. Different planning tools like budgetary control by which organisation can prepare
and monitor budgets for various functions has been explained along with its advantages and
disadvantages. At last, how management accounting and its planning tools helps business in
attaining sustainable success is also explained in respect to the chosen organisation.
In this, report will shed light on different types of management accounting system and
reporting that can be used for managing operations prominently. Further, report also entails the
manner through which absorption and marginal costing system can be used for taking decision
about cost as well as profit. In this, report will provide deeper insight about the tools that can be
used by the business unit for planning purpose and responding financial problems.
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LO1: Demonstrate an understanding of management accounting system
P1. Explaining management accounting along with essential requirement of its types
Management accounting system is a management tool that helps management by providing
relevant information regarding various business operations and activities (Armstrong, P., 2014).
It is recommended for Bacovia Supermarket to use this system along with its different types,
this will enable in identifying the actual performance of the company along with the loopholes
due to which business is unable to attain its ultimate goals and objectives. Below is the
explanation of management accounting system and its types:
Application of MA systems
Managers and owners of small business organisation uses management accounting
system within their organisation in order to identify, accumulate, analyse, prepare, interpret and
communicate relevant information used within the business entity. This system helps in
tracking allocation of different costs such as variable and fixed costs to different products and
services of the company (Bertz and Quinn, 2014). Main purpose of management accounting is
to provide relevant information to internal users which enables them in taking future economic
decisions. Different provisions are prepared by management for different non-financial and
financial decisions is respect to the business. This is also used in preparing different
organisational strategies. Following are the types of management accounting system:
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(Source: Cadez and Guilding, 2012)
Cost accounting system is used by for the analysis of profitability, cost control and inventory
management system by estimating cost of different products of an organisation. It is mainly
used by manufacturers in order to track their raw material during the production stage that turn
slowly to the finished goods (Bryer, 2013). However, this system can be used by Bacovia
Supermarket for estimating accurate cost of different batch of products as it is critical for
determining profitable goods. It is essential for a business to know its profitable goods so that
future decisions can be made in the favour of profitable operations and resources can be saved
from non-profitable operations. Which operations and products are favourable to the company
and which are not, can be determined by estimating the correct cost of those products and
operations. For instance: Total cost of £1500 incurred by the firm for 100 fresh fruit juice
packets. In this regard, by dividing total costs from number of products firm can determine unit
cost in the following way:
Unit cost: 1500/100 = £15PU
If business unit wants to attain 20% profit margin, then price can be determined in the below
mentioned manner:
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15 + (15*20%)
15+3 = £18 PU
On the basis of the above aspect, by charging £18 PU from each customer firm can recover cost
and would become able to get desired level of profit margin.
Inventory management system is most useful in the organisations like Bacovia Supermarket as
there are bunch of goods, thus, inventory management system helps in managing inventory of
the organisation (Cadez and Guilding, 2012). However, with the help of development and
technology there are many software's available in the market, for the purpose of managing
inventory. It is recommended to Bacovia Supermarket, to use any of such software, which will
enable them in monitoring their available stock in business along with the need of re-ordering
stock.
Job costing system is the system that accumulates information about different cost that is
associated with specific service or production job (DRURY, 2013). Like cost accounting
system, this is also more beneficial for manufacturing concerns, where manufacturing cost is
assigned to an individual product or batch of products. However, Bacovia Supermarket can use
this for assigning the cost of different services to its products. This system mainly accumulates
three types of information such as direct material, direct labour, overheads.
Using price optimization system, mathematical analysis is done by business in order to
determine respond of customers on different price levels of products and services (Fridson and
Alvarez, 2011). This helps in determining the best price of goods and services of an
organisation which enables in increasing their sales volume by attracting more customers.
It is recommended to Bacovia Supermarket to use these Management Accounting Systems in
their organisation in order to increase the efficiency of their business operations.
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P2. Explaining Different methods of Management Accounting Reporting
Management accounting system also produces different reports that provides relevant
information for several areas of the business which are then used to make future economic
decisions (Fullerton, Kennedy and Widener, 2013). With the use of these reports, Bacovia
Supermarket can evaluate different functions of the organisation. Management accounting
reports are the data sets of internal management that helps in monitoring the overall internal
performance of the business. However, like mandate preparation of financial statement every
year, preparation of these reports is not mandatory (Types of managerial accounting report,
2017). These are prepared when management feels the need of information. Bacovia
Supermarket need to prepare management accounting reports as these are the crucial part that
reflects actual picture of firm. Below is the explanation of different kind of management
accounting reports:
(Source: Groot and Selto, 2013)
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Budget report helps is used by managers and small business owners in analysing performance
of their entity and different departments along with cost control. These are also used in order to
provide incentives to employees (Garcia and et.al., 2016). The main purpose of preparing
budget report is to provide information regarding budgeted expenses and revenues for a specific
period by preparing budgets. These budgets are generally prepared on the basis of actual
performance of prior year and forecasted future events. Efficiency of business in allocation of
resources is also determined by budget reports. If the budget of prior year substantially
exceeded the average limit, them management had to find ways to trim the cost of current year
budget or should increase current year budget for more accurate level.
For instance: Through making comparison of actual and standard cost of material usage
variance of £300 has assessed. From assessment, it has identified that high material wastage is
one of the main causes behind the occurrence of such variance. In this regard, by taking
strategic move or action firm, in relation to circulating guidance to personnel etc, can attain
favourable results.
Job cost report helps in showing the actual expenses of different specific projects within an
organisation. These expenses are then matched with the estimated revenue of those specific
projects so that profitability of different operations can be determined. This report supports cost
accounting system (Groot and Selto, 2013). By identifying high earning areas, firm can focus its
resources and efforts on those rather than on low earning areas. Bacovia Supermarket, by
preparing this report can analyse expenses of its in-process projects and operations so that
required corrections can be determined along with escalating extra cost and waste.
Inventory and manufacturing report is mainly prepared by those organisations having physical
inventory in order to make their manufacturing process more efficient. Main components of this
report are hourly labour cost, inventory waste, and per unit overhead cost (Hickman, 2016).
Different assembly lines are then compared by the company in order to determine any
improvements needed or not. Organisations that produce number of physical inventory with low
fault tolerance, generally produce this report. With the help of inventory manufacturing report
in order to identify the volume of dead stock along with reasonable low price to rotate the same
in market.
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Accounts receivable aging report is beneficial for those organisations who provide their goods
and service on credit to costumers as this helps in maintaining credit balances. It is the most
critical tool as well as crucial management accounting report. This report provides overall
overview of total credit balances from different customers (Hiebl, 2014). Generally, balances
over 30, 60 and 90 days late are considered in this report. Bacovia Supermarket can use
accounts receivable aging report to estimate actual amount of goods that are given on credit
along with provisions of bad debts to be prepared.
In conclusion section, it can be presented that by preparing timely as well as accurate reports
manager of the supermarket can measure performance and would become able to take
appropriate decisions. Thus, it is suggested to the concerned authority of supermarket to
evaluate performance through the means of budget report and take action for improvement.
The detailed explanation about management accounting system, its types and different
reports that can be prepared by management of Bacovia Supermarket, will provide following
benefits to the company. Using management accounting system like cost accounting system or
job costing report will help in estimating cost of different products and services along with
identifying the most profitable functions of the business (Higgins, 2012). Management
accounting system provides aids to future economic decisions. These decisions can be in respect
of the activities that are needed to be closed down and other business expansion options. MA
systems help in determining future inflow and outflow of cash along with its impact on
organisational functions. Future trends of business can be forecasted using management
accounting system and then various strategies and policies can be made accordingly. With the
help of budget report, variance between actual results and budgeted results can be determined by
management along with taking corrective measures.
Various benefits of management accounting system have been discussed above, more the
benefits more will be the need of implementing this system within the organisation. Key areas of
the business need to be identified where the integration of management accounting system is
required (Johnson, Larson and DeMersseman, 2017). However, in Bacovia Supermarket, in
following area's management accounting system can be integrated.
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LO2: Apply a range of management accounting techniques
P3. Preparation of Income statement using different accounting techniques
Marginal Cost: Change in the cost of total production caused due to increase in production
by single unit is taken into account by this method (Jost, Pfaffermayr and Winner, 2014).
This method generally measures opportunity cost. However, when income statement is
prepared using marginal costing, only variable costs are considered as a product cost.
Below is the income statement of Iceland Super market using marginal costing technique:
Income statement for Iceland Super Market
PARTICULARS Details Amount (£) Amount (£)
Revenue on production 600*35 2100
Cost 700*13 9100
Less: closing stock 100*13 1300
variable cost 7800
Contribution per unit 13200
Less: variable overheads on sales 600*1 600
Less: fixed cost
Production overheads 2000
Selling fixed cost 600
Administrative fixed cost 700 3900
Net Profit 9300
Interpretation: From the above calculation it is identified that, if company uses marginal
costing technique for preparation of income statement, it reflects profit of £9300.
Absorption Costing: As the name suggests, absorption costing absorbs all the cost of
product including variable and fixed both. This method id used for calculating cost of different
products by taking into account both direct and indirect cost (Khodzytska and Ivchenko, 2014).
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