Management Accounting Report: Financial Analysis of a Company

This report delves into the realm of management accounting, examining its critical role in analyzing, monitoring, and controlling organizational performance. It focuses on the application of management accounting principles within Equilibrium Asset Management and its client, Cambridge Manufacturing Company Ltd. The report covers essential aspects such as management accounting systems, including cost accounting, inventory management, and price optimization. It also explores different management accounting reporting methods like performance reports, budget reports, and inventory management reports. Furthermore, the report analyzes various costing techniques and planning tools used for budgetary control, comparing organizations and their approaches to solving financial problems through management accounting. The report also includes a critical evaluation of accounting system reporting, benefits of management accounting systems, and use of planning tools for preparing and forecasting budgets. The report concludes by highlighting the importance of management accounting in achieving sustainable success for organizations.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of its systems.......................................1
P2 Different methods used for management accounting reporting.............................................3
M1 Benefits of management accounting systems:.......................................................................1
D1: Critical evaluation of accounting system reporting..............................................................1
TASK 2............................................................................................................................................3
P3 Different costing techniques that are used .............................................................................3
M2 Various techniques of management accounting system .......................................................7
D2 Interpret data for a range of business activities......................................................................7
TASK 3............................................................................................................................................7
P4 Planning tools used for budgetary control:.............................................................................7
M3 Use of planning tools and their application for preparing and forecasting budgets:.............9
TASK 4............................................................................................................................................9
P5 Comparison of organisations to solve the financial problem with the use of management
accounting system........................................................................................................................9
M4 Management accounting in response to financial problem can lead organisations to
sustainable success ....................................................................................................................11
D3 Planning tools used to resolve financial problems:..............................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting can be defined as the process which is followed by top level
executives of business entities for the purpose of analysing, monitoring, measuring and
controlling organisational performance. With the help of it internal stakeholders formulate
strategic decisions for the betterment of company (Wickramasinghe and Alawattage, 2012).
Main aim of this project is to determine importance of management accounting, its systems and
reports for enterprises to manage operations and respond to financial problems. The organisation
which is selected for this report is Equilibrium Asset Management which is a financial consultant
and have various clients such as Cambridge Manufacturing Company Ltd. which is mainly
established in UK. This report covers various topics such as management accounting, different
system and reports, use of various costing techniques to calculate profits etc. Along with this,
different planning tools used in budgetary control and the way in which organisations are using
management accounting systems are also covered under this assignment.
TASK 1
P1 Management accounting and essential requirements of its systems
Management accounting: It is the process of analysing performance of so that strategic
decision could be formulated to enhance it and reach to the long term business goals. With the
help of it stakeholders analyse that the company is generating profit or facing losses. In
Cambridge Manufacturing Company Ltd. managers conduct management accounting on regular
basis so that detailed information regarding current status of enterprise can be kept. It guides
them to take appropriate actions that can help to critical situations such as continuous decrement
in profits etc.
Management accounting system: It can be defined as the system which is used by
managers of different organisations for the purpose of analysing that business is performing well
or not. It helps managers of Cambridge Manufacturing Company Ltd. to share accurate
information of enterprise with stakeholders so that their interest within the company can be
maintained (Zoni, Dossi and Morelli, 2012).
Different management accounting systems: There are various management accounting
systems that are used by managers of business entities in order to make sure that predetermined
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objectives are achieved or not. Some of them which are used by management of Cambridge
Manufacturing Company Ltd. are discussed below:
Cost accounting system: It is a system which is used in most of the manufacturing
companies for the purpose of keeping track record of costs which is related to production
activities. Managers in Cambridge Manufacturing Company Ltd. use it for the purpose of
analysing all the expenses related to products manufactured by enterprise in order to allot funds
to all the functional departments according to their requirements. It is required for the
organisation because it helps management to estimate cost and evaluate ability of Cambridge
Manufacturing Company Ltd. to generate profits.
Inventory management system: It is used by different business entities to keep a track
record of stock which is used for production activities so that all the projects that are undertaken
by company can be completed within the specific time limit. In Cambridge Manufacturing
Company Ltd. managers use it for the purpose of analysing that organisation is having sufficient
stock to manufacture all the products. There are three different types of inventory management
system which are discussed below:
 LIFO (Last In First Out): In this method of inventory management currently bought
goods are used to product products.
 FIFO (First In First Out): In FIFO earlier acquired goods are used for product
manufacturing activities.
 AVCO (Average cost): In this method, inventory is used on average basis of average
cost to conduct production activities.
From all the above described methods of inventory management FIFO is used by
managers of Cambridge Manufacturing Company Ltd. to manufacture different products. It is
required by the organisation as it helps to analyse that sufficient amount of stock is available in
warehouses for production or not (Liang, 2013).
Price optimization system: It is a system which is used by business entities to set
appropriate prices for the products so that expectation of client could be matched. In Cambridge
Manufacturing Company Ltd. managers use this system to set best suitable prices for all the
manufactured units in order to meet long term business objectives and enhance overall
profitability. It is required for enterprise as it helps to monitor response of customers on different
prices that are set by managers for products. While using this system managers determine
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expectations of clients regarding price and then decide a best rate for each item so that large
market share can be acquired.
Job order costing system: It is used by organisations to identify cost of all the jobs that
are performed to conduct business activities. Managers in Cambridge Manufacturing Company
Ltd. use this system for the purpose of analysing the expenses that are related to different
activities that are performed according to specifications of clients. It is required by the enterprise
because with the help of it cost of each and every job can be analysed to measure profitability. It
also guides top level executives to assess ability of all the activities to generate profits for
betterment of organisation.
All the above described systems are used by managers in Cambridge Manufacturing
Company Ltd. in order to analyse position of enterprise. The information which is gathered with
the help of all of them is used by management of entity to form strategic decisions for betterment
of organisation.
P2 Different methods used for management accounting reporting
Management accounting reporting: It can be defined as the process of generating
reports in which information regarding organisation's performance, ability to generate profits etc.
All the management accounting reports are presented in front of stakeholders in order to provide
information regarding actual status of enterprise. In Cambridge Manufacturing Company Ltd.
managers focus on it for the purpose of formulating strategic decisions for betterment of
enterprise (Maas, Schaltegger and Crutzen, 2016).
Different methods of management accounting reporting: There are various methods
that are used to formulate management reports and help top level executives to assess that
organisation is performing well or not. All of them that are used by managers of Cambridge
Manufacturing Company Ltd. are described below:
Performance report: In this method of reporting performance of organisation and
employees is analysed and reported in a report for the purpose of keeping a track record of it. In
Cambridge Manufacturing Company Ltd. It is formulated by managers in order to analyse that
the activities performed by enterprise are beneficial or not. This report is advantages for the
entity because it help management to provide rewards to staff members according to their
performance and motivate them. Distribution of bonus and rewards is done on the basis of it as it
guides managers to analyse efforts of all workers to accomplish business goals.
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Budget report: It is an internal report which is generated by managers in order to keep a
record of different incomes and expenses that are related to a specific period of time. The
information which is recorded in this report is used by management of Cambridge
Manufacturing Company Ltd. to allot sufficient amount of funds to different functional
departments of organisation so that they can perform operations appropriately. It is beneficial for
the enterprise because it helps to execute all the business activities in limited monetary resources.
This report is also used to make comparison between actual and budgeted expenses and incomes.
Inventory management report: In manufacturing companies it is generated by
managers in order to keep an eye on inventory which is used for production activities. In
Cambridge Manufacturing Company Ltd. it is created by management so that they can analyse
actual status of goods that are used to manufacture products. With the help of it managers order
stock before warehouses became out of stock. It is beneficial for businesses because it helps to
assess that a company is having sufficient inventory to conduct operational activities.
Account receivable aging report: All the companies that are offering credit to their
clients generate such types of reports. When customers are not able to pay whole amount of
product at the time of purchase then they ask seller to allow them credit and they promise to pay
the due amount after a certain period of time. In this type of situation managers of Cambridge
Manufacturing Company Ltd. generate account receivable report so that information regarding
owed amount of clients can be recorded. When customers fails to pay the outstanding amount at
due date then managers analyse it and gather information regarding the due amount of them and
ask to pay the same. It is beneficial for the enterprise because it can help to tighten credit policies
in order to ignore the situation of late payments from buyers (Michalski, 2012).
All the above described reports are generated by managers in Cambridge Manufacturing
Company Ltd. In order to keep detailed information of different activities performed by it. With
the help of all of them managers determine actual position of company and then formulate
strategic decisions to enhance it.
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M1 Benefits of management accounting systems:
Management
systems
Benefits & organisational context
Inventory
management
 It ensures that optimal inventory levels are present at the warehouse
by maintaining stock sheets.
 Cambridge Manufacturing Company Ltd. uses inventory
management system to order goods from the suppliers to avoid any
stock-outs.
Cost accounting  It guides managers at reducing prices for company's product &
service by estimating income and expenses for the period.
 This system acts as being profitable for Cambridge Manufacturing
Company Ltd. as it eliminates any loss arising in the period and
consider those activities that generate revenue for products.
Price
optimisation
 Price optimisation system help the managers in setting price of
products.
 This system aids Cambridge Manufacturing Company Ltd. in
maximising customer satisfaction (Mahesha and Akash, 2013).
Job costing  It is used by companies for providing jobs to the workers as per their
skill and requirement.
 Cambridge Manufacturing Company Ltd. uses job costing system to
appoint right people for right jobs.
D1: Critical evaluation of accounting system reporting
From the elaborated discussion of different crucial reports it has been critically evaluated
that all important feature for acquisition maximum results for Cambridge manufacturing
company LTD. If manager make proper use of these report then they will be able to generate
more reliable and accurate decision within a specific period of time so that profitability can be
increased. The primary objective of preparing different reports to accomplish actuals aims that

are being fixed by manager of company. In accordance with this, performance report is one of
the most beneficial report which provide more impressive structure and detail substance related
to financial position can easily be examine in appropriate manner. It has been ascertain that with
the support to accounts receivable reports manager are able to provide strength to credit policy
and increase sales figure.
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TASK 2
P3 Different costing techniques that are used
Cost is termed as the monetary amount that is being charged by seller for buyer at the
time of selling crucial product of company (Ruiz-de-Arbulo-Lopez, Fortuny-Santos and
Cuatrecasas-Arbós, 2013). There can be different types of cost that are directly or indirectly
associated with production process that aid to increase the overall productivity of company. In
business there are different kind of costing techniques that are effectively used in respective
company to prepare the financial statement and ascertain the net profit for an accounting year.
These are discussed below:
Absorption costing: This method of costing is related with all overheads that are
incurred in production and are irrespective in nature which are charged to each unit cost of
product. There is no assortment of expenditure within fixed or variable as it includes every cost
while producing valuable goods. Thus it is also consider one of the most important costing
techniques that instantly connected with manufacture of products and services. These includes
both variable and fixed cost during the same point of time therefore it is also known as full
costing method.
Absorption Costing:
May June
Selling Price 50 15000 25000
Less: Absorption Costs
Per unit Direct
materials cost 8 4000 3040
Per unit Direct labour
cost 5 2500 1900
Per unit variable
production overheads
3 1500 1140
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cost
Production cost: Fixed 10 3000 3800
Total 11000 9880
Less: Opening
inventory - 5200
Add: Closing Inventory 5200 2080
Gross Profit 9200 12000
Less: Fixed Costs
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000
Less: Sales commission 750 1250
Net Profit 2450 4750
Budgeted and actual cost of metal used in
producing Product A
Budgeted material cost
per unit of the product 2kg at £10/kg
Actual output 1000 units
Actual material 2200kg
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purchased and used
Actual material cost £20,900
Marginal costing: One of the most effective kind of techniques that have main
importance on organized classification of expenditure in two cost such as fixed and variable.
This costing technique mainly classify the actual expenses so that contribution per unit cost is
measured by considering variable expenses over a period and total fixed cost are charged as
period expenditure. This is consider to be most beneficial costing technique that is helpful for
producing an extra unit of company product at the same time. Therefore it is stated that this is
much dependable costing technique as compare to absorptions costs which support to make more
effective decision (Wager, Lee and Glaser, 2017).
Marginal costing: May June
Selling per unit price 50 15000 25000
Less: Various Marginal
Costs
Per unit Direct
materials cost 8 2400 3040
Per unit Direct labour
cost 5 2500 1900
Per unit variable
production overheads
cost 3 1500 1140
Sum total 6400 6080
( Less: ) Inventory:
Opening - 3200
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( Add: ) Inventory:
Closing 3200 1280
Gross Profit 11800 17000
( Less: ) Fixed Cost
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000
Fixed Production cost 4000 4000
Less: Sales commission 750 1250
Net Profit 1050 5750

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Average cost of
inventory (1) 3.2
(40*3 =
120 +
20*3.6 =
72) /
(40+20)
Average cost of
inventory (2) 3.45
(24*3.2
= 76.8 +
20*3.75
= 75) /
(20+24)
M2 Various techniques of management accounting system
There are different costing techniques that are used with different management
accounting system in order to provide the authentic and accurate formulation and representation
of financial information. These techniques are supportive to calculate the total cost that have
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been incurred by Cambridge manufacturing company LTD while producing different product for
large number of customer. Proper valuation of cost and preparation of authentic statements for
year are beneficial to calculate the net profit for an accounting year.
D2 Interpret data for a range of business activities
From the above use of marginal costing method is has been ascertained that profit in the
month of may is GBP 1050 and in June it was GBP 5750. On the other side by using absorption
method the net profit for the month may is GBP 2450 and it changes to GBP 4750 in the month
of June. There is a huge difference in the figure from these two method because of treatment of
fixed costs is different in these methods such as in marginal costing all fixed cost are consider as
period cost.
TASK 3
P4 Planning tools used for budgetary control:
Budget: It is a forecast which represents estimation of income and expenditure during an
accounting year. Budgets are prepared by all types of companies at all levels of management as it
gives them an idea about the spending power of managers both internally as well as externally.
This allots fund to separate functional units of organisation (Ekwue, 2014). These are required by
companies in case of any emergencies by taking some part of profit out from reserves.
Cambridge Manufacturing Company Ltd. prepares budget for all small and large expenses that
may arise during course of action.
Budgetary control: It is defined as a framework by which managers check performance
of organisation, compare actual data with budgeted figures etc. This is a budgetary procedure
where forecast is prepared for any unforeseen losses that might arise over a specified period of
time. It involves planning, organising and controlling of funds that will be assigned to various
departments of organisation like production, sales, manufacturing etc. Cambridge Manufacturing
Company Ltd. prepares different types of budget such as cash, zero-based, master which
determine planning tools to be used by its directors.
Listed below are some types of budgets used by organisations:
Cash budget: It is a written estimate of the future inflows and outflows of cash in a
company. This can be used as a tool to analyse how much revenue a firm can generate over a
period of time. It is used to evaluate cash position of a company. These budgets are required by
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management to project future cash flows, analyse liquidity along with profitability status of a
firm. Cambridge Manufacturing Company Ltd. Prepares cash budget to get an approximation of
cash in hand or bank balance at he beginning of budget period.
Advantages: It helps in coordination of activities among various departments of a
company. This helps to analyse availability of cash and cash equivalent balance in statement of
accounts.
Disadvantages: It lacks flexibility as once funds are apportioned in various departments
of the company it cannot be changed. Since all the activities run on cash, it becomes easy for
managers and higher authorities to manipulate the figures.
Master budget: It refers to a budget that summarises and integrates all small individual
budgets of every department in an organisation. This helps to manage the finances that may arise
in preparation of a master budget. It helps to co-ordinate different activities like sale, purchase,
production, manufacturing etc. by providing top level management support. These budgets are
mainly used to assess individual performance by considering financial and accounting needs of a
business. Cambridge Manufacturing Company Ltd. compiles all smaller budgets prepared by
managers to analyse income and expenses during a course of period (Milojević, Mihajlović and
Cvijanović, 2015).
Advantages:This helps in allocating equal funds to all departments as master budget is
compilation of all smaller budgets. It gives an overall profit estimate to managers of Cambridge
Manufacturing Company Ltd. by looking at master budget.
Disadvantages: Master budget becomes difficult to update in case any changes arise
during an accounting period. There is a lack of specificity if the amounts that are presented in
budget are in a different currency.
Zero-based budget: These budgets are prepared with zero amounts in hand so
justification for every amount is required. Zero-based budget does not take data from prior
forecast and makes it from scratch. Since it is prepared from a nil base, every cost along with
expense is examined and tested before preparation of budget. This is required by managers to
analyse changes in business environment. Cambridge Manufacturing Company Ltd. prepares
zero-based budget to plan and assign funds according to requirement of each department.
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Advantages: It provide managers with a clear picture of availability of finance in the
company. Zero-based budget ensures efficiency and effectiveness of figures that are required
while preparing a forecast for the forthcoming year.
Disadvantages: Since these budgets are prepared from zero-base, the company requires
well-equipped staff that carry expertise in the field of finance and accounts. It involves complex
paper work to agree with the requirement of top level management.
M3 Use of planning tools and their application for preparing and forecasting budgets:
There are different types of planning tools used by organisations in planning as well as
forecasting of budgets which include master, zero-based, cash budget etc. They are used by
management to analyse requirement of funds, track the financial position of Cambridge
Manufacturing Company Ltd., plan & organise allocation of funds to various departments of an
entity. These are applied in preparation and forecasting to identify and resolve problems that may
arise during the forthcoming year.
TASK 4
P5 Comparison of organisations to solve the financial problem with the use of management
accounting system
Financial problems: The hurdles or obstacles that results in constraining the
organisations to perform day to day activities due to lack of monetary resources. Such problem
arises because of various reasons and results in effecting business in negative manner. It hampers
growth along with productivity of a firm. Managerial authorities frames various strategies to
resolve such problems by implementing effective plans. The financial problems that Cambridge
manufacturing company LTD is facing as are follows:
Over expenses: Managers of selected organisation is facing issue of over expenses that
reduces margin of profit of business. The marketers spends more on promotional activities then
the budgeted amount and are not able to ascertain unnecessary expenses due to competitive as
well as dynamic environment (Cox, 2014). For this, managers have to concentrate more on
expenses and should formulate strategies that reduces over expenses.
High product cost: While manufacturing products, a company faces lot of wastage of
resources that leads towards increasing product cost. When product cost increases it decreases
profits and thus results in financial problem to the company.
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Financial governance: A technique that helps in collecting, recording, managing as well
as controlling information based on financial data that are used to resolve problems of any
company. It provides certain manner or tactics to track financial transactions and controlling
them after monitoring as to delimit the activities like frauds, low confidence of organisational
stakeholders and so on.
Management accounting approaches: When managers of Cambridge manufacturing
company LTD adopts accounting approaches they makes effective utilisation of techniques that
helps in resolving various problems. Managers of selected firm follows such approaches:
Benchmarking: The approach that is used to discover strategies for achieving best
performances is known as benchmarking. Benchmarking reports are prepared by comparing
actions or procedures with particular company or competitors to collect information in order to
reduce gaps in processes to attain competitive advantages (El-Said, Al-Said and Zaki, 2013).
Key performance indicators: The another approach that is used to trace as well as
measure performances of different factors with the purpose to achieve objectives of company. It
is considered as a measurable value that defines several ways to achieve business goals.
Companies uses KPI approach to evaluate success in order to reach targets.
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Comparison between Cambridge manufacturing company LTD and Mc Goff construction
Limited
Cambridge manufacturing company LTD Mc Goff construction Limited
Problem: The organisation is going through
the financial problem of over expenses in
which more spending is done on unnecessary
activities that hampers efficiency and
productivity of the company at great extent.
Approach: Such problem is identified by
applying approach of benchmarking in which
programs or activities are compared with other
companies.
Problem: The organisation is facing financial
issue of higher product cost while
manufacturing or constructing new projects.
Approach: The approach of key performance
indicator is used to identify the problem by
measuring performances and ascertaining value
of costs.
System: By using job costing system,
managers can resolve such financial problem.
With the of such system, various non profit
activities will be ascertain and at the time
reduced in order to enhance margin of profits.
System: to overcome from such situation,
managers needs to implement cost accounting
system which will help in recording all costs
associated with constructional purposes. Such
system will help in reducing various
unnecessary costs in construction of projects.
M4 Management accounting in response to financial problem can lead organisations to
sustainable success
Management accounting systems plays important role in solving financial problems that
results in achieving higher results. Such systems are applied as per the requirements to solve
financial problems. With the help of such system, issues are identifies that hampers growth and
at the same time various solutions are formulated to overcome from various issues. Cambridge
manufacturing company LTD adopts management accounting approaches along with techniques
to solve issues and leads towards sustainable success.
D3 Planning tools used to resolve financial problems:
Different types of planning tools are required by Cambridge Manufacturing Company
Ltd. to resolve financial problems. These are used by managers of the organisation to allocate
monetary funds in every department considering it is a master, zero-based or master budget.
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Business enterprises always maintain funds for unseen expenses in the future, payment to
suppliers etc. It also prepares detailed budget reports which help in analysing income and
expenses for the future.
CONCLUSION
From the discussion it can be concluded that management accounting plays crucial role to
increase organisational effectiveness to maximise profitability at great extent. Management
accounting systems are categorised as price optimising system, job costing system, cost
management system and inventory management system. By using all such system, managers
prepares several type of accounting reports. Furthermore, planning tools along with accounting
approaches helps a company to resolve financial issues to lead towards sustainable success.
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