Management Accounting Report: Evaluating Management Accounting Systems

This report delves into management accounting, focusing on Babcock & Wilcox Ltd. It explains different types of management accounting systems, including cost accounting, inventory management, and price optimization. It also covers management accounting reporting methods such as budget reports, accounts receivable aging reports, and performance reports. The report further explores the application and benefits of these systems, integrating them with management accounting reporting. It includes calculations using marginal and absorption costing methods, comparing their profitability. Additionally, the report examines the advantages and disadvantages of budgetary control planning tools like cash budgets, production budgets, and sales budgets. It analyzes how organizations adapt management accounting systems to respond to financial problems and concludes with an evaluation of planning tools for achieving sustainable success. The report highlights the importance of these systems in decision-making and financial planning.

Management Accounting

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
LO 1......................................................................................................................................................3
P1. Explaining different types of management accounting systems...........................................3
P2. Management accounting reporting methods.........................................................................4
M1. Application and benefits of management accounting system..............................................5
D1. Integration of management accounting system and management accounting reporting.....6
LO 2......................................................................................................................................................6
P3 & M3. Calculation. ...............................................................................................................6
LO 3......................................................................................................................................................6
P4. Advantage and disadvantage of budgetary control planning tools.......................................6
M3. Application and use of different planning tools...................................................................9
LO 4 .....................................................................................................................................................9
P5 Comparing on how organisations adapt the management accounting systems for responding
to the financial problems.............................................................................................................9
M4 Analysing how use of management accounting can lead the business to respond to financial
problems and result in sustainable success of the organisation................................................12
D3 Evaluation of the planning tools for responding to the financial problems while achieving
sustainable success of organisation...........................................................................................12
CONCLUSION..................................................................................................................................12
REFERENCES...................................................................................................................................14
APPENDIX........................................................................................................................................16

INTRODUCTION
Management accounting is a process of preparing, recording, presenting all the information
including financial as well as statistical data related to the business in the managerial report. With
the help of managerial report, decision related to the business and investment can be made by the
company. The report is about Babcock & Wilcox Ltd which is the global leader in the business of
advanced energy & environmental technologies, services for power, renewable and industrial
markets. The present report is based on explaining the types of management accounting system and
its essential requirements in every business. It will define benefit of using management accounting
reporting in the business. Also, it will discuss about the cost techniques which has been used for
ascertaining the profit. Income statement will be prepared by using marginal and absorption costing
methods. Further, report will disclose about different budgetary planning tools which can be used by
organisation for solving financial problems. Benefits and drawbacks of such budgetary planning
tool will be discussed as well.
MAIN BODY
LO 1
P1. Explaining different types of management accounting systems.
Management Accounting system is defined as a process of preparing internal managerial
report which aids the management or managers of the company in decision making process. It is
concern with the business activity related to identification, analysing, evaluating and interpreting
information of financial as well as statistical nature. Information should be interpreted in correct
and accurate manner so that it can benefit internal as well as external parties of the company having
interest in. Communication of information also plays an important role in decision making process
for investors as it can provide them with important and relevant information on time which can
affect their investment decision. With the help of internal managerial report, budgeting or
forecasting can be done for future period which in turn can help in minimizing the cost expenditure
and improves performance level as well.
Different types of management accounting system can be used by Babcock & Wilcox Ltd are as
follows:
1. Cost Accounting System – This system of management accounting is also known as
Product costing system. It is defined as a framework which assist the business organisation
in making estimation of cost expenses for their products and services. It helps in
determining the amount of cost to be incurred for carrying on production function and
profitability associated with it (Kaplan and Atkinson, 2015). With the help of cost
accounting system, Babcock & Wilcox Ltd can control its cost expenditure and makes

proper valuation of inventory. Two main types of cost accounting system are as follows:
 Process Costing Method – It is a method of costing which helps in collecting separately all
the manufacturing costs incurred for carrying on each process.
 Job order costing method – It accumulates cost amount related with the manufacturing
process for every job process separately. This method is considered as most suitable when
Babcock & Wilcox Ltd is carrying on production business of some unique products.
2. Inventory Management System – Is a system in which the company is facilitated with the
ease of managing and monitoring the inventory level in the company. This system of
management accounting helps the company in assessing the current as well as correct level
of inventory present within the business organisation for conducting of business operations
(Hemmer and Labro, 2017). Valuation of inventory is made under this method so as to
ascertain the minimum stock level and its reorder for overcoming the situation of stock out
and eradicating business loss to be incurred from this. For undertaking the process of
inventory valuation following methods can help Babcock & Wilcox Ltd :
 LIFO – Is a method of valuing inventory in which the goods or inventory purchased at last
are made available for sale by giving first preference. LIFO stands for Last In First Out.
 FIFO – Another mode of valuing the inventory. FIFO stands for First in First Out. In this
inventory bought at first are eligible for sale on the first preference.
3. Price Optimization System – With the help of this method, Babcock & Wilcox Ltd can
understand the mechanisms of change in demand factors. The company can evaluate change
in demand at different price level. It assists in determining the level of profit which can be
earned from the difference between value of a product from perspective of buyer as well as
seller. It helps company in formulation of pricing strategies for earning more profit.
P2. Management accounting reporting methods.
Management Accounting report assist in making future plans, regulatory frameworks,
decision making process and measures performance level of the company. The managerial
accounting report is prepared on the basis of internal information of the company including both
financial as well as statistical matters. This report assists the management of Babcock & Wilcox Ltd
in making crucial decision for the benefit of future business operations. There are different types of
managerial accounting report with the help of which Babcock & Wilcox Ltd can make use for
accomplishing set defined business goals:
1. Budget Report – This type of report define about budgetary plans and strategies which can
help the company in improving its business expenditure. With the help of budget report,
Babcock & Wilcox Ltd can measure the performance level of its business operations as well

as of its employees as a whole (Modugno and Di Carlo, 2019). This type of report can assist
the management of the company in making future prediction and estimates about the amount
of cost to be incurred or associated with future business operations. It helps company in
making proper budget and plans so as to minimize the overall cost expense and reduce the
wastage of resources. Babcock & Wilcox Ltd can compare the estimated performance with
current one so as to ascertain any deviation and takes preventive measures to improve it.
2. Accounts Receivable Aging Report – This management accounting report helps the
company in assessing the part of amount remaining balance which is remaining on behalf of
its clients. It is best suited for companies which relies on credit basis to a large extent. This
report determines the time period in which balances due will be received from client. Also,
identifies defaulters and issues faced by company in the process of collecting of money.
3. Performance Report – It is considered as one of the best and important report for every
business organisation. With the help of this report, a company can evaluates and monitors
the level of performance of its own and of its employees as well (Hopper and Bui, 2016).
Performance report depicts the success journey of company and provides deep insights
about the working. This helps in formulation of key and strategic business decision about
future for attainment of business goals and objectives in a cost effective manner.
M1. Application and benefits of management accounting system.
Management accounting system aids in decision making process of managers by taking into
consideration all the financial as well as statistical information available. The benefits of making
use of management accounting system to Babcock & Wilcox Ltd are as follows:
1. Cost Accounting System - With the help of this system, Babcock & Wilcox Ltd can
determine the amount of cost to be incurred in conducting of manufacturing and production
operations in the near future period (Klychova and et.al., 2015). This helps in making
estimates about cost expenditure and ways to minimize such cost factor.
2. Inventory Management System – This system of management accounting provides a
mechanism for inventory valuation. With use of this management system, Babcock &
Wilcox Ltd can determines the level of inventory available for satisfying the needs of its
customers and other market demand. And fulfilling it on time for mitigating the risk of stock
out situation.
3. Price Optimization System – It helps the company in determining change in the level of
demand with the change in the pricing of its products. This assist Babcock & Wilcox Ltd in
charging best prices for its products and services so as to maximize the profit margins.

D1. Integration of management accounting system and management accounting reporting.
1. Budget Report – This report helps the manager of the company in measuring performance
level of the company as well as of its employees. With the help of proper planning and
budget along with cost accounting system, Babcock & Wilcox Ltd can control its
unnecessary cost expenses to a minimum level.
2. Accounts Receivable Aging Report – This report provides deep insight about the working
of company. It helps the company in assessing the default made on behalf of clients related
to payment process. It determines difficulties faced by Babcock & Wilcox Ltd in collecting
process of money and mechanism of overcoming such situation.
3. Performance Report - It helps Babcock & Wilcox Ltd in monitoring, reviewing and
assessing the level of performance of its own business operations & employees as well
(Chiarini and Vagnoni, 2015). From this report relevant decision can be made pertaining
future business operations by formulating strong & sound business strategies & plans.
LO 2
P3 & M3. Calculation.
Attached in appendix
Marginal Costing – It is a costing technique in which marginal cost in form of variable cost
is charges to units of cost and fixed cost associated with the production function is written off
completely against the value of contribution. In simple terms, marginal cost is the amount of
additional cost which is incurred for producing an additional cost of unit. It implies the amount of
extra cost which is involved in producing an extra unit of output.
Absorption Costing – It defines that each cost incurred for manufacturing or producing a
unit has been assigned to it. In simple words, absorption costing method allocates fixed overhead
cost to each and every unit produced during the specified period of time.
Interpretation: From the calculation made, it can interpret that Babcock & Wilcox Ltd is making
more profit by using absorption costing method. The company is able to more profit margin if
absorption method of costing is used in comparison with marginal method of costing.
LO 3
P4. Advantage and disadvantage of budgetary control planning tools.
Budgetary planning is a process of formulating strong budget or financial plan which can be
used by the company in accumulating future profit and minimizing cost expenses as well. It assists
the business in mitigating risk factor associated with future business transaction and operations.

Different types of budgetary control planning tools are as follows:
1. Cash Budget – It is considered as one of the most important budgetary planning tool for
every business organisation. With the help of cash budget, a company can make estimate
about the amount of cash inflow and outflow take place during a specified period of time.
Cash budget assist Babcock & Wilcox Ltd in determining the liquidity position and amount
of cash available with the company for meeting any future business requirements. It also
facilitates in formulating financial plans pertaining to utilisation of cash amount available
with the company.
Advantages Disadvantages
 This budget helps in identifying the
liquidity position of the company and
assess if entity is having sufficient
amount of cash available with itself for
conducting of future business operations
(Almaree and et.al, 2015).
 From such budget type Babcock &
Wilcox Ltd can maintain the requirement
of minimum cash balance which is
mandatory & as specified by bank or any
laws or regulation pertaining to
company.
 It helps in identifying the amount of cash
needed for fulfilling the immediate, short
term obligation needs without using lines
of credit or overdraft facility.
 One of the disadvantage for this budget
is that it makes use of cash flow of one
year for making allocation of cash for the
next year without any guarantee that the
revenue or expenditure level will remain
same in that year or not.
 The overall morale as well as
productivity of Babcock & Wilcox Ltd
and its employees as a whole can be
affected and reduce down if set defined
targets are not achieved or realistic in
nature.
2. Zero based Budget - Under this budgetary planning tool, budget or financial plan is
designed by the company with base as a zero. The zero based budget for each period is
prepared by starting from the scratch value every year. With the help of this budgeting tool
company can emphasizes on formulation of new and better business and economic proposal
which are in the benefit of company. Budget is made by evaluating all business activities,
operations and start from the scratch or taking base as zero.
Advantages Disadvantages
 By starting formulation of budget with
zero base for each item mention in the
 The process of zero based budgeting is
too complex and time consuming as it

budgeting list, the chances of occurring
error is reduced to the minimum level as
right factors are taken into consideration.
 For making of this budget, Babcock &
Wilcox Ltd doesn't have to depend on
previous year budget.
 It is considered as the cost effective
budgetary tool by use of which company
can minimize and reduce unnecessary
cost expenses. Also, wastage of business
resources can be reduce by eliminating
out dated business procedures and
operations.
has to make detailed analysis of each item
and business expense which are going to
be included in the budgeting list.
 Another disadvantage for Babcock &
Wilcox Ltd in using this budgetary tool is
that for undertaking this budget operation,
skilled and knowledgable manpower is
required. It is because of justification to
be made of every business detail
expenditure by the managers having
proper knowledge (Bawono, 2015).
3. Flexible Budget – This budget is also known as flex budget. The term flexible budget is
defined as a process of making financial plan by making adjustment or incorporating
changes in the level of volume or business activities. This type of budget are flexible in
nature as it can easily be adjusted to changes in the actual revenue levels. Flexible budget
consist mainly of the variable costs.
Advantages Disadvantages
 With the help of flexible budget Babcock
& Wilcox Ltd can be more responsive
and react quickly against adverse
conditions.
 The amount of revenue and expenditure
are adjusted on constant basis with the
help of Flexible Budget related to all the
current operating business conditions.
 It also helps the management of Babcock
& Wilcox Ltd in making necessary
updates, adjustments or changes in future
projections and cost controls plans,
strategies by making proper use of
available business and market
 Flexible budget emphasizes on relying
the assumption of continuity of workflow
when cost is behaving actually in a
discontinues manner.
 Although it is tending to maintain the
same level of fixed cost at different level
of sales or output, it is very often that
fixed cost are remaining actually fixed
only for a relevant output level.
 The company can formulate this budget
only when cost is behaving in the manner
prediction are made.

information.
M3. Application and use of different planning tools.
1. Cash Budget – By using cash budget, Babcock & Wilcox Ltd can make estimates and
projections about the cash position of the company for meeting future obligations and
requirements at the future time period. Company can forecast about cash availability either
surplus and/ or deficit with the business for a specified time period. Cash budget helps in
formulating budgetary plans and strategies related to the procurement of financial resources
in advance and making proper allocation of such resources so as to fulfil the needs of future
or any contingent cash requirements.
2. Zero based Budget – This budgeting tool helps Babcock & Wilcox Ltd in performing
efficient allocation of business as well as financial resources for smooth and successful
business operations. Resources are allocated as per the needs of business operations and
activities (Mussari and et.al., 2016). It is very important to make proper justification about
all business expenses, items mention in the budgeting list and not just only changes in
previous year budget. With help of this budget type, Babcock & Wilcox Ltd can improve its
business performance and profitability level by identifying and eliminating all the waste &
out dated business operations, processes.
3. Flexible Budget - It helps Babcock & Wilcox Ltd in making prediction related to the level
of performance and income at different level of sales and business activities. With help of
this budget, Babcock & Wilcox Ltd can make accurate assessment of its managerial as well
as organisational performance as a whole. Babcock & Wilcox Ltd by making stimulation
related to the sales and production levels can study the impact of such changes on revenue,
income and expenditure amount of the business operations and can formulate budget
accordingly.
LO 4
P5 Comparing on how organisations adapt the management accounting systems for responding to
the financial problems
The decision making process of the business includes decision making for various aspect of
the organisation Babcock & Wilcox Ltd. The decision making is the process of making choices by
identification of a decision and gathering information and assenting alternative resolution. The
process is not a simple one this includes different stages whereby decisions are taken deliberately

and thoughtfully by deciding the relevant information and defining the alternatives. There are
different problems faced by the Babcock & Wilcox Ltd in the course of its business operation and to
respond to same the business (Quattrone, 2016). This problems my include closure and shot down,
make or buy, pricing, issues related with capital investment and others. The decision making
process is lengthy one which have different characteristics. This includes forward looking approach
by Babcock & Wilcox Ltd, making the data available, determining the net cash flow, and relevant
cost, opportunity cost and testing of the probability for different aspect of business operations.
Problem Method 1 Method 2 Conclusion
The company
Babcock & Wilcox
Ltd analyses it
performance
thoroughly but since
past few month
major lag in the
actual and budged
problem is seen and
this is directly
effecting the
expenses of the
organisation.
For this the
organisation Babcock &
Wilcox Ltd can employ
the technique of key
performance indicator
to assess the
performance of the
company. In this actual
and budget expenses
are compared no
regular basis and with
finding a lag in the
performance strict
actions and measure are
taken.
The second method of
performance evaluation is
benchmarking. Under this
method the Babcock &
Wilcox Ltd m sets a
performance target from
the best performance in the
industry and try to achieve
the same in scared
resources.
Therefore, key
performance
indicator
method of
performance
measurement
is more
suitable to
solve the
problem of
conducting the
business
operations
under the
allotted
resources and
budget
expenses.
The company
Babcock & Wilcox
Ltd want to make a
decision carrying on
manufacturing in the
same country here it
is currently
operating as to
Absorption costing
would allow the
Babcock & Wilcox Ltd
in spreading the fixed
overheads to a each unit
separately. With
adoption of this method
the unit cost of the
Marginal costing can also
be adopted by Babcock &
Wilcox Ltd as under this
the company will base its
focus on variable costs
when making decisions. In
this only variable cost are
allocated to the unit cost of
With this it
can be stated
the company
should go for
the decision of
abortion
costing and
outsource the

make and sells the
product or buy the
product it from the
outsourced
manufactures.
product will be high as
all the manufacturing
fixed cost is absorbed to
the unit cost of the
product (Maas,
Schaltegger and
Crutzen, 2016). For this
it can be concluded that
the company can save
lot of money by not
investing in fixed assets
and expensive
machineries.
the products and no
manufacturing overhead
are absorbed in the unit
cost. This lead the
organisation to the
decision of making the
products where the
company can have direct
control over its operation
and this reduces the time
between production and
distribution.
manufacturing
where the good
will be brought
form other
manufactures
and be sold to
consumer, this
is suggests as
under these
methods the
profits are
higher which is
good for the
reputation of
the company
Babcock &
Wilcox Ltd.
The company is
faces a challenge
related with the
expenses control
Adoption of the
planning tool by
Babcock & Wilcox Ltd,
of preparing of fixed
budge. Under this the
expenses will always
remain same
irrespective of the
volume of sales or an
increase or decreases in
activity level, the
budget will always be at
same level.
Another planning tools
that can be used by
Babcock & Wilcox Ltd is
the zero-based budget. In
this method each cost in
the budget is justified and
for each new budging
period the cost base is zero
(Renz, 2016). This budget
is realistic and do not take
past budget and any
assumption in
consideration while
preparing the budget for
the company Babcock &
Wilcox Ltd.
This can be
concluded that,
zero-based
budgeting
involved the
manager to
justify every
cost in the
budget in each
new budging
period. Also,
zero-based
budgeting of
not considered
any
assumptions
and past
figures so it

this method is
the ideal tool
for Babcock &
Wilcox Ltd.
From the above discussion that to resolve different business problems the management of
Babcock & Wilcox Ltd can use different tools and techniques of management accounting system.
With adoption of different methods the business can effectively achieve its business goals.
M4 Analysing how use of management accounting can lead the business to respond to financial
problems and result in sustainable success of the organisation
It is crucial for the business Babcock & Wilcox Ltd to identify the business financial
problem and to respond to the same timely. In this regard it can be seen the for different business
issues distinct approaches are applied by the business Babcock & Wilcox Ltd. As discussed in the
above table Babcock & Wilcox Ltd is presented with 2 alternative methods to cope with a business
problem (Otley, 2016). With this the manager are able to identify an effective method under the
management accounting system for responding to a financial issue faced by. With this it can be
stated that by responding to these problems the company can cope with a difficultly situation and by
taking a timely action the present situation is controlled and the future problems are avoided. This
directly lead the organisation in solving the issues and also assist the management in determining
any future the company can face and for the dame measure are also taken. The organisation finds
the solution to problems effectively and assist in achievement of the goad and objective which
ensures the long run survival of the business.
D3 Evaluation of the planning tools for responding to the financial problems while achieving
sustainable success of organisation
The organisation uses the planning tool for budgetary control. Under these various budget
are being prepared by Babcock & Wilcox Ltd such as flexible, zero based and cash budgets. This
planing tools set out the cash and spending for a fixed time period to conduct the activities under the
budgeted funds (Kaplan and Atkinson, 2015). Also, these budgets assist the management in defined
the budget for each new fiscal year where the activities are required to be done under scared
resources and allocated funds. With effectively performing with allocated resources a organisation
achieve its goals and objectives. This lead the company Babcock & Wilcox Ltd to develop and goal
by effectively functioning and saving the cost to attain sustainable growth.