Management Accounting Report: Financial Analysis of Atkins Company

This report provides a comprehensive analysis of management accounting principles and their application within a business context, specifically using Atkins Company as a case study. It begins with an introduction to management accounting, defining its purpose and scope in financial reporting and decision-making. The report then delves into the different types of management accounting systems, including cost accounting, inventory management, job costing, and price optimizing systems. Methods used for management accounting reporting are also discussed, such as budget reports, accounts receivable, job cost reports, and performance reports. The benefits of a management accounting system, including increased efficiency, maximized profitability, control of cash flow, and simplified financial statements, are highlighted, along with its applicability in business operations. The report further explores the integration of management accounting systems and reporting to enhance organizational processes. Annexures provide practical examples, including the analysis of Elegant Furniture Ltd and calculation of the break-even point. The report concludes with a summary of the key findings and a list of references.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1...................................................................................................................................1
Part A...............................................................................................................................................1
Meaning of management accounting...........................................................................................1
Different types of management accounting system.....................................................................2
Methods used for management accounting reporting..................................................................3
Benefits of management accounting system and its applicability in business............................4
Integration of management accounting system and reporting.....................................................5
Part B...............................................................................................................................................6
ANNEXURE A...............................................................................................................................6
1.Elegant furniture Ltd makes and sells two products- Dinning table and chair.........................6
ANNEXURE B..............................................................................................................................13
5. Calculation of break even point.............................................................................................13
ACTIVITY 2.................................................................................................................................14
Part A Different types of planning tools....................................................................................14
ANNEXURE C..............................................................................................................................16
Part B Application of management accounting.........................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................20

INTRODUCTION
Management accounting is the process of evaluating cost of the business that will be
needed for the preparation of management report, records and managing all the work in the
company. It also helps in taking decision and for the purpose of achieving goals in the business.
This will help in doing planning, identifying the problems that is occurred in business and
strategic decision will be made that will help in achieving objectives of business in the future. It
performs various functions like determines profitability, forecasting for the future, valuation of
stock, determining variance between cost incurred in the business etc. (Kaplan and Atkinson,
2015).Management accounting consists of both monetary and non-monetary information.
Present report will be based upon Atkins company. It is a British multinational
engineering company. It was founded by Sir William Atkins in 1938. It is the largest engineering
and the world's 11th largest global design firm.
Report will include the meaning of management accounting and its different types that
will help in managing systems of accounting. It also includes methods that will be used in
management accounting. This will furthermore, include benefits of accounting system and its
applicability in the business. In addition to it emphasize on integration of management system
and management reporting that will enhance organizational process.
ACTIVITY 1
Part A
Meaning of management accounting
Management accounting refers to the approach that is used in the business for providing
financial information and effective utilization of resources that will help in taking decision for
the company. It is used by the internal employees that will help them in planning for the future.
(Otley, 2016). The main objective of it is to analysing the data and then take better decision for
development and controlling of business activities.
In this management data is being provided to the internal members that will facilitating in
enhancing efficiency of doing work. This information will be help in formulating policies and
procedures and controlling the operations of company. There is no structure followed for
measuring performance of business. As decision making is the primary objective that will help in
future growth in business. It will help in identifying problems that is related to the business. For
implementing accounting system this requires lot of expenditure that will be related to
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purchasing of software for doing calculation There are no laws that will applicable in the
management accounting. (Maas, Schaltegger and Crutzen, 2016). Data available is historical in
nature so for analysing information research is being done that will help in evaluating
performance of the company. In this internal members of the company is responsible for taking
strategic decision in the company .
All the work is done on internal basis as there is no involvement of outsider into
business.. It is providing qualitative information regarding performance and operations of the
firm. There are different techniques that will help in taking better decision for the company.
Different control techniques that is used for utilization of proper resources and reducing wastage
of resources that will also help in saving the cost of company (Cooper, Ezzamel and Qu, 2017).
Proper reporting is done as it will have to provide to the manager for taking effective decision for
the company. It is important to provide information that is available regarding information to
manager that will help in taking effective decision for the company. Therefore, management
accounting plays an important role in the company for enhancing decision making process for
future.
Different types of management accounting system
Management accounting refers to the process that is related to the internal activities that
is performed in business that will help in taking decision for the future.
Cost Accounting system:- It is the process of determining cost that is incurred on manufacturing
products for the purpose of evaluate profitability, valuation of stock and controlling cost for the
future. The main objective is to evaluate the cost and methods that will lead to control cost in the
company. Scope is to providing information regarding cost that will help in control and cut down
the cost that will bring more accuracy in the operations. It helps in removing activities that will
not provide profit to business (Granlund and Lukka, 2017). This consist of two main systems
such as job order costing and process costing. Its limitation is there is no proper procedure that is
being followed for controlling cost. In Atkins it is used to determine cost that will be incurred in
company and by applying different methods it can be controlled in future course.
Inventory management system:- This system will emphasize on determining the availability of
stock in the company and also helps in managing inventory that is available in business for the
future use. Different software is being used for tracking the availability of proper inventory
through barcode or mobile devices. Inventory can be classified as Transit, buffer, anticipation,
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decoupling or cycle inventory. Two systems that is used in calculating inventory are periodic and
perpetual system. It performs various functions such as creating purchase order, receiving,
adjusting and disposing inventory, Creating orders for sales or printing barcode labels on the
product (Nitzl, 2016). In addition, it helps in improving accuracy and workflow in the business.
In Atkins this system will be used for making proper inventory management and for tracking
proper availability of stock in the company.
Job Costing System:- It is related to collecting information regarding the cost that is incurred on
a particular product or service. Information is required for submitting it to customers in case
when the cost is reimbursed from the company. These informations include direct material,
direct labour and overhead cost that is incurred while manufacturing product. In this system it is
to be depend on the cost that is related to job is being determine in this system. In manufacturing
business this system is mainly used for collecting information regarding product that is provided
by Atkins to its customers (Shields, 2015). The main objective is to evaluate cost as well as
profit that will be occurred by each job in the company. Atkins will use this system for
determining different type of cost that will incurred in the business.
Price optimising system:- This system will help in evaluating the difference between demand
and price that will be change simultaneously at different price level, then it will be combined
data with information that is related to cost and level of inventory with the available price that
will help in improving profits (van Helden and Uddin, 2016). In this system, there are three
pricing elements included such as pricing strategy, value of the product and the tactics that will
required for evaluating profitability of the company. This system will help in determining initial,
promotional and discount pricing of the company. This system will be used by Atkins in
determining the gap between demand and price that will help in getting idea regarding customer
preference in buying a particular product.
Methods used for management accounting reporting
Management accounting report refers to the term that is used for recording managerial
activities that is performed in the business.
Budget Report:- This report will help in analysing performance of Atkins and the manager will
help in analysing cost and the methods that will be used in controlling the cost of company.
These reports are used by every company for analysing performance at the end of year.
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Accounts Receivable:- This report will be used for evaluating cash flow from business and
when the bill is given on credit basis to its customers. In Atkins this will be used as bill that is
given to customers on credit. This report will provide goods and services on credit basis.
Job Cost Reports:- This report shows expenses that will be invested by small business in their
different projects. By estimating different perspective that will be used for carrying out job cost
in Atkins company. This will be used for evaluating expenses that will incurred on certain
projects.
Inventory and manufacturing:- This will emphasize in managing inventory so that it will
match need and want of the consumers in the marketplace. In Atkins inventory will be stored in
warehouse for the use of future purpose in business. Reports will be prepared that shows waste
that will be incurred in Atkins.
Performance reports:- These reports help in determining performance of both company and
employees. In Atkins performance will be analysed by different aspects that will be used to for
determining different features of Atkins.
Benefits of management accounting system and its applicability in business
Increasing efficiency:-It will emphasize in taking strategic decision. This will help in increasing
efficiency of employees in the company. In this different management system is compared for
measuring performance of the company. Employees are motivated by offering them rewards and
incentives so that their performance will be increase in the future. This will help in increasing
efficiency by doing productive work in Atkins so that employees will give their best in fulfilling
objectives of the company.
Maximizing profitability:- For gaining organizational profit different tool is being used for
controlling budget for the company and by reducing operation cost and expenditure that will lead
to increase profit for the future. Proper budgetary tool in being used that will minimize various
cost that is incurred and helps in achieving objective of the company. This will benefit company
as as increase in profitability will help in increasing growth for the future.
Control on cash flow:- As management accounting will help in proper utilization of cash as
where to do expenditure and not to do (Tucker and Schaltegger, 2016). It controls misuse of
money in the firm that will beneficial for the future. It is important to control useless cash flow
that will have greater impact on company's operation. If cash can be controlled in business that
will help in controlling cost for the future in business.
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Simplifying financial statements:- In this technical reports of the company will provide to
employees in simpler form that will help in facilitating different aspects of the company. There
are different factors that will have greater impact on management accounting system. If
statements are simple that will help in evaluating different aspect that will be occurring in Atkins
for different purpose.
Critical decisions:- As it will emphasize in taking critical decision for the company that will
help in achieving objective of the company. This will be benefited in taking decision for the
future in Atkins.
Reliability:- Different tools that is being used in the management accounting system will help in
giving accurate and reliable result for the company that will facilitate in achieving objective of
the company. If company's operation are reliable then it will help in achieving objective of
Atkins company. (Coad, Jack and Kholeif, 2015).
Regulating activities of business:- Planning will help in regulating activities that will be
beneficial for the future as all the activities are managed and guided by the managers that will
help in achieving objective of the company. Different functions such as planning, organizing,
coordination will be systematically used in the activities of the business. If proper planning is
being done then it will help in earning more profit that will lead to growth.
Therefore, all the above benefits are applicable in the company as this will help in
improving efficiency as the work is being done by employees as proper planning will help in
enhancing objective for the future. There are different perspective that will help in evaluating
various aspects of the company as accounting is the main branch that will lead to grow business
at faster pace. Thus, motivation also plays a crucial role in the company for retaining employees
for the long term.
Integration of management accounting system and reporting
There are various aspects that will be implemented for fulfilling objective for the future
course of action. There are different systems that will be enhancing in providing different
perspective of business that will be involved for future course of action. Through this working
efficiency will increase that will lead to bring different aspects that will provided to the company
for future use. There are different through which accounting system will be integrated with
different software that will be implemented in the business for the future. In management
accounting system there are various factors that will be helpful for running business. In
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management accounting performance of employee will be evaluated for the future course that
will bring accuracy in working Integration between system and reporting will bring competitive
advantage in the business for achieving success in the future. Shareholders, creditors, regulators
require a broader concept in the company that will be beneficial for company. Financial
performance will be evaluated by measuring different perspective of the company that will lead
to achieving objective and implementing new policies and procedures for increasing efficiency
that will lead to bring different perspective in the company. As management reports are
providing information regarding the cost incurred, expenditure done in business for achieving
objective of the company.
Traditional reporting contains historical data of the company. There are various
challenges that will be fulfil in creating business efficient for achieving goals.Consistency will
include historical information that will be provided for analysing information that will be helpful
for the future perspective in the company. This will increase reliability as reports will provide
full information regarding data and operations that are running in the business. Operational data
will help in evaluating performance of business as it contains technical data that will be more
important for utilizing proper resources of the company. As financial reports are made at regular
interval that will provide different data of the company for securing future in the company
(Abernethy and Wallis, 2018). As statistical data also helps in evaluating performance and
facilitate different aspects that will be beneficial and hence bring efficiency and effectiveness.
Part B
ANNEXURE A
1.Elegant furniture Ltd makes and sells two products- Dinning table and chair
Cost:- It is related to production and manufacturing that will be incurred in the business
for future use. There are different types of cost such as direct,indirect, fixed, variable, operating
cost etc. Direct cost are related with production that will be done in business and its includes
material, labour, expense etc. Whereas indirect cost is not related with production of the
company.
A. Marginal Costing
This cost will be incurred when an individual unit is produced in the company.
Assessment of profit under marginal and absorption costing pertaining to 'Table'
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Period 2
Particulars Amount (in £) Amount (in £) Net Amount (in £)
Sales (1700*590) 1003000
Cost of sales:
Opening inventory (650*330) 214500
Material (5200*215) 1118000
Labour (5200*90) 468000
Variable o/h (5200*25) 130000
1930500
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-Closing inventory (4150*330) -1369500
-561000
442000
Contribution 442000
-Fixed costs -361500
Actual Net profit/(Net
Loss) 80500
From the above calculation actual net profit that is earned in period 1 is £823500 and in
period 2 it is £ 80500. In period 1 sales is 2566500 and period 2 is 1003000. As Sales in period 1
is more as compared to Period 2 This will be concluded that in Period 1 Purchasing power of
customer will increase that is not in Period 2. As from the above calculation it can be concluded
that in Period 1 sales is more effective as compared In Period 2.
B. Absorption Costing
This is related to the cost that will be incurred at the time of production of goods and
services in the company.
Period 1
Particulars Cost per unit: in £ (Period 1
Direct Material 215)
Direct Labour 90
Variable O/H 25
Fixed o/h 61.5
Total absorption cost per unit 391.5
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Period 2
Cost per unit for Period 2
Direst Material 215
Direst Labour 90
Variable O/H 25
Fixed o/h 69.52
Total absorption cost per unit 399.52
From the above calculation it can be interpreted that in period 1 actual net profit is
£863475 and in period 2 is £ 329033. In period 1 sales is £256650 and in period 2 £329033.
Sales in Period 1 is more as compared to Period 2 . This will help in growth of business in future
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course of action. Profit is also more in Period 1 as compared to Period 2. This will made more
effective sales during year.
Assessment of profit under marginal and absorption costing pertaining to ‘Chair’
A. Marginal Costing of Chair
Period 1
Period 2
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