Management Accounting Systems and Reporting: Tuffen Mark Ltd Report

This report delves into the application of management accounting principles within Tuffen Mark Ltd, a UK-based ventilation system manufacturer. It begins with an introduction to management accounting, highlighting its importance in internal decision-making, and differentiates it from financial accounting. The report then explores various management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems. It also examines different management accounting reporting methods such as ratio analysis, budget reports, credit control reports, job cost reports, inventory reports, and project financial statements. Furthermore, the report outlines the benefits of these systems, such as cost control, efficient resource allocation, and improved decision-making. The report also includes calculations using absorption and marginal costing methods, and analyzes the advantages and disadvantages of planning tools used for budgetary control, emphasizing how management accounting can lead organizations to sustainable success in responding to financial problems. Finally, the report concludes by summarizing the key findings and emphasizes the importance of integrating management accounting systems into business processes.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting systems.................................................................................................................1
P2 Different methods that can be used for management accounting reporting .....................3
M1 The benefits of management accounting systems and their application .........................4
D1 Management accounting systems and management reporting is integrated within Tuffen
Mark's processes.....................................................................................................................6
TASK 2............................................................................................................................................7
P3 Calculate the standard cost per ventilation system using absorption costing and marginal
costing method and prepare income statement.......................................................................7
M2 Apply a range of management accounting techniques and produce appropriate financial
reporting documents..............................................................................................................8
D2 Interpret data for a range of business activities................................................................9
TASK 3............................................................................................................................................9
P4 The advantages and disadvantages of different types of planning tools used for budgetary
control ....................................................................................................................................9
M3 Use of different planning tools and their application for preparing and forecasting budgets
..............................................................................................................................................12
TASK 4..........................................................................................................................................12
P5 Compare how different organisations are adapting management accounting systems to
respond to financial problems..............................................................................................12
M4 Analyse how, in responding to financial problems, management accounting can lead these
organisations to sustainable success.....................................................................................13
D3 Planning tools for accounting respond appropriately to solving financial problems to an
organisation to sustainable success .....................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a process that combine finance accounting and cost
accounting with the business skills and techniques. It is provided Financially and non-financially
information to the managers for taking appropriate decisions (Richardson, 2012). The collective
information is providing to managers, investors, creditors and other members to present
performance of the company. The given assignment is based on Tuffen mark Ltd which is a
small family company that designs, manufactures and sells a special air ventilation system in a
competitive UK market. The company has been operating for more than four years and doing
relatively well. In this report Management accounting systems and their requirements are
discussed. Also different methods of management accounting report, management techniques
and planning tools are studied. Assistant management accountant compare ways in which
organisation could use management accounting systems to respond to financial problems and
lead to sustainable success.
TASK 1
P1 Management accounting and essential requirements of different types of management
accounting systems
Management accounting – Management accounting which provide internal information
of the company to improves managers’ ability in decision making and planning process. The
provided information shows ability of company like company's external financing, liquidity,
ability to meet obligation and financial flexibility. The manager of Tuffen mark Ltd uses
information for short term decision making process and prepare strategies according to
performance of an organisation.
Financial accounting – Financial accounting is a specialized branch of accounting that
helps to track all financial transactions with in an organisation. The transactions are shows as
financial report, income statement and balance sheet (Cadez and Guilding, 2012).
Management accounting and financial accounting are part of accounting but both are different in
company perspective -
Basis Management accounting Financial accounting
Meaning Management accounting is process to Financial accounting classifies,
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preparing accounts and reports to
make short term and day to day
decision.
analysis and summarises the
financial transaction of the
company.
Application It helps to management to take
meaningful steps and make effective
strategies (Cuganesan, Dunford and
Palmer, 2012).
It is prepared to present accurate and
fair information of financial
transactions.
Measuring grid Management accounting measure
quantitative and qualitative data.
Financial accounting only measures
quantitative data.
Dependence Management accounting depends on
financial accounting and cost
accounting.
It is not dependent on management
accounting.
Different types of management accounting systems -
Cost accounting system -
A cost accounting system is a framework which is used by manufactures to record
production activities using a perceptual inventory system. It is used to estimate the profitability
analysis, cost control and inventory valuation of their products in Tuffen mark Ltd. But cost
accounting system is not measuring accurate cost of products of the company.
Inventory management system -
An inventory management system is the combination of processes, technology and
procedures that helps to monitor and maintenance of stocked products of Tuffen mark Ltd. It is
very important system that determines ordering stock, storage of stock and controlling the
amount of goods. The system provides help to take decisions regarding to inventory like re-order
quantities, manage stock levels and quality of goods (ter Bogt and van Helden, 2012).
Job costing system -
A job costing system including the process of collect information about the costs which
are related to a specific production or service job in Tuffen mark Ltd. The collective information
is useful to determine the accuracy of company's estimating system. The information used by
manager to assign inventorial costs to manufactured goods.
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Batch costing system -
It is similar to job costing system but for this method apply cost units of products system.
A batch consists of a specific number of goods and units. Batch cost is used to find out the cost
per unit and whether Tuffen mark Ltd want to get lower cost of stock. The company has to work
out economic batch quantity with the help of economic order quantity.
Price optimising system -
The price optimising system is a mathematical tool that helps to calculate demand of
products at different price stages and then combine the data with information on costs and
inventory levels to recommend prices that will improve profits (Merchant, 2012). The system
can be used of tailor pricing for different segments of customers and see respond of price
changes.
P2 Different methods that can be used for management accounting reporting
There are some important methods which are broadly used by Tuffen mark Ltd for the
determinate purpose of management accounting reporting. They are as following -
Ratio analysis: -
It is a quantitative analysis of information that can contained in a company's financial
statements. They are calculated on financial performance of the business access on how business
can perform various operating activities. For example, gross margin profit ratio of company will
inform management how much gross profit that mark Tuffen mark Ltd can earn to increase
percentage of sales value. If a company gross margin is 35%, then it means company can retain
$0.35 from each dollar the revenue will generate (Tappura and et. Al, 2015). This will help
management accounting to determine various ratios profits that can analyse risk and make
profits.
Budget report: -
Budget report is an internal report used by management to compare estimated budget
projections with actual performance. They are used for planning and decision making by
management of business. For example, the business budgeted $10,000 for expenses but actually
they spend $12,000, then management will be in position to investigate all variances. This will
help management accounting to make small business owners to analyse business performance
and managers can analyse the departmental performance and can control costs. Budgeted funds
may be given out as bonuses for meeting specific financial goals.
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Credit control report: -
It may explain how much credit was given to customers and in how much period. Report
can include strategies employed by business to accelerate sales of product or services through
extension of credit given to customers or clients. Business prefer to extend credit to good and
limits credit for weak position depending upon Tuffen mark Ltd financial position.
Job cost report: -
It is a report used to find out how much amount used to spend for completion of job. For
an accounting system to support job costing, it can follow many jobs to be assigned for
individuals. It may assess all costs involved in a construction job use or in a manufactured of
goods that are given to company. These costs are recorded in ledger accounts throughout life of
job before preparing of job cost or batch manufacturing statement (Li and et. Al, 2012).
Inventory and manufacturing report: -
The report used to find out how much inventory being used for manufactured department
to make budget production units. The report used to provide values of trade and business sales
and provide inventories to manufactures, retailers and wholesalers. For example, Tuffen mark
Ltd can used raw materials such as steel of make air ventilators, work in progress to make
components in manufacturing business, finished goods to assemble all parts and this can help
company to enhance business that can make future able profits to gain competency. It is the
biggest mark on inventory line item of balance sheet that can reflects directly or indirectly cost
item of company that can help managers to describe a level of stock that can mitigate risk of
stock outs or due to uncertainties in supply and demand (Kihn and Ihantola, 2015).
Project financial statements: -
This statement is used to prepare projected financial statements to make the long term
targets in business. It shows summary of income statements and balance sheet of mark tuffin that
can have expense considerations which include step costs to find revenue can have increased or
decline. This statement will indicate whether a business is going on a right direction or not, it is
making long term or short term goals. Hence the company would take right decisions and
financial results will be delivered in a good way. It helps a company to make risk easy so that
they can make financial results or make variables to take competitive advantage for mark tuffen
Ltd (Vosselman, 2014).
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M1 The benefits of management accounting systems and their application
There is following benefits of management accounting and their application -
Cost accounting system -
It provides help management of tuffen mark Ltd and they can arrange the plan and
implement on the system for successful enterprises action of business. In this system, several
functional budget costs which are rearranged in section wise, department wise and product wise
for planning all resources that can well efficient use of resource to make management policies
and fully make plans and objectives of company so that the Tuffen mark ltd can analyse all risk
that can gather needs and requirements of an organisation.
Price optimization system: -
The actual performance of all business movement is compared and measured efficiently.
With the help of price optimization level and resources are well organized so that plans can be
utilized and knowledge can gain. If deviations are establishing that convenient, the management
of Tuffen mark ltd can decide guiding principle to exercise full control over management and
resources are well established (Adler, 2013). Both budgetary control system and standard costing
are related to price optimization that can highly help management in this aspect.
Inventory management system-
The system is used for identifying inventory item that can make products in efficient
manner. It is utilised in the manufacturing industry to create work order, bill of materials and
other production related documents that can help to organize inventory data to reorder the
product. The tuffent mark ltd with the help of this system track goods on every stages of
production and reduce wastages.
Job costing system: -
It can involve process to accumulate information about costs with a specific production
or service job. For example, Tuffen mark Ltd start up a job and in the month of first operations,
the job accumulates $10,000 of direct costs, $4,500 of direct labour costs, and allocated $2,000
of overhead expense. Thus at the end of month, system has compiled a total of $16,500 for job
they have started. This cost is temporarily stored of overhead expense. ABC then completes the
job and bills of customer. At that time $16,500 is transferred out of inventory in cost of goods
sold. Job costing of mark Tuffen mark Ltd are related to contact and batch costing methods are
used in construction, motion picture and shipping industries (Nitzl, 2016).
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D1 Management accounting systems and management reporting is integrated within Tuffen
Mark's processes
The management accounting system and management accounting reports both are
important of organisational process. The accounting system provides internal information of
company regarding to different management reports.
Types of reporting Integration with organisational processes
Budget report The integration between Tuffen Mark's processes and
budgeting reports makes a path for the organisation
activities to concentrate on targeted results and objectives in
better and effective way.
Project financial statements This report provides financial information of Tuffen Mark
and it helps to management to taking effective decision
regarding to organisational process.
Inventory and manufacturing
report
The integration between processes involved in Tuffen Mark
Ltd and this report provides better management. With the
help of this report know about different levels of inventory
and required stock on every stage. It helps to know
manufacturing cost at each stage of inventory and observe
manufacturing process to reduce waste of stock (Edwards
and Boyns, 2012).
Job cost report The job cost report provides to prepare pricing strategy of
Tuffen Mark and it will analysis cost of products and try to
reduce overall cost of stocks. It will help to determine the
objectives of company. With the help of this report know
about cost of organisational process in proper way.
Credit control report The report of credit control integrates with Tuffen Mark's
process for achieve objectives and collect information of
accounts receivable on timely. It create proper collection
policy on time for make effective organisational process in
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accuracy and flexibility manner.
TASK 2
P3 Calculate the standard cost per ventilation system using absorption costing and marginal
costing method and prepare income statement
Marginal Costing
It is the accounting system in which consist of variable costs and fixed costs. The variable
costs are charged on cost units of products and fixed costs are charged on contribution. Mainly
marginal costing is used in decision making and allows management to focus on changes which
result from the decision under consideration.
Absorption costing
Absorption costing is defined as a method which apportioned all fixed and variable costs.
This method assure that all obtain costs are recovered from the selling price of a goods and
services. This type of costing is needed to create inventory valuation according to accounting
standard and it shows in company's balance sheet (Senftlechner and Hiebl, 2015).
Standard cost per ventilation system
1. Absorption Cost Method Budgeted
Direct material 12
Direct Labour 18
Variable overhead 9
Fixed Overhead 7.2
Cost per ventilation system 46.2
2. Marginal costing method Budgeted
Direct material 12
Direct Labour 18
Variable overhead 9
Cost per ventilation system 39
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Income statement from absorption costing method
Per unit Budgeted
Sales 80 1840000
Less: Cost of goods old
Direct material 12 300000
Direct Labour 18 450000
Variable overhead 9 225000
Fixed Overhead 7.2 180000
Total absorption cost 1155000
Less : Closing Inventory 92400
Gross Profit 592600
Less: Fixed Selling and Admin 60000
Profit 532600
Income statement from marginal costing method
Per unit Budgeted
Sales 80 1840000
Less: Marginal cost
Direct material 12 300000
Direct Labour 18 450000
Variable overhead 9 225000
Less : Closing Inventory 78000
Gross Profit 787000
Less: Fixed Selling and Admin 60000
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Fixed Overhead 180000
Profit 547000
M2 Apply a range of management accounting techniques and produce appropriate financial
reporting documents
Cost analysis
The cost analysis refers to the analysis of the cost in systematic way to predict the
strengths and weakness of transactions cost, function of business and business activities.
Standard cost from absorption cost method 46.2 budgeted and actual 48.4 and from marginal cost
method budgeted 39 and actual 39.285 units.
CVP analysis
Cost volume profit analysis is a method of cost accounting that impact to various levels
of costs. The analysis helps to make various assumptions related to sales price, fixed costs and
variable costs (Fourie and et. Al, 2015).
Cost variances
Cost variance analysis is the technique to quantitative approach to know difference
between actual and planned behaviour. The analysis helps to maintain business and also control
their activities.
D2 Interpret data for a range of business activities
As per above calculations of income statement by implementing marginal and absorption
costing profit is calculated as £625000 of budgeted and £625000 of actual units.
TASK 3
P4 The advantages and disadvantages of different types of planning tools used for budgetary
control
Budgetary control – It is a process for managers to utilize budgets to evaluate and control
costs in particular time period. It helps to managers to set their financial and performance goals
with budgets. And compare actual results with forecasting result (Budgetary control, 2018.).
Budget - It is financial plan for a defined period often for one year that can include planned
sales volume and revenues, resource, qualities, cost and expenses, assets and liabilities and cash
flows.
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Different types of budgets-
Static budgeting - It is a classical form of budgeting that can creates model of expected
results and financial position for next year and can give expected results during a given period of
time. It also tends to introduce a rigidity into an organization to allow ongoing changes in
environment. They are basically compared with expected results. It can use to find actual cost
that can have competitive firms. A static budget is more useful when sales would be expected
and more result are required. This budget depends on single outcome which can be difficult to
achieve (Bobrysheva and et. Al, 2015).
Zero- based budgeting - It can determine what outcome that management wants to
develop package of expenditures that can support an organization. It can use in several service
entities such as government where services are paramount. The goal of zero-based budgeting is
to reduce spending by looking where cost has been cut.
Flexible budgeting - It allows to enter different sales, which will adjust planning expense
that has been entered. This approach can be different when sales are not required to estimate and
single proportion of expense vary with sales, it is difficult to prepare static budget because cost
can compare with actual results and distribution expense will vary with sales.
Incremental budgeting - It is a budget which is used to prepare that is used in period
budget or actual performance as a basis with incremental amounts added for new budget period
that allocate resources which is stable and can change gradual. There may be budget slack built
into budget, which is never reviewed managers might have overestimated their requirements in
the past (Sajady, Dastgir and Nejad, 2012).
Rolling budget - It is continually budget period as the most recent period completed.
Thus, rolling budget involves incremental extension of the existing budget model. It has
provided advantage of someone constantly attend to the budget model and revise budget
assumptions for the last incremental period of budget that can have some efficiency to make
rolling budget
Budgetary preparation acting as planning tool -
The process of preparing budgets provides certain benefits to company. Budgets are used
as planning tools for predict income and expenses of company and applied in better way. For
preparation of budget need to strategic tool and forecasting tool.
Strategic tools used for budgetary control planning with advantages and disadvantages
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