Comprehensive Management Accounting Report: Nero Ltd, UK Operations

This report provides a comprehensive overview of management accounting principles and their application within the context of Nero Ltd, a medium-sized manufacturing enterprise based in London, UK. The report begins by defining management accounting and exploring the requirements for different systems, emphasizing their role in decision-making and organizational efficiency. It then details various management accounting methods, including job costing and price optimization systems. The report proceeds to analyze cost analysis techniques, such as fixed and variable costs, and demonstrates their use in preparing income statements. Furthermore, it delves into the advantages and disadvantages of budgetary control tools, alongside their applications in forecasting and financial planning. The report also examines how companies adapt their management accounting systems to address financial challenges, offering insights into sustainable success strategies. The report integrates the key concepts of management accounting system and reporting within an organisational context, including budgeting reports, accounts receivable aging reports, job cost reports, and inventory and manufacturing reports. This comprehensive analysis aims to provide a practical understanding of management accounting in a business environment.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Define management accounting and requirements for different kinds of management
accounting systems.................................................................................................................1
P2 Various methods used for management accounting report ..............................................3
M1 Advantages of management accounting systems along with their applications in
organisational context ............................................................................................................4
D1 Critical evaluation of process through which management accounting system and
reporting integrates at organisational context.........................................................................5
TASK 2............................................................................................................................................5
P3 Measure costs by using different cost analysis techniques to prepare income statement 5
M2 Use different kind of management accounting techniques to produce financial reporting
document................................................................................................................................9
D2 Prepare a financial report which appropriately apply and interpret data for different
business activities...................................................................................................................9
TASK 3............................................................................................................................................9
P4 Advantages and disadvantages of using different kind of planning tools for budgetary
control ....................................................................................................................................9
M3 Define the use of various planning tools and their applications to prepare and forecast
budget...................................................................................................................................10
TASK 4 .........................................................................................................................................10
P5 Compare how companies adapt management accounting system to respond to financial
problems...............................................................................................................................10
M4 Analyse how in response with financial problems, management accounting can leads to
sustainable success...............................................................................................................11
D3 Various planning tools to resolve financial problemsD3 Various planning tools to resolve
financial problems................................................................................................................12

CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is referred to the procedure of evaluating business costs and
operations so that an appropriate financial report, accounts and records can be prepared in a
proper manner (Evans, Burritt and Guthrie, 2013). This will benefits the manager of an
organisation to take right decisions so that business goals can be achieved in proper manner. It is
a process by which costing and financial data is transformed into useful information. This
assignment is written in context with Nero Ltd which is a medium sized enterprise operating in
manufacturing sector. Company is headquartered in London, UK. This report will cover different
management accounting systems along with various methods used for management accounting
report. Also, cost analysis is performed by using absorption and marginal cost. Merits and
demerits of various planning tools for budgetary control are discussed. At last, comparison how
company adapt management account system to deal with financial issues are also mentioned.
TASK 1
P1 Define management accounting and requirements for different kinds of management
accounting systems
Management accounting is the procedure of translating estimates of managerial accounts
and data in desired knowledge so that proper guidance for decision-making can be achieved. It is
related with recording and analysing business activities for internal organisation so that overall
productivity of company can be enhanced. Management accounting system is a specialised
system that is related with the integral management of organisations with the assistance of non
financial and financial systems (Grabner and Moers, 2013). This accounting system will benefits
business firm in taking strategic decisions and plans. In case of Nero Ltd, management
accounting system will benefits the company in managing finances of company in a desired
manner. Different benefits of using management accounting systems are given below:
 Increase in efficiency: These system will benefits in increasing the efficiency of various
business activities. With the help of accounting systems, main targets of company are set
on planning and forecasting so that actual performance of company can be analysed
properly.
 Measurement of performance: It plays an essential role in evaluation of work
performance by using techniques associated with standard costings. This will benefits
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Nero Ltd in acknowledging their overall business performance (Granlund and Lukka,
2017).
In general, accounting is of two types i.e. management and financial accounting. Many
time these terms are confused with one another but these aspects are different in various context.
In context with this, there differences are mentioned below:
Management accounting Financial accounting
 This kind of accounting is regulated by
the decisions which are taken by top
management.
 Financial accounting is regulated with
the help of legal laws and regulations.
 With the help of management
accounting, manager of Nero Ltd can
plan and manage business activities and
operations in an efficient manner.
 Information gathered through financial
accounting benefits creditors and
investors in making investments, credits
and other capital based decisions in a
proper manner.
 Collected information by this
accounting is judgemental, subjective,
relevant and accurate.
 Information gathered by this system are
auditable, consistent, reliable and
objective
 In this accounting system, primary
focus is on segment reporting.
 Primary emphasis is on reporting for
the organisation as a whole.
Below are mentioned various types of management accounting systems that can be used
by the management of Nero Ltd to achieve business objectives:
Job costing system: This system is used to assign manufacturing costs to every product
which is produced within an organisation by keeping a track on expenses. With the help of this
system, Nero Ltd can keep a track of order expenses for those products which are identical with
each other. This accounting system procedure includes receiving inquiry, estimated job price,
order receiving, production order, job completion and cost recording (Kober, Subraamanniam
and Watson, 2012).
Price optimisation system: This system can be used by Nero Ltd to control the prices
related with resources. It is used by business organisations in deciding the rates and price of
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various products at a time. This system will benefits in determining the extent to which price
level of products can fluctuate. Nero Ltd can use it for tailoring the rates of product by
acknowledging the response of customers for various price levels.
Cost accounting system: This system is used by business organisations to estimate the
cost of products along with the proper analysis of inventory, organisational profitability and cost
control. There are two kind of cost-accounting systems i.e. process costing and job order costing.
To maintain effective cost accounting system, high cooperation and participation of staff
member & employers is needed.
P2 Various methods used for management accounting report
Report is defined as a document which contains information and data organised in a
graphic, narrative and tabular form which are prepared on regular, recurring, periodic and ad hoc
basis. A business report is an objective and orderly communication of facts & information which
serves some business purpose (Lachmann, Knauer and Trapp, 2013) With the help of these
organisational reports, problem can be identified properly and overcome by the adoption of
suitable solutions. Information mentioned in these reports are needed to be relevant and reliable
as they benefits in taking right decisions according to the opinion of investors, shareholders and
creditors due to which organisation attains high revenues and profits.
Primary source associated with report formulation is conceived from different sources
like balance sheet, cash flows statements, profits and loss etc. Main reason behind presenting
information in an understandable manner is to evaluate if company is able to tackle long term
and short term debts in a desired manner or not. While making important decisions, these reports
are considered to estimate the potential impact on the performance of organisation due to these
decisions (Bennett and James, 2017). There are different kind of management accounting report
which can be adopted by Nero Ltd so that information and data of company can be organised in a
proper manner. In this context, some of these management accounting reports are discussed
below:
 Budgeting reports: These reports set out the plan to acknowledge the performance of
company while evaluating about control costs and departmental performance. In order to
prepare budget, past expenditures of company are taken into consideration. With the help
of these reports, incentives can be given to employees of Nero Ltd which will motivate
them to deliver their best performance.
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 Accounts receivable aging report: This type of report is related with management of
account receivables for those business organisations that provide extending credits to
their consumers. With the help of this report, proper segmentation of invoices are
prepared for balance of customers due to this issues of collection process are identified
easily. This will helps the manager in Nero Ltd to ensure that old bad debts will be
reduced and liquidity of company can be maintained in a proper manner.
 Job cost report: These reports are used to identify expenses, profitability and costs
associated with a specific job. With the help of this report, an evaluation can be carried
out about the earning of projects so that high efforts can be given to profitable business
activities. These reports will benefits the manager in Nero Ltd in evaluating the cost of
project while it is on progress. This will benefits in eliminating wastage so that project
can be performed in a profitable manner (Lee, 2012).
 Inventory and manufacturing reports: Companies such as Nero Ltd which are
involved in manufacturing procedures uses these type of reports. This will helps in
increasing the efficiency of manufacturing and inventory processes. These reports
includes labour cost, wastage expenses and per unit overhead cost related with inventory
so that manager of company can adopt only those aspects which acts as a wide
opportunity. This will benefits the company in gaining competitive advantage over rivals
in a desired manner.
M1 Advantages of management accounting systems along with their applications in
organisational context
There are certain advantages linked with management accounting systems. In context
with Nero Ltd, benefits linked with different management account systems are mentioned below
along with their applications in organisational context:
 Job costing system: This management accounting system helps in estimating all kind of
costs that are incurred during the manufacturing process. In context with Nero Ltd, it
will helps in preventing the duplication of efforts as the work which is performed at one
place can be used at another systems also. Also, it will assists in evaluating the quality of
work done.
 Price optimisation system: This system benefits in acknowledging the attitude of
consumers for different prices. This accounting system will benefits Nero Ltd in
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operating profit margins with best prices (Morden, 2016). Using such system help Nero
Ltd. In identifying the actual perception of customers towards their current pricing policy
which makes easy for managers to make relevant changes in their existing pricing
strategy. This will increases the customer base as well as profitability of business.
 Cost accounting system: It is capable to measure the efficiency of processes along with
carrying out improvements so that desired results can be achieved. This system will be
advantageous for the concerned organisation in fixing and reducing prices.
D1 Critical evaluation of process through which management accounting system and reporting
integrates at organisational context
Management accounting reports and systems are integrated with different process of an
organisation. This is due to the fact that various accounting systems are used by different
departments of company so that appropriate accounting reports can be prepared. For example,
finance department in Nero Ltd can use cost accounting system and manufacturing department
uses inventory management system to maintain the production of products (Bromwich and
Scapens, 2016). This shows that both these management accounting reports and system are used
in integrated manner so that organisational processes can be performed desirably. But if one of
these two aspects will not be effective, then it can results in organisational process failure.
TASK 2
P3 Measure costs by using different cost analysis techniques to prepare income statement
Cost is defied as a value of money which is used to develop anything and representing the
monitory evaluation of efforts, risks, resources, time, utilities and materials. There are different
kind of costs which are mentioned below:
 Fixed cost: Fixed cost is a part of cost which remains constant for a certain time period
and doesn't get impacted with any kind of fluctuations. But due to increase in production,
per unit fixed costs of products get decreased (Soltes, 2014). It includes depreciation,
rents etc.
 Variable cost: It represent the part of that cost which changes due to the variation in
production and manufacturing. This cost posses a direct relation with production,
therefore its increase or decrease depends upon output level. For example, labour, raw
material etc.
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 Replacement costs: It is a current price which is paid by an organisation to replace their
assets. This cost can be used by Nero Ltd in adjusting issues like inflation within
financial statements.
Beside this, there are two methods of calculating costs i.e. Absorption and marginal costs.
In context with Nero Ltd, these costing methods are mentioned below:
 Marginal costing: These costs are associated with additional unit costs. It is an
accounting system where the variable costs are assigned to the costs units but fixed costs
are aggregated with entire contribution.
 Absorption costing: It is a management accounting technique that is related with
expensing all production related costs. It includes both variable and fixed costs (Chenhall
and Moers, 2015).
Quarter 1
Particulars Amount (in ￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock (12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 1900
Quarter- 2
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Particulars Amount (in ￡)
Sales 74000
Less: Cost of sales
Opening inventory (12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock (4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 4700
Reconciliation
Working note Q1 Q2
Variable costing profit 1900 4700
Opening inventory 0 7800
Closing stock 7800 2600
Absorption costing profit 4300 3100
Opening inventory 0 10200
Closing stock 10200 3400
Absorption costing for Quarter 1:
Particulars Amount (in ￡)
Sales 66000
Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
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Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900
Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Absorption costing for Quarter 2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
Less: selling expenses -2800
8300
Fixed expenses 5200
Net profit 3100
Working note
Fixed costs 16000
Budgeted cost of production 80000 per units
Budgeted fixed cost 0.2
Variable cost per units 0.65
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(b): Reason for analysing variations in profit
From the above calculation, it has been seen that both costing method are presenting
valuable differences in net profit. The main aspects which is vital to be taken into accounts is
related with the fixed overhead expense because of that these difference are arises. The same is
been presented underneath:
For the first quarter:
Overhead absorbed= (66000*0.20)= 13,200
Fixed overhead costs= 16,000
Under absorption: (2,800)
For Second quarter:
Total absorbed expenses: (74000*0.20)= 14,800
Fixed costs= 16,000
Under absorption= (1200)
(c): Reconciliation Statements:
It needs to be done by taking crucial difference those are arises in a project that can help
in reducing those gaps.
Particular Q1 Q2
Profit from absorption 4700 5900
-2800 -1200
Profits as from marginal 1900 4700
Working notes:
Fixed charges= 16,000
=66000*0.20= 13,200
Under absorption=(2800)
= 74000*0.20= 14,800
Fixed expenditure: 16000
Under absorption= (1200)
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