Management Accounting Report: Cost Analysis and Planning Tools

This report provides a comprehensive overview of management accounting principles and their practical application within the context of Aston Martin, a luxury sports car manufacturer. It delves into various management accounting systems, including cost accounting, inventory management, price optimization, and job costing, elucidating their benefits and significance in business operations. The report further explores management accounting reporting methods, such as inventory management reports, accounts receivable aging reports, performance reports, cost managerial accounting reports, and budget reports, highlighting their roles in financial analysis, performance evaluation, and decision-making. Additionally, it examines suitable cost analysis techniques, the application of management accounting techniques across different business activities, and the interpretation of data. The report also covers planning tools used in budgetary control, their advantages and disadvantages, and how management accounting systems can address financial problems and contribute to organizational success. Overall, the report offers valuable insights into how management accounting can be leveraged to enhance operational efficiency, improve financial performance, and support strategic decision-making in a business environment.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...................................................................................................................................1
Distinct types of management accounting systems ..................................................................1
Benefits of various management accounting system...................................................................3
Management accounting reporting & management accounting system's ...................................3
Methods used for management accounting reporting..................................................................4
TASK 2 ...........................................................................................................................................5
Suitable techniques of costs analysis ..........................................................................................5
Application of management accounting techniques....................................................................6
Interpretation of data for a range of business activities...............................................................7
TASK 3 ..........................................................................................................................................7
Planning tools which are used in budgetary control ..................................................................7
Uses of different planing tools.....................................................................................................9
TASK 4 .........................................................................................................................................10
Management accounting system to respond the financial problems .......................................10
Planning tools for accounting to respond to solving financial problems...................................11
Management accounting can lead organisations to sustainable success....................................11
CONCLUSION..............................................................................................................................11
APPENDIX ...................................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
Management accounting is the process of making management reports & accounts to
investigate the cost of business operations. The financial statements which are prepare under
management accounting are helpful for the manager to take better decisions in context to the
growth of organisation. It is an internal process of a corporation to analysing, identifying,
interpreting & communicating information to manager in order to achieve predefined targets.
The rules and principles which are associated with management accounting can be followed for
the purpose of systematic work. To better understand this concept Aston Martin has been chosen
which is a manufacturer of luxury sports cars and it established in United Kingdom. There are
various topics are covered in this report such as: distinct types of management accounting
system, methods for management accounting reporting, to prepare income statement using
marginal and absorption costing. Apart from this, report also discuss about advantage &
disadvantage of various planning tools in context to budgetary control and management
accounting system in order to resolve financial issues.
TASK 1
Distinct types of management accounting systems
Management accounting involves financial & accounting tasks in order to operate the
business operations according to the need of firm (Zhao and Yuan, 2016). This internal process
is conducted by accountants which involves: sales, auditing, spending and budgets. With the help
of this tool better decisions can be taken which support the growth of Aston Martin. There are
various types of management accounting systems which are as mention below:
Cost accounting system: This system provides a framework to enterprise anticipate cost
of its products for profitability analysis, stock valuation and cost control. To analyse the
appropriate cost of sports cars is important for Aston Martin so that better decisions can be taken
by the company to determine which products are profitable or which are not. It is also beneficial
to anticipate the value of closing stock, finished goods and work in progress in order to prepare
financial report. With the help of this system managers of Aston Martin identifies the cost, time
and all related expenses. This system helps the managers to check the total cost which is incurred
by a company and find outs ways in which it can reduce its cost by enchaining the overall
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efficiency of its production process. With the help of cost accounting system Aston Martin can
manage the cost which incurred while producing the cars so that profit margin can be enhanced.
Inventory management system: Inventory is an accounting period which determines the
goods in different stages of being ready for sale that involves finished goods, raw material and
work in process. To manage the inventory, Aston Martin can use different software's such as:
Zoho inventory, Orderhive and NetSuite ERP. By using this system management can make a
centralized record of assets & also manage it as per the requirement. It can improve the supply
chain within the organisation. With the uses of these software's it will be easy for the corporation
to monitor and maintain the inventory. By using this management accounting system inventory
of cars can be managed effectively and Aston Martin does not need to possess extra stock.
Price optimisation system: This system is being used to control the prices of products &
it is beneficial to determine the prices of distinct products. By using this system Aston Martin
can set the reasonable price of sports car so that consumers are ready to pay for it. It is used by
the corporation in order to identify how consumers will respond to different prices for its
products & services. This system is emphasis to set best price which fulfil the objective which is
to increase the operating profits. To attract the consumers it is important to set appropriate price
so that sales of company will maximize and it lead more profits. Managers in Aston Martin uses
this system to properly optimize its price and set price for its sports luxury cars in a way which
can create a high perceived value in the minds of its customers and is also beneficial for
organisations to recover its cost. By using the management accounting system Aston Martin can
set appropriate prices of its car and it emphasis towards quality in order to satisfy the needs of
consumers.
Job costing system: As job costing system consist the process of accumulating
information related to the cost which associated to the specific production. It is useful to identify
production costs which involves direct labour, direct material and overhead. This system can be
used by Aston Martin to control the use of raw material, labour hours & equipments by
allocating the cost of each consumer order separately. It is useful to determines three types of
information such as:
Direct material: By using this job costing system, cost of material can be identify which
occurs in each job while manufacturing the products. To determine the overall cost of a product
it is beneficial for the company.
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Direct labour: As job costing system is helpful to determine the cost of direct labour
which is used to manufacture the products. It is directly associated to job with a time card, time
sheet & also with network time clock application on computer.
Overhead: By using job costing system overheads can be allotted towards depreciation,
building rent & production equipment. In accounting period the total amount in each cost pool is
associated to distinct open jobs that is based on allocation methodology.
Benefits of various management accounting system
There are various accounting methods with various benefits associated with each other.
Company uses various system to improve its organisational efficiency and reduce its cost in
order to enhance its financial position in the market. In Aston Martin managers uses following
different management accounting system explained with their benefits associated with them:
The main advantage of job costing system is that it help managers to identify the
individual cost associated with the particular job in this type of system managers easily identify
the problems and take necessary decision in order to over come that problem and improve its
operational efficiency and reduce the individual cost associated with each job performed in
manufacturing of its products. Inventory management system helps the managers to properly
identify its inventory. It also help managers of Aston Martin to timely check its inventory and it
also gives an insight of current present inventory and expected future inventory (Van der Meer-
Kooistraand Vosselman, 2012). As the price optimisation system is helpful for Aston Martin to
determine suitable price for its car so that maximum number of consumers can attract towards
the organisation.
Management accounting reporting & management accounting system's
Management accounting system is directly integrated with the management accounting
reporting within the organisational process. As management accounting system includes various
system which helps in the optimisation of business operation by reducing its cost associated with
the production process and helps managers to prepare the financial statements to report the
companies total profit or loss which company earned or incurred. In Aston Martin managers uses
the various management accounting system such as job costing, inventory management to
identify the cost incurred by it and all the information are further delivered to the top level of
management with the help of management accounting reporting by preparing various budget
reports and performance report in order to support in further decision making process.
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Methods used for management accounting reporting
Management accounting reports are those reports which are used by the management to
know the information about the performance and growth and on the basis of it important
decisions can be taken by the company. It provide the information related to the financial
stability of firm. It is useful to make planning, analysing and to evaluate the performance of
business. For Aston Martin it is important to use management accounting reports so that it can
know the performance of business. There are various reports which can be prepared and these are
as mention below:
Inventory management report: In order to maintain the inventory of products in
appropriate manner this report can be used by Aston Martin and with the help of this production
procedure can be efficient and it is beneficial to minimize the material handling cost with in a
corporation. Aston Martin can use this report in order to maintain required quality of finished
products for smooth sales service. It is essential for the organisation to manage the inventory in
effective manner. To manage the inventory of cars Aston Martin can use NetSuite ERP software
which is helpful to make effective control over excess stock of cars.
Account receivable aging report: To manage the cash flow this report has been
prepared by the corporation. To identify the problems in collection process this report can be
used by the organisation. Aston Martin can develops this report in order to provide better idea of
receivables portfolio. With the help of this organisation can know the consumers does not make
payment. This report has been prepared by those corporations which provides the goods on credit
basis. All details related to the consumers are recorded which involves: name, amount, quantity
and other required details. As there are various organisations which use software's to record the
information (Sisaye and Birnberg, 2012).
Performance report: This specific report has been prepared by the corporation in order
to know the performance of business as well as workers who work in the firm. It is important for
the organisation to analyse the performance of the enterprise so it can take decisions on the basis
of it. With the help of performance report Aston Martin can examine the defects & reasons of
poor performance which hamper the productivity and growth of company. Profitability can be
determine of a project with the help of this report. As corporation can use this in order to make
decisions in context to the continuation of project. So it this is beneficial to know the business is
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earning sufficient profits or not. This report is useful to analyse the performance of Aston Martin
that how much it is earning in a particular financial year.
Cost managerial accounting report: As cost denotes the expenses which occur while
running the business operations. It consist of detailed information regarding the price and on the
basis of this revenue is determined. This involves labour cost on hourly basis, direct & indirect
cost, inventory and overhead cost. With the help of this Aston Martin can determines the profits
& the cost which occurs while producing the car. It is beneficial to know the true information
about production procedure and what steps are require to be taken by organisation in order to
reduce the cost which involve in manufacture of car.
Budget report: A budget is an estimation of income & expenditure over a specific period
of time and it is prepare by the management of firm. With the help of budget report, Aston
Martin can determine that how much funds are required to perform a specific business activity in
order to achieve the goals of business entity. It is also beneficial to analyse the expenditure over
a certain period of time. For the organisation it is required to take better decisions in context to
the cost cutting so that profits of company can be maximize. Aston Martin can use this report in
order to guide the managers about future plans, restructure programmes etc. So it is useful for the
organisation to take better decisions on the basis of budget (Ramljak and Rogošić, 2012). To
manage the income and expenditures budget report can be prepared by Aston Martin and it is
helpful to perform the business operations effectively.
Job cost report: This method has been used to show expenditures which are associated
with particular project financed by the business. For that purpose Aston Martin has emphasis to
match with an estimate of income so that profitability can be analysed related to a specific job. It
is useful to determine expenditures while the project is in progress so that company can correct
the waste before costs spiral out of control.
TASK 2
Suitable techniques of costs analysis
Income statement : It is an important financial statements which reflects the profit &
loss over a specific period of time. It shows the revenue has transformed into net income and it is
prepare by the organisation in order to know how much Aston Martin is earning profit over a
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specific period of time. It is used to analyse the financial position of an organisation and it is also
called as statement of earnings.
Marginal cost : It shows the change in total cost which comes from making or producing
an extra unit. The main aim of this is to analyse at what point, company will accomplish
economics of scale. While increasing or deceasing the manufacturing of products, an
organisation have to spend extra or additional cost. It is important for the corporation in order to
take better decisions in context to the growth of firm. For that purpose it is necessary to take
better decisions in context to the allocation of resources in manufacturing procedure. It is
considered as variable cost which is associated with material cost, labour & administration
overhead. For Aston Martin it is required to ascertain this method while preparing income
statement (Langevin and Mendoza, 2013).
Absorption costs : It shows that all production cost have been assigned to units
produced. Cost of finished product involves: variable manufacturing overhead, fixed
manufacturing overhead, direct labour and direct material etc. This emphasis towards costs
related to manufacturing a specific product. It is important for Aston Martin to consider this
method while preparing income statement (Kalkhouran and et. al., 2015).
Application of management accounting techniques
Managers uses various types of management accounting techniques in order to analyse
the company's performance which can help mangers to provide accurate positions. Following are
the techniques used:
 Financial Planning: It is a management accounting technique which is used by managers
to plan for the various sources through which it can raise its funds and support its
operations (Gow and Reiss, 2016).
 Historical Planning: It is technique which is used by managers of Aston Martin to arrange
its historical data in a specific order in its financial statements. This help manager to
identify the historical cost of the various assets acquired by them and take effective
decisions.
Interpretation of data for a range of business activities
Financial reports are considered as one of the major part in any business organisation as it
helps managers to identify the business performance and identify the reasons due to which it
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cannot perform better. These financial reports helps managers to support its decision making
process and reduce its cost by improving its business operations. From absorption costing Aston
Martin earns the net profit of £74,30,000 and from marginal costing it earns the net profit of
£6,07,50,000
TASK 3
Planning tools which are used in budgetary control
Budget: As budget is a type of document which is prepare by the organisation in order to
estimate income and expenses related to a specific period of time. For the organisation Aston
Martin it is important to make budget so that it can determine the revenues and expenditures
related to a particular period of time and it helps the company to take better decisions for the
growth of business.
Advantage: With the help of this better strategies can be made by the Aston Martin and it
is helpful for the corporation to take effective decisions which contributes towards the success of
business.
Disadvantage: It is time taking process and sudden changes does not cover in it so
organisation can not take better decisions and its performance can be affect which is not
beneficial for the growth of Aston Martin.
There are various planning tools which are used in budgetary control and these are as
mention below:
Zero base budgeting: It is a method of budgeting in which expenditures are justified for
each new product. The procedure of this planning tool has starts from zero level. It consider that
there is no balance to be carried forward and it focuses to determine task & then funding the
expenditures irrespective of current structure of expenses. It is beneficial for Aston Martin to
make better decisions for the growth of company. The advantage of this planning tool is describe
as below:
Advantages: It is beneficial for Aston Martin in order to make financial planning,
preparation of statement of financial position etc (Goodman and et. al., 2013).
Disadvantages: For the organisation it is not easy to update this budget because it
involves various budgets in it so it is difficult to understand it.
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Incremental budget : This budget is based on prior budget reason being it develops as
per the previous budget policy & also determines the current position. In this budget incremental
amount has added in existing budget in order to prepare new budget. As Aston Martin can
prepare this budget and make assumption that business operations will continue and on the basis
of this it can make incremental in current financial year. This budget can be used by Aston
Martin when wants to launch a new segment of cars and for that purpose it requires more funds
to operates the business activities so while making this type of budget incremental amount will
be add in the existing budget. The advantages of this planning tool is mention as below:
Advantages : This budget is beneficial for Aston Martin in order to examine potential
deficits quickly. It is helpful for Aston Martin to reflect true and fair position of its business.
Disadvantages : This budget restrict the spending power of a corporation because it
restrict the company to emphasis about any other method (Fiondella and et. al., 2016).
Rolling budget : It is an incremental extension extension of past budget period
completed. For that purpose it is important for Aston Martin to make new budget by replacing
old budget. For the financial planning it is very helpful for the corporation and on the basis of it
management of company can take useful decisions which contribute in the growth of business
entity. It emphasis to reallocate the amount from non performing factors so that business can
perform better and organisation can achieve its predetermined objectives. It is important for the
firm to update this on the yearly basis. The advantages of rolling budget are as mention below:
Advantages : It is beneficial for company to hinder creation of debts, covers the
inefficiencies of budgeting and it also helpful for the firm to prevent negative cash flow and
beneficial for the Aston Martin to run its business operations as per the required manner.
The disadvantage of rolling budget is mention as below:
Disadvantage : To prepare this budget, it is require more time and not affected for the
company where changes takes place very frequently. To develop this budget it is essential to hire
a specialist person who know very well about this rolling budget.
Flexible budget : It consist of anticipated income & expenses in context to Aston Martin
that is depend upon the amount of current output. This type of budget can change as per the
requirement of organisation. As Aston Martin can use this budget when it make any changes. If
budget is flexible than changes can be done anytime as per the need of firm. This planning tool
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can be used by Aston Martin when it realise that they have to reduce the expenses so that
existing budgets can be alter as per the requirement.
Advantages : It is easy to update according to the need of Aston Martin and on the basis
of it financial position of an organisation can be analysed (Cleary, 2015).
Disadvantages : To prepare flexible budget organisation required to make critical
analysis and better planning and it also require more time and efforts.
Variances analysis: It is a quantitative investigation of the difference between actual &
planned behaviour. It is used to make control over the business of Aston Martin. As an example,
of budget for sales is 5000000 GBP and actual sales is 4800000 than 200000 will be the
difference of variance.
Advantage: To identify the difference among the actual and planned sales it is helpful for
the Aston Martin and on the basis of it better decisions can be taken for the growth of Aston
Martin.
Disadvantage: Lack of effective decisions can affect the growth of organisation and due
to it profitability of Aston Martin can be influenced and it is not beneficial for the growth of
business.
Uses of different planing tools
There are various planing tools which helps and supports managers to plan for the
betterment of the company and take necessary decisions in order to improve its financial position
by reducing the total cost incurred by the company by enhancing its operational efficiency and
achieving its organisational goal. In Aston Marting managers uses budgeting tool to plan for the
future estimated cost which it might incur and the expected revenue which will be generated by
it. It also uses flexible budget in order to include the additional expenses which it forgot while
preparing for the original budget (Chenhall, 2012). As rolling budget is important for Aston
Martin to make new budget by replacing old budget. Zero base budgeting is beneficial for
company when its start new project and for that purpose it is important to make budget from zero
level.
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