Management Accounting Report: Financial Problem Analysis

This report examines management accounting principles and their practical application within the context of ABC Ltd. It begins with a foundational explanation of management accounting, differentiating it from financial accounting and exploring various management accounting systems like job costing, cost management, price optimization, and inventory management. The report then analyzes the benefits of these systems and evaluates diverse types of management accounting reporting, including budgetary, inventory management, performance, and accounts receivable reports, emphasizing the alignment of reports with the management accounting system. The core of the report delves into marginal and absorption costing, providing insights into cost management techniques. Furthermore, it assesses planning tools, their advantages, and disadvantages, along with their application in forecasting and budgeting. Finally, the report addresses financial problem-solving using management accounting tools and evaluates how organizations adapt their systems to respond to financial challenges, culminating in a conclusion and references.

MANAGEMENT ACCOUNTING

Contents
Contents...........................................................................................................................................2
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Brief explanation of managing accounting and differentiation between managing & financial
accounting....................................................................................................................................1
Various types of management accounting system.......................................................................2
Benefits of managing accounting system....................................................................................3
evaluation of diverse types of management accounting reporting..............................................4
TASK 2............................................................................................................................................6
Statement of marginal accounting...............................................................................................6
Statement of absorption costing...................................................................................................7
TASK 3............................................................................................................................................8
evaluation of diverse types of planning tools with their advantage and disadvantages..............8
Uses of various forecast tools and their application for forecasting budget..............................11
TASK 4..........................................................................................................................................11
Financial problem and use of management accounting planning tools to solve the problem.. 11
Assessment of how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management Accounting is a systematic and effective branch of accounting. To understand
the concept of management accounting ABC limited has been taken. This report has been
formulated to define relevance of various type of Management Accounting system and its use of
alignment with budgeting is cost accounting reports. It also includes various methods used by
organisation to calculate their profit as well as relevance of planning tools and key performance
indicator and benchmarking for overcoming financial issues suffering from organisation.
TASK 1
Brief explanation of managing accounting and differentiation between managing & financial
accounting
Management accounting: The word is combination of management and accounting which
means that analysis, recording controlling and monitoring essential business record in systematic
way which useful in taken essential basis decision. This term is also popular for managing
accounting. It is modern management technique which useful in attaining business objective by
mananging reduces by recording business transaction in effective way.
Principle of management accounting: There will be many principle on which the concept of
management accounting has been run . Management department of ABC Ltd, has been apply
following principle
Design and complaining: All the essential business record has been formulated to record
transaction for met future business goals. They are company with requirement of future business
outcomes. This refers that organization record management accountingt data to represent it to
relevant stakeholders.
Management by exception: This principle follows the basic rule that organization compare their
budgeted and actual outcome for measuring performance. They are budgetary control tools as
well as standard costing technique management apply this concept (Messner, 2016).
Controlling source of accounting: Recording transaction are useful to control and measure
performance of every individual employee as well as recognize performance of organization’s
each business department.
1

ABC Ltd, use and apply various system of accounting for running their business organization ‘s
activities in effective way.
Difference between financial and management accounting
Financial accounting Management accounting
It is related with defining essential information
regarding finance resource of organization.
This is tool of accounting which useful in
maintain position of accounting.
This include income and profit and loss
business statement.
Management accounting statement has been
formulated.
This type of accounting is use for providing
information to external holders.
Management accounting s reliable for
providing information to internal stakeholders.
Formulating financial statement is essential for
organization
It is not relevant to formulate management
accounting statements.
Various types of management accounting system
Job costing system: his system is supplied by management department for running their
business organisation in effective way on the basis of job costing system organisation able to
record their order per caused by recording number of orders taken by organisation within a
particular time period as a less it cause a use to define cost recognize for particular time
period job costing system is useful for identifying value of each product which is unique for
customer and producer according to on the demand of customers (Wnuk-Pel,, 018).
Cost management system. This system is used by management department of ABC limited to
take organized cost required for generating revenue and earning each business activity by
using various kind of techniques of cost accounting management department can able to
understand profit they earn after in curd all the essential cost or expenses required to their
business procedures it includes standard costing marginal costing as well as absorption
costing methods which have different methods of calculating cost but overall result help in
finding out profit that organisation generate for a particular time period cost management
system useful for controlling cost by taking the effective decision regarding formulating
policies of controlling vestige business activities.
Price optimization system: his system is a ply under management accounting policy price is the
most essential sector and Organisation able to generate their revenue on the basis of taking
2

decisions regarding particular price of product and services there will be the step of method
through which organisation can able to formulate or policies for the year calculation of price
by using Management Accounting systems organisation able to decide the select prize which
useful for satisfied customers as a less organisation able to generate revenue by using their
price Optimization system It consider prices and discounting pricing policies management
department of ABC Limited use price skimming strategy for their product and policies
(Elmassri, Harris, and Carter, 2016).
Inventory management system: This system is help in managing stock of organisations
management department need to control their wastage regarding with storage of inventory is
in the stocks as it directly impact on the cash inflow position of organisation this is by
applying effective tool of inventory management which includes LIFO ,FIFO and JIT as
well as ABC analysis techniques management department able to record East stock value
number of stock required according to their level of position which help in attaining
business goals by managing stocks.
Benefits of managing accounting system
Management accounting system useful for Unilever in the following way
Particular Management accounting system’s benefits
Job costing system By using job costing system management
department of ABC Limited able to recognise
cost required for attending a fulfilling
requirements of their potential customers it is
a useful for recognising impact of job costing
system within a particular time period on
organisations revenues
Cost management system This system is useful recognising cost
incurred for particular time period regarding
with running business activities by applying
tools of Costing management department of
ABC Limited can able to evaluate their profit
as well as cost and those with us activities
3

which become the reason of high cash
outflow
Inventory management system Management department of ABC Limited use
inventory management system for implement
lifo fifo method and use of ABC analysis
technique through which they can able to
maintain their inventory report which help in
taking decision regarding managing of stock
to attend business objective in providing
material and stop to their customers then the
require
Price optimization system Management department of ABC Limited use
price skimming method through which they
can satisfy their customers by selling their
product according to the needs and social
class of customers this system useful in take
decision regarding best prices of particular
product on the basis of that organisation able
to generate revenues
evaluation of diverse types of management accounting reporting
Report are documents which are formulated to written off each and every detail regarding
with business activities there will be various type of accounting reports has been formulated
when organisation adopt Management Accounting systems these reports are useful in providing
data and help in taking future business decision following are the report has been used or
implemented by ABC Limited (Quattrone, 2016).
Budgetary report: These reports are formulated to recognise performance as well as finding out
future business profit and loss by formulating budgetary reports organisation able to recognise
the near future business transaction it will help in providing Idea regarding future expenses and
risk budget reports are determine profit as well as loss and financial performance and
management of assets for a particular time period bi formulating budget these are the data
4

collected by budget report organisation able to complete the task within a given time period
budgets budget report useful in providing base for formulating budget they provide essential data
as well as information which help in formulating business policies as well as attending business
results management department of ABC Limited formulate budget through which they can able
to attend their business goals.
Inventory management report: these report are formulated by the data collection from inventory
management system on the basis of information generate are collected by management
department through using ABC and other inventory system techniques management accounting
is strong enough to use this information for formulating the effective business policies regarding
managing there is on the basis of controlling inventory it is very essential for organisations to
manage their inventory as success of the organisation total depend on how effectively and
management department is able to control and manage their stock formulating effective business
policies management department formulate policies to inventory management report this report
has been define all the level of organisation which management can able to easily understand
maximum and minimum level of inventory as a less cost recognise for maintain stock and on the
basis of the earth business organisation able to their manage their stocks which help in attaining
their business goals inventory management report define each management departments
inventory related information which help in attending business goals (McLaren, Appleyard, and
Mitchell, 2016).
Performance report: These reports are formulated for recognising performance of each business
department it is a summary of every reports which are used in by organisations performance
report has been define and measure performance of each department human resources this will
help in recognising and measuring performance of business departments in an organisation sales
marketing finance as well as manufacturing all these department of work towards product and
business organisation objective formulating performance report management department can
easily recognise their performance as well as differences arising between state and actual
outcomes on the basis of that the formulate effective in his policies through which they can able
to reduce the gap between actual and budgeted outcomes the main purpose of formality
performance report is to take decisions regarding distributing of rewards promotions and other
essential recognising awards for employees on the basis of their performance significance of
combination of managing accounting system with reporting.
5

Account receivables report: This report has been formulated to recognise and analyse
performance of debtors collection period within a specified time this report has been formulated
to determine number of debtors who are not able to pay that celebrity organisations cash flow
directly influence when debtors are unable to pay their that amount within a given time period
does on the basis of formulating data collection report an average receive bi report business
organisation able to recognise number of defaulters which to be considered as non performing
Assets of organisation and on the basis of that the formulate effective business policies through
which they can able to take back their amount from debtors (Maas, Schaltegger and Crutzen,
2016).
Requirement of alignment of report and management accounting system
Management department of ABC Limited formulated effective business report which help in
formulating and taking this is season for future policies accounting system and reports are
essential part of management accounting organisation able to formulate their business report on
the basis of Data Collection from their various accounting systems management department of
ABC Limited formulate their budget reports on the basis of collect information through cost
inventory as well as price Optimisation systems by combining information from all these
systems report are formulated and on the basis of that managers take decision to attend their
business goal.
TASK 2
Statement of marginal accounting
Marginal accounting: This is traditional business activities . This is used by organizations
in general manner. Absorption costing is includes all the essential business units which has been
used for manufacturing business units. In absorption costing every unit has been recognized and
each material is consider. This includes raw material, labor cost and overhead outcomes.
Absorption costing is useful in recognizing expenses and on the basis of that they can able to
generate profits which useful in attaining business goals.
MARGINAL COSTING
Notes Year 1 Year 2
£ £ £ £
Sales
The marginal cost of sales:
Opening Stock
6

Add variable production costs:
Variable
Less closing stock 1, 2
The marginal cost of sales
Fixed manufacturing costs
Selling & Administration Costs(fixed)
Gross profit
Statement of absorption costing
Absorption accounting: This is also known as marginal costing. It considered as one of
the most useful method which adopted by organizations. Management department is used
variable costing for recognizing impact of using additional units which directly impact on profits.
It will help in identifying the impact of reduction and additional of extra business units. Variable
cost include (Thabet, and Alaeddin, 2017).All these essential items which impact on running
business activities. Although this method has been use for most f newly set organization. Which
help in managing essential business resources.
ABSORPTION COSTING
Note
s Year 1 Year 2
£ £ £ £
Sales
Cost of sales:
Opening Stock* -
Add total production costs:
Variable overheads
Fixed production overheads
Less closing stock** 1,2
Cost of sales
Gross profit
Less: Selling & Administration
Costs(fixed)
Net Profit
Standard costing: This is also considered as one of the useful method of costing or management
accounting. In this method organization use and evaluate various variance which useful in
recognizing business profits. Labor, overhead as well as material these variance are used to
7

evaluate the difference between budget as well as actual business outcomes. On the basis of that
organization formulate effective business policies through which they can able to find out
amount of difference. Material variance include all the value of cost and price which recognize
the different between actual and budget business outcomes. Business recognize by evaluating
these cost product well as effectively recognize their value of profit which help in attaining
business objectives.
Standard costing useful in taken decision and on the basis of decision taken by organization they
are able to evaluate the main reason of different are between organization and their essential
business outcome.
They are useful for optimum utilization of business resource as well as recognizing perform of
organization with given time period .This method of costing is also applicable for organization
which able to their project for short time period. Standard costing help in defining business
objectives as well as recognize effect business policies which help in generating business result
in effective manner ( Hussnain,2020).
Range of accounting techniques
Management accounting techniques directly impact on organization s performance and
on the basis of using costing business technique organization able to take decision as well as they
can also recognize the amount required for running business in effective manner. Management
department of ABC limited by applying these tools able to attain their business goals and
identifying profit in given time manner. Organization on the basis of recognize value of standard
costing can able to run business in effected manner and control cost which useful in attain final
business result.
TASK 3
evaluation of diverse types of planning tools with their advantage and disadvantages
Planning tool: These are the tools which is used by organisation to plan for future business
policies by using planning tools organisation take decisions which help in attaining their future
business goals following are the tools used by ABC Limited for their business activities.
Budgetary tools: Budget can be defined as statement which formulated for a particular time
period and providing reliable information regarding future profit and loss attaining bi
8

organisation the process of formulating budget is known as budgeting there will be various type
of methods which help in formulate budget management department on the basis of their
relatable areas able to formulate budget following are the different types of budget that
organisation can follow
Activity-based budgeting: This budgeting technique supply when organisers able to locate their
resources on the basis of activities this is the modern method of formulating budget falling
benefits and drawbacks
Advantage
This method is help in providing best business result (Gacitua, 2018).
Activity based budgeting help in providing reliable business result for future policies
Disadvantage:
Rolling budget: This is also known as short term budget as management department when the
use rolling budget as their method of preparation of budget prepare short-term budget which is
less than six month or maximum 1 years on the basis of recognising errors and collection that of
past budget the formula short term budget again and this process is continued to the and of
attaining their business goal that's why this is known as rolling budget as small budget are
formulated with a gap of short time period
Advantage
This method useful in getting analysing best business result
This is easy method of formulating of budget
Disadvantage
Employees get misunderstood due to changes of business policies
It is a time consuming method
Zero base budgeting: Which is the most useful method adopted by many organisations
especially those who set up new business within market in this type of formulation of budget
organisations able to prepare their project by collecting information on the basis of new research
it does it is called zero based budgeting because manager is started with initial zero base period
Advantage
9

This help in providing reliable future business result
It is useful for new business organisation as chances of errors are comparatively low.
Disadvantage
This type of budget is not useful for organisation which is already maintain strong position in
market and which is not use past data.
For preparing budget required who had knowledge regarding market conditions.
Cost techniques: These tools are useful for calculating cost and then on the basis of desert
arising managers take decisions regarding their cause planning they formulate effective business
policies to control and manage their cost various type of system has been used for class planning
tools absorption costing marginal costing and standard costing has been utilised for calculating
essential cost following are the advantage and disadvantage of cost planning techniques
Advantage
This method has been used to provide accurate business information as well as regarding their
cause performance.
Cost planning tools are useful in recognising value of cost of running business activities
Manager formulate policies which help in controlling cost (Ferrari, Zagarella, Caputo and
Bonomolo, 2019).
Disadvantage
Organisation need to hire personal who has a great knowledge and skill regarding calculating
caused by using various method of accounting as well as having a knowledge of accounting
standards.
The liability of Cos visit has totally depend on the person who calculate cost it may be possible
ATI that they again therefore formulate secret profit
Advantages
.
Cost planning tools: Strategic planning tools are also useful and mean tools which help in
taking effective business decision these are the tools which is useful for environmental scanning
process and on the basis of that management department following it effective business policies
it includes what and pest analysis as well as we do it and other techniques of environmental
scanning all these techniques are useful for analysing internal as well as external environmental
10