Management Accounting Report: Analyzing Financial Performance of EECL

This comprehensive management accounting report analyzes the financial practices of Eastern Engineering Co. Ltd (EECL), a medium-sized manufacturing organization. The report begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its role in internal decision-making. It then delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, detailing their benefits and drawbacks for EECL. The report further examines different types of management accounting reports such as budget reports, operating budgets, accounts receivable aging reports, job cost reports, inventory and manufacturing reports, and profit & loss statements. It includes a detailed analysis of marginal and absorption costing techniques with income statements for each, demonstrating their application in cost calculation. Furthermore, the report explores the significance of planning tools used in budgetary control, outlining their advantages and disadvantages. Finally, it discusses how management accounting can help organizations like EECL respond effectively to financial problems. Overall, the report provides a thorough overview of management accounting principles and their practical application in a business context.

Management accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
Management accounting system............................................................................................3
TASK 2......................................................................................................................................5
Management Accounting Reports (MAR).............................................................................5
TASK 3......................................................................................................................................8
Calculating cost using appropriate MA techniques...............................................................8
TASK 4....................................................................................................................................10
Different types of planning tools for budgetary control.......................................................10
TASK 5....................................................................................................................................12
Comparing the ways in which organization could use management accounting to respond
to financial problems............................................................................................................12
CONCLUSION........................................................................................................................14
REFERENCES.........................................................................................................................15

INTRODUCTION
Management accounting (MA) accounts for the accounting system which involves the
practice of identifying, measuring, analysing and interpreting the end result along with
communication the outcome to the end users. This is different from the financial accounting
in the context that it is being utilized by the internal managerial team for undertaking n
various business decisions. The accounting team provides relevant information to the
managerial accounting team, which then carries out the in-depth analysis of the information
which helps in identifying the areas of weaknesses or loopholes so that corrective actions can
be undertaken on a timely basis. This report is based on the Eastern Engineering Co. Ltd
(EECL) which is a medium sized organization into the manufacturing industry. This report
provides an in-depth insight into the concept of management accounting along with the
different methods used for the MA reporting purpose. It also involves determining the usage
of various MA techniques in cost analysis, in addition to the pros and cons of planning tools
and how organizations are adapting different MA system in order to respond to the financial
problems they face.
TASK 1
Management accounting system
Management Accounting (MA) is procedure of analyzing, summarizing and
providing information regarding financial data in order to make strategic decisions (What is
management accounting? 2021). Eastern Engineering Company Ltd. will be benefited by
implementing management accounting procedure in business. Management accounting
system (MAS) is used to provide relevant information to so that proper operational decisions
can be taken. The following are the types of MAS which will aid business to accomplish its
goals in effective manner.
Cost Accounting System:
It is one of the crucial systems of management accounting which aids firm to
estimate the cost of product so that profitability can be determined. Eastern Engineering
Company Limited (EECL) would be benefited by using this particular method in its business
process. Following are the benefits and drawbacks of implementing it.
Benefits :
 Estimation of cost can be exerted by EECL for getting deeper insights into
expenditures of firm

 Efficiency and measures can be increased by specified organization which will lead it
to identify the irrelevant expenditures
 Price determinations would be possible through implementing this system. EECL can
control cost with help of cost accounting system.
 Distinguishing between profitable and unprofitable activities can be done with help of
this system. Eastern Engineering Company Limited can get guidance in reducing the
expenses of unnecessary components of operational activity.
It is important to implement in organization due to its above mentioned benefits so
that EECL can derive various advantages to increase efficiency of working.
Inventory Management System (IMS)
This is related with planning, buying, monitoring, etc stock of company. The
purpose for executing this in Eastern Engineering Company Limited is to meet market forces
in effectual manner. It is one of the key determinants of success as assistance is provided in
cooperating with changing circumstances of industry (Krishnan and Pavithran, 2018). EECL
can increase its way of conducting operational practices by executing this management
accounting system. It is important to integrate with business activities to derive following
advantages of IMS:
Advantages Costs saving become possible for the Eastern Engineering Company Limited after
implementing this particular accounting system into its business procedure. It is considered to be significant for the purpose of avoiding excess stock will
ultimately reduce the storage cost and better planning for production can be exerted
(Swain, 2021). Increased profits is one of the essential character of IMS in turn better understanding
regarding inventory turnover can be obtained (Uyar, 2019). This leads EECL to move
towards right direction by evaluating the inventory turnover in effectual pattern. More organized Warehouse and customer experience can be attained with usage of
inventory management system in EECL.
Job Costing System (JCS)
JCS provide instructions regarding cost of each job or task established in
organization. It is important for EECL to establish the particular system in enterprise in
order to obtain clarity regarding each job’s cost and profitability (Drury, 2018). In
addition to this, unprofitable task can be eliminated for reducing expenses and increasing

profit margins. For acquiring various benefits ECCL should give emphasis on following
factors:
Pros
 Estimation of cost related to job at any stage can be done with help of JCS. EECL
can identify that prevailing task in business for accomplishing the business
objectives requires the specified task significantly or not.
 Eastern Engineering Company Limited can determine the price of products by
analyzing JCS in operational activity. There are various reasons that help
company to accomplish its goals in effective way by using it.
 Comparison of actual elements like profits, cost, etc with previous becomes
possible by implementing it. Cost control and evaluation can be exerted by EECL
for achieving desirable outcome.
Price Optimization System (POS)
Estimation of price according to market forces is done by this system of
management accounting (Helms, 2021). With changing customers preference and
taste willingness for paying also get modified which can be observed by Eastern
Engineering Company Limited through POS.
Benefits
 It is essential for EECL take it into consideration for achieving the immediate
financial benefits. Concentration on different parts of markets for determining
appropriate pricing for products can be done by firm.
 On the basis of available information quick decision can be taken by EECL as
it is considered to be important.
TASK 2
Management Accounting Reports (MAR)
It presents the financial position of organization for specified period of time. There
are several types of management accounting reports which are as mentioned below. It
is crucial for EECL to utilize these reports for gaining deeper insights into company’s
activities for comparing actual with standard.
Budget Report
This is one of the fundamental report used by organization to get details of
company’s performance. It is prepared by taking the historical information for

creating the road map for future activities. Unforeseen circumstances can be identified
with help of this report.
Advantages
 It is beneficial for Eastern Engineering Company Limited to prepare budget report for
having details regarding estimated cost for future course of action (Hlaciuc and
et.al.,2017).
 Financial requirements can be fulfill by referring the budget so that urgent needs can
be attained in convenient manner. It is an indicator of actual financial performance so
that improvement measures can be identified.
 EECL can compare its current performance with past for recognizing causing factors
for low outcomes.
An Operating Budget
It represents the expenditure and income generated from daily operational activities
of Eastern Engineering Company Limited. The firm should give emphasis on this
management accounting report for deriving several positive impact on performance of
company.
Merits
 Financial ditch can be avoided by EECL as this provides guidance in planning for day
to day operations. It can be prepared for short, medium and long term fro getting
convenience (Saliy and et.al., 2021).
 Building financial reserve is one of the significant role of an operating budget in turn
Eastern Engineering Company Limited can attain the reduce debt occurring situation.
 Flexibility for carrying business operational practices can be obtained by executing
this management accounting report
From the analysis of its advantages it can be stated that it is important for Eastern
Engineering Company Limited to utilize operating budget.
Account Receivable aging Report
This is vital for organization to formulate mentioned report in order to evaluate its
credit providing policies. It provide assistance in identifying the duration of credit so
that defaulters can be assessed. In case of larger credit providing practices EECL can
evaluate lacking areas in debtor collection period policies. Eastern Engineering
Company Limited will receive following benefits by applying and using account
receivable aging report in its business:

Benefits It is important for organization to give emphasis on account aging report for the
purpose of evaluating the credit collection efficiency. In addition to this, it will
provide opportunity for improving prevailing policies in turn improvement can be
conducted. Bad debts can be reduced by sending required reminders to customers for increasing
liquidity position of EECL.
Job Costing Report
There are numerous types of jobs established in business for fulfilling the
company’s predetermined objectives. The purpose of implementing this report in
EECL is available of information regarding expense and profit of specific task. It can
be determined at any stage of completion of task. In addition to this, Eastern
Engineering Company Limited will be benefited by using it
Advantages
 It is easy to execute and gives understandable outcome which will provide
convenience to EECL in respect to making comparison between actual and estimated.
 Detail analysis becomes possible for Eastern Engineering Company Limited for
making valuation for efficiency in accomplishing organizational goals.
Inventory and manufacturing report
Company prepares report on the basis of need but formulation of this report is
essential (May, Atkinson and Ferrer, 2017). It provides values of sale and inventory
along with indication of growth or declination, etc. There are various reasons that
Eastern Engineering Company Limited should take this report into consideration such
as:
Benefits
 Accuracy of available inputs for production procedure can be done by EECL.
 It reduces the risk of losing selling opportunities by having sufficient availability of
stock of Eastern Engineering Company Limited
Profit and loss statement
Firm’s revenue and expenditure for particular period of time can be known. EECL
will get benefit by preparing this report.

Advantage
 Breakdown between revenues and expenditure provide fair estimation of financial
position of EECL.
 Keeping things in balance can be done with help of this report.
TASK 3
Calculating cost using appropriate MA techniques
There are number of MA techniques which can be utilized by the organization for
the purpose of effectively meeting up with the business requirement pertaining to effectively
handling its costs. Some of the most widely used MA techniques are provided below:
Marginal costing
This technique assists in determining the marginal cost per unit along with its effect
over the profit of the company considering the sales volume. Under this, the variable cost
varies with the change in the sales units while on the other hand, the fixed cost remains
constant within a specific limit (MirbagheriRoodbari and Kordestani, 2020). From the total
sales revenue the marginal cost of production s deducted which results into getting the
amount of contribution. After which the fixed cost is subtracted from it for determining the
profitability. This technique is mainly utilized by the management for the purposeof
undertaking the decision for the business expansion as it helps in deriving the break-even
point at various production levels.
Absorption costing
This technique involves the incorporation of both the type of cost which is fixed and
variable while determining the cost of production. Under this, the fixed overhead in relation
to the production is also included while calculating the cost of product (Altin, Akgün and
Kasimoğlu, 2020). This technique is highly required by GAAP for the purposeof external
financial reporting.Under this, the fixed cost is allocated to the cost of the product
irrespective of the fact whether the product is sold or not.
Income statement under Absorption costing
Particulars January February
Sales (a) (9800 * 135)
132300
0 (11200*140) 1568000
Less: Cost of goods sold

(COGS)
Opening inventory (200 * 770) 15400
Add: Production (£45 +
£32) (10000 * 77) 770000 (11500 * 77) 885500
Total goods available for
sale 10000 770000 900900
Closing inventory (200 * 770) 15400 (500 * 77) 38500
COGS (b) 754600 862400
Profit before adjustment (a -
b) 568400 705600
Over/(under) Applied -30000 18000
Profit after adjustments 538400 723600
Working note:
Over/(under) Applied
Budgeted Fixed costs (10000 * 32) 320000 (11500 * 32) 368000
Actual fixed cost 350000 350000
Over/(under) Applied -30000 18000
Income statement under Marginal costing
Particulars January
Sales (a) (9800 * 135)
132300
0
Less: Variable costs (9800 * 45) 441000
Contribution margin 882000
Budgeted Fixed cost (11000 * 32) 352000
Profit before adjustment 530000
Over/(under) Applied 2000
Profit after
adjustments 532000
Working note:
Over/(under) Applied
Budgeted Fixed costs (11000 * 32) 352000
Actual fixed cost 350000
Over/(under) Applied 2000
Reconciliation statement
Profit as per marginal costing 532000
Add: Fixed cost not
materialized as expense
(200 * 32) 6400
Profit as per absorption costing 538400

Under the absorption costing technique, both fixed and variable cost is taken into
account in determining the cost of the product. In contrast to it, in marginal costing, only
variable cost is being taken while determining the production cost and the fixed cost is
classified as the period costs. Thus, the difference between the two is the fixed cost which is
not yet materialized as an expense in the month of January, which is, £6400.
It can be stated from the above analysis of the MA technique that the absorption is
better than marginal costing. Absorption costing technique supports the business association
in taking a better look at the expense totally and so that it will be able toformulate procedures
and strategies dependent on the cost adequately. It considers both fixed and variable expense
while computing cost of manufacturing (VatanParast, Tasaddi Kari and AhmadzadeLayegh,
2018). Additionally, it puts accentuation on cost of every unit and change in opening and
closinginventory influences the expense per unit. Marginal costing is valuable for the
organizations who have quite recently begun their business and needs to know the
contribution per unit along with the BEP analysisfor undertaking a better and effective
decisions.But the absorption costing is generally utilized and furthermore needed by GAAP
for financial reporting reason. In this manner, absorption costing technique is considered right
for the valuation of stock.
TASK 4
Different types of planning tools for budgetary control
There are various types of budgets which are being creating for the purpose of
exercising control over the business expenditure. Budget is usually the future planning and
measurement of the business needs.
Zero based budgeting
Under this method of budgeting, the process of creation of budget initiates from the
base level or the scratch. As the previous year budget is not used in this, it separately
incorporates each item with the cost. Every department provides with their requirement for
the specific period along with the proper justification (Beredugo, Azubike and Okon, 2019).
In this there are complete chances that the budget might go higher or lower in comparison to
the previous year.
Advantages:
 It helps in eliminating unnecessary business and operational expenditure by
identifying obsolete process.
 This budget help in efficient allocation of the financial resources.

Disadvantages:
 This is built on the cost benefit analysis, the outcome of which can be accomplished
in long term.
 There are chances of manipulation being done by managers of department for getting
more resources.
Incremental budget
It is based on the idea that newly prepared budget will give accurate road map for moving
towards success. Organization will receive several types of advantages and disadvantages
from this type of planning tool which are as follows:
Advantages
 Reductions in internal rivals can be obtained by business with help of incremental budgeting
tool
 Funds stability with consistent and operational efficiency can be derived by specified
organization which will lead firm to accomplish desirable position.
Disadvantages
 It is expensive as promotes unnecessary spending in business.
 This is unable to cope with changing circumstances due to external factors as well
discourages innovative in organization.
Activity based budgeting
Company uses this as planning tool as it provides opportunity of identifying, analyze and
recording the activities that incur cost to firm (Tenhunen, 2018). It is considered as
traditional form of planning tool which is makes adjustment in previous budget.
Advantages
 Competitive edge can be derived by institution by taking this mode of planning tool into
consideration as eliminates bottleneck by removing unnecessary business practices.
 Improves the relationship by making an Identity as single unit
Disadvantages
 Being a short term procedure requires deep understanding of complex activity.
 Large number of resources are consumed in this planning tool
Flexible Budgeting
It gets adjust with varying volume level of company’s operational activities. There are
various types of benefits and drawbacks that firm faces while using this mode of planning

tool. Flexibility while cooperating with changing circumstances can be achieved by flexible
budget.
Benefits
 Cost variance can be analyzed by using flexible budget as inefficiencies can be identified by
management.
 Better profit planning can be done by specified business which increases management
performance.
Drawbacks Under this method of budgeting there is requirement of skilled labor for proper implementing
of process. Forecast may not be accurate all time due to highly volatile nature of flexible budget.
Cash budget
It break downs the incoming and outgoing cash flow in business which give clear picture of
firm’s financial position.
Advantages
 It coordinates all the activities by maximizing the profitability and gives details regarding
cash balance remaining after payment of expenses.
 Segregation between receipts and payment become possible for evaluating financial policies
of company.
Disadvantages
 It limits the spending power of company and ability of building credit profile.
TASK 5
Comparing the ways in which organization could use management accounting to respond to
financial problems
There are number of financial problems which are being faced by the businesses but
in order to identify the same, the company can make use of various performance
measurement tools which will help in attaining sustainable performance.A detailed
description is given below.
Benchmarking