Management Accounting Report: Hochtief Company's Financial Strategy

This report provides a comprehensive overview of management accounting principles and practices, focusing on their application within the Hochtief company. It delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their benefits in enhancing operational efficiency and profitability. The report further explores different methods of management accounting reporting, such as budget reports, account receivable reports, performance reports, and cost reports, emphasizing their role in providing crucial financial information for internal decision-making. Additionally, the study analyzes and compares marginal costing and absorption costing techniques, demonstrating their impact on profit calculation and strategic decision-making. Through detailed analysis of financial data and practical examples, the report aims to equip readers with a thorough understanding of management accounting's significance in achieving sustainable growth and development for businesses.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
ACTIVITY 1....................................................................................................................................3
Methods of management accounting reporting......................................................................5
Management accounting techniques.......................................................................................6
ANNEX A..............................................................................................................................7
ANNEX B............................................................................................................................12
Particulars......................................................................................................................................13
Plan 1............................................................................................................................................13
Plan 2.............................................................................................................................................13
Plan 3.............................................................................................................................................13
ACTIVITY 2..................................................................................................................................14
Planning tools advantages and disadvantages......................................................................14
ANNEX C ...........................................................................................................................16
Comparison of ways in which management accounting is applied for confronting financial
problems...............................................................................................................................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
Management accounting is an effective technique which produces internal financial
reports which aids managers of the organization in effective decision making. Management
accounting is an effective tool which helps in planning, decision making, strategic management,
etc. it helps managers in forecasting and analysing the future prospects for long term growth and
sustainability (Kaplan and Atkinson, 2015). It is an effective process of analysing and presenting
financial information to the internal managers on a regular interval for strategic decision making.
This is a report which is used by internal management for solving financial problems and finding
effective solution for long term sustainable growth.
This study will highlight, management accounting and the essential requirements of
various types of management accounting system. It will also highlight different methods which
are used in management accounting report. Further it will also effectively include various
management accounting techniques. This study will further include planning tools which are
used for budgetary control. It will further analyse the advantages and disadvantage of these
budgetary control tool which helps in decision making. Furthermore, this study will evaluate and
compare two organizations in order to effectively respond to various financial problems.
Furthermore this study will critically evaluate the importance of planning tools in solving
financial problem and lead organization to sustainable growth and development.
Hochtief company is a construction engineering company which focuses on building
various projects like highways, bridges, stations, etc.
ACTIVITY 1
Management accounting: It is an effective process which helps internal management of
the organization to analyse various financial statement in order to take necessary strategic
decision for long term sustainable growth of the business (Quattrone, 2016). Management
accounting helps in capital budgeting analysis, stock valuation, forecasting, new product
analysis, break even analysis, forecasting, helps in financial accounting and solving financial
problems which leads to long term sustainable growth. Management accounting helps in
enhancing the operations of the business by eliminating cost and reducing risk.
Management accounting systems

Management accounting systems helps in improvising the productivity of the
organization in order to reach higher profitability and market share for future growth and
development. This mainly focus on formulating of various reports which helps in strategic
decision making. Management accounting systems can be further classified into:
Cost accounting system: It is a framework which helps Hochtief company in estimating
the cost of the activities for profitability analysis, cost control and inventory valuation. Cost
accounting system helps in effectively determining the cost of various production departments.
This helps management of the organization to determine the cost of the product for profitable
operations (What is a Cost Accounting System?, 2019). It helps in determining the work- in-
progress, material inventory, finished goods to prepare financial statements.
The key elements of cost accounting system mainly comprises of material i.e., direct
material and indirect material, labour i.e., direct labour and indirect labour and overhead i.e.,
variable O/h and fixed O/h. Cost accounting techniques is an effective way to analyse and
determine the future expenses for production. Cost accounting system take into consideration
direct costing, which can be attributed to the production of the goods. It mainly comprises of
commission, wages, manufacturing expense, piece rate, etc.
Inventory management system: It is a management accounting system which helps in
tracking levels of stocks, sales, orders and deliveries. Inventory management system helps
management of the organization to determine the requirements and reordering gods without any
delay (Granlund and Lukka, 2017) . It helps in effective decision making regarding ordering and
managing production in an effective and efficient manner. Inventory management system helps
in managing the supply chain which helps in placing order in an effective and efficient manner.
This helps in collection of surplus material and effectively control the orders according to the
production level. Inventory management techniques mainly includes last in first out method
(LIFO), first in first out method (FIFO), stock review, ABC analysis, just in time method and
weighted average method.
Job costing system: It is an effective process which helps in analysing and predicting the
cost attached with each job carried out at the time of production. It focuses on accumulating cost
to each individual unit of the production. It helps management of the Hochtief company to keep
proper record and track expenses of each product. This helps in determining the cost of the

project in an effective manner. It is very important to evaluate the cost which eventually results
in effective estimation, financial reporting and strategic decision.
Price optimisation system: It is an effective tool which helps in determining the price of
the products ad services delivered by the organization. This helps management to meet the goals
and objectives of the company in order to maximize profits and revenues. This helps in analysing
the behaviour of the customer with the change in the prices and determine the demand and
supply of a particular product. This helps ion combining information of cost and inventory level
to determine the prices which lads to higher profitability and growth in the business. It can be
effectively used by the management to tailor the price for customer and analyse their behaviour
with the change in the price levels of products and services (Alptekinoğlu and Semple, 2016).
Benefits of management accounting system.
Management accounting system helps management of the Hochtief company in
controlling, organizing, coordinating and controlling various activities which leads to higher
sustainable growth of the organization. This also in improving the productivity and efficiency by
reaching higher economies of scale (Dekker, 2016). Management accounting system helps in
effectively determining the operations of the business. This also helps in reducing the cost,
optimally accumulate the price, inventory management which eventually enhances the market
share and profit. Theses management accounting system helps in better application and
effectively managing the plans and budget.
Methods of management accounting reporting
Management accounting reports are an effective tool which helps in understanding the
operations of the business with utmost accuracy and efficiency. Management accounting report
gives accurate information to the management which helps them in taking strategic decision in
an efficient manner (Maskell, Baggaley and Grasso, 2016). Management reports are very
important for the internal management like CEO, owners, management in order to find necessary
solution to the problem. Management accounting reports must be in compliance with various
principles and standards which shows true and accurate results.
Budget report: It is an effective tool which helps in evaluating the performance of the
company. This helps management to compare the actual results with the budgeted plan and in
case of any deviation necessary action will be taken. This helps in comparing the past
performance with the actual performance and take necessary action to achieve higher profit. This

helps in controlling the activities for future sustainable growth (Brown and et.al., 2016). Budget
report helps in estimating the revenue and cost for a particular period of time. This helps in
planning the future by controlling the variance with utmost accuracy.
Account receivable report: This report shows cash amount which are owed to the
company by individual and entities outside the company (Mills, 2018). If the account receivables
indicates that the receivables are being collected at a slower rate then it is set as a warning sign
for the business. This eventually leads to greater credit risk for the company. Account receivable
report is an asset for the company which keeps track of all the customers who owe money to the
company.
Performance report: The report will evaluate the performance of the company with
utmost efficiency in an orderly manner. This report gives detailed analysis of the project which
gives them clear picture of the operational efficiency of the Hochtief company. This report
provides all the data to the stakeholders in a detailed manner to take necessary decision with
utmost accuracy (Hopper and Bui, 2016). Performance report gives clear picture of the current
status of the project and analyse how much profit will this project earn.
Cost report: This report helps in identifying the cost related with the financial activities
of the business. This report determines the cost of each activity, products, services, projects and
processes (Labro, 2019). This helps management to control the cost in an efficient manner. Cost
report evaluates the income and expenses of the the particular activity which leads to higher
growth and efficiency of the business.
Management accounting techniques
Marginal costing: This technique evaluates the variation in the total cost with the change
in the level of production. This helps management of the Hochtief company in determining the
extra cost incurred while producing extra units at the time of production.
Advantages of Marginal costing
It is easy to determine and helps in controlling the cost of production. This also focuses
on eliminating the cost variance of the company because fixed overhead does not change. This
leads to better decision making and higher future growth of the organization.
Disadvantages of Marginal costing

It is very difficult to determine the degree of deviation because it does not take into
consideration all variable overheads. The marginal costing remains constant only for the short
duration of time.
Absorption costing:
Absorption costing takes into account all cost attached to the manufacturing process. This
includes direct cost, indirect cost to give accurate results and helps in strategic decision making.
Advantages of Absorption costing
Absorption costing is an effective method which helps in effective decision making and
also has less fluctuations in the profit margins (Absorption Costing: Meaning, Advantages and
Disadvantages, 2019). This method can determine profits more accurately by taking into account
all production cost.
Disadvantages of Absorption costing
This method is not beneficial in improvising the operations of the business. This method
can also skew the profits of the company. This method is difficult to compare different product
lines.
ANNEX A
RAW DATA: Period 1
Particulars Amount(£)
Production
Dining table 5000
chair 20000
Selling price
Dining table 590
chair 90
Direct material
Dining table 215
chair 20
Direct labour
Dining table 90
chair 30

Variable production O/H
Dining table 25
chair 5
Fixed cots 410000
Sales units
Dining table 4350
chairs 16000
production cost
Dining table 330
chair 55
fixed cost per unit 16.4
total production cost
Dining table 346.4
chair 71.4
Profit and loss statement under marginal costing method
Particulars Details Amount(£)
Sales revenue
Dining table 2566500
chair 1440000
4006500 4006500
less
Direct material 935250
Dining table 320000
chair 1255250 1255250
Direct labour 391500
Dining table 480000

chair 871500 871500
Variable production
overheads 108750
Dining table 80000
chair 188750 188750
2315500 2315500
Less-closing stock 214500
Dining table 220000
chair 434500 434500
Contribution 1256500
less- Fixed cots 410000
Net profit 846500
Income statement under absorption costing method
Particulars details Amount(£)
Sales revenue 2566500
Dining table 1440000
chair 4006500
less 4006500
Direct material 935250
Dining table 320000
chair 1255250 1255250
Direct labour 391500
Dining table 480000
chair 871500 871500

Variable production
overheads
Dining table 108750
chair 80000
188750 188750 2315500
less- Fixed cots 410000
Less-closing stock 410000
Dining table 225160
chair 285600 510760
510760
Net profit 770240
Interpretation: From the above profit and loss statement it has been summarized that,
the net profit of the company through marginal costing is 846500 and with absorption costing
technique is 770240. this states that the company is able to generate higher profits through
marginal costing technique because fixed cost is not considered. While in absorption costing, all
the cost is taken into consideration i.e., fixed cost, variable cost and overhead cost. Absorption
cost is an effective method as it will show true profits which will lead to effective decision
making.
RAW DATA: PERIOD 2
particulars Amount(£)
Production
Dining table 5200
chair 22000
selling price
Dining table 590
chair 90
Direct material
Dining table 215
chair 20

Direct labour
Dining table 90
chair 30
Variable production overheads
Dining table 25
chair 5
Fixed cots 482000
Sales units
Dining table 1700
chairs 19100
production cost (variable)
Dining table 330
chair 55
fixed cost per unit 17.72
total production cost (variable+fixed)
Dining table 347.7
chair 72.7
closing stock units==opening
stock+purchases-sales
Dining table
650
4000
opening stock
Dining table 4150
chair 6900
Income statement under marginal costing method

Particulars details Amount(£)
Sales revenue
Dining table 1003000
chair 1719000
2722000 2722000
less
Direct material
Dining table 365500
chair 382000
747500
Direct labour
Dining table 153000
chair 573000 726000
Variable production
overheads
Dining table 42500
chair 95500 138000 1611500
Less-closing stock
Dining table 1369500
chair 379500 1749000 1749000
Contribution -638500
less- Fixed cots 482000 482000
Net loss -1120500
Income statement under absorption costing method