Comprehensive Management Accounting Report for Nero Limited

This report provides a detailed analysis of management accounting practices, focusing on Nero Limited, a UK-based financial services company. It explores various aspects of management accounting, including different types of management accounting systems, such as price optimization, inventory management, cost accounting, and job costing systems, and their respective requirements. The report evaluates the benefits of these systems and examines various methods used for management accounting reporting, such as budget reports, inventory management reports, cost management reports, and performance reports. Furthermore, it includes the preparation of income statements using marginal and absorption costing techniques, along with working notes for calculations. The report also discusses the advantages and disadvantages of different planning tools and budgetary control, and provides a comparison of how organizations can solve financial problems by implementing management accounting systems. The conclusion summarizes the key findings and emphasizes the importance of integrating management accounting systems with organizational processes for effective decision-making and financial success.

Management
accounting

Table of Contents
Management accounting..................................................................................................................1
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P1: Management accounting and types of management accounting system and its
requirements...........................................................................................................................1
P2: various methods used for management accounting reporting..........................................3
M1. Evaluation of benefits of various management accounting systems..............................4
D1 Management accounting system and management accounting reporting are integrated
with organisation process.......................................................................................................4
TASK 2............................................................................................................................................4
P3 Prepare income statement by using marginal & absorption costing techniques...............4
M2 Management accounting techniques and financial reporting documents........................8
D2 Financial reports which applies to interpret business activities.......................................9
TASK 3............................................................................................................................................9
P4 Advantages and Disadvantage of using different types of planning tools........................9
M3 Use of different planning tools and their application for preparing and forecasting the
budget...................................................................................................................................11
TASK 4..........................................................................................................................................11
P5 Comparison of organisation to solve the financial problem through implement
management accounting system...........................................................................................11
M4 Management accounting system can lead to the sustainable success for solving the
financial issues......................................................................................................................13

D3 Planning tools for accounting respond accurately to solve the financial issues that leads to
the sustainable success.........................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is the procedure of preparing management accounts and written
report that furnish correct statistical and financial data required by administrator to make regular
decisions. In simple words processing of the financial information and convert into useful
information that will useful for managers to take decisions. Management accounting facilitates
effective short term and long term planning. Management accountant formulate or prepare all the
reports and statements of a company and he is also responsible for the decisions of the
organisation that is taken by analysing all that financial reports and statements. In this
assignment report Nero limited is taken which is a UK based company that engaged in financial
services. They work with the aim of providing effective consultancy to their clients in terms of
financial matters. It has a client base of 50 small and medium sized business. In this present
report many methods has been covered that are used in management accounting reporting, also
find out the cost using different method and process of cost analysis by preparing income
statement using absorption and marginal costs, also discuss various planning tools and budgetary
control and their advantages and disadvantages and done comparison that at the time of financial
problems how organisation adapting management accounting to respond.
Task 1
P1: Management accounting and types of management accounting system and its requirements.
As per institute of cost and management accountants management accounting is
formulation of accounting information by using skills and knowledge in such a way that help
management in the preparation of policies and in the planning and controlling of business
activity.
Likewise, as per American accounting association management accounting consider the
verity of idea and methods which are essential for impressive planning for choosing among
alternate business actions and for control through the appraisal and reading of performance
(Arnaboldi, Lapsley and Steccolini, 2015).
Nero limited required support from management accounting because it helps in
formulating reports for a company. It is also facilitate effective decision-making and increase
efficiency as well as profitability of the company by analysing the financial reports of the
organisation. Company required various management accounting system are as follows:-
1

Price optimization system :- Price optimization system is a type of mathematical tool or
programs by which compute different price level that leads different level demand, then combine
all the information on stock and expenditure with data to suggest price that generate profit. Nero
limited used price optimization system to find out the initial level pricing. At what price
organization need to sell its product to gain market share as well as to increase profit also. It also
helps to determine discount pricing and promotional pricing. Promotional pricing refers to the
temporary price which is set to increase sales or demand at a particular time period. Nero limited
formulate effective pricing strategies by the help of price optimization system (Bebbington,
Unerman and O'Dwyer, 2014).
Inventory management system :- Inventory refers to the stock of goods and material.
Inventory management refers to the tools and techniques are used such as software, mobile,
barcode scanner and other device to manage the stock. Nero Ltd. used this system to smooth the
workflow of the organisation by providing sufficient stock. It also helps to analysing the
requirement of stock at different time and always maintain minimum stock level that avoid
wastage of resources and prevent from the stoppage of workflow. It focused on two main
functions of warehouse incoming and outgoing of stock and control accurately the present level
of stock.
Cost accounting system :- cost accounting system is also known as costing system and
product costing. It includes determining the price of the project, products etc. that leads to
accuracy of financial reports and statements. Also aid administration in the planning and control
of the organisation (Cost accounting systems, 2013). It is a model used by Nero Ltd. to estimate
the cost of their products for profitability analysis, price control and stock evaluation. Cost
accounting system also helps to determine the unprofitable activities of the organisation because
not all the activities of the business leads to profits so it analysis the profitable and unprofitable
activities of the organisation (Bryer, 2013).
Job costing system :- Job costing system refers to the procedure of accumulating
information about the costs connected with a particular production. It is the scheme for assigning
industry cost of individual unit of output so it is used when product that are produced are
different from each other and each have particular cost. This data may be required in order to
submit the price information to a customer below a written agreement where costs are returned.
Nero Ltd. used this system because it provide information about all types of cost present in the
2

manufacturing process. Such as labour cost, raw material cost etc. and it is also helpful in
determining profitability of each and every job. Nero Ltd. also get all the benefits of budgetary
control by follow pre determined overhead rates in job costing.
P2: various methods used for management accounting reporting
Budget report :- A budget is a financial document that is used to examine upcoming
income and expenses of the business. Budget reports are helpful for small scale business owners
to analyse enterprise performance and manager of the organisation analyse their department
performance and also control expenditure. So Nero Ltd. used this method to analyse the
organisational performance and department performance because it is helpful for small scale
business owners. It also aid production planning and allows comparing actual details with
budgeted details to control the manufacturing procedure of the industry (Christ and Burritt,
2013).
Inventory management report :- Inventory management reports make manufacturing
process very smooth and efficient and it is also very useful for any small scale organisation
which keep physical stock or produces goods. These reports includes every general information
such as amount of stock wastage, individual labour cost, per hour cost. All these information are
analysis by the organisation and determine the areas where the company need improvement.
Cost management report :- managerial accounting calculate the cost of products that
are manufactured. All expenses such as labour cost,raw material cost, etc. are taken into
consideration. All the information are included in cost reports by the help of this manager is
recognize the cost price of particular product and selling price. It helps in to estimate profit
margins of the particular products and company can see a clear picture of all the expenses
incurred in the production. This report helps Nero Ltd. to find out all the cost that incurred in
manufacturing process and the selling price of property. And through this report also find out the
profit margins of the particular product.
Performance report :- Nero limited uses this technique in order to evaluate the
performance of the organisation. In this it includes all factors which are related with
organisational performance as well as employee's performance. Along with this it helps them to
identify the difference between two different figures so they take appropriate action in order to
achieve organisational goal (Damodaran, 2012).
3

M1. Evaluation of benefits of various management accounting systems
Different management accounting systems have different benefits if an organisations uses
such system for the purpose of achievement of its desired goals and objectives. Here are the
some management accounting systems along with their benefits:
Advantage of cost accounting system:
 It is helpful for management to set up the prices of products by analysing the cost
invested in producing the products and services. It facilitate management to determine the causes of extra cost incurred in business
process which enable them to make effective planning in future.
D1 Management accounting system and management accounting reporting are integrated with
organisation process.
For the beneficial of LM Engineering Ltd., integration between management accounting
system and accounting reporting is must as both concept assist management in making an
effective decisions and plans in achievement of organisational goals and objectives.
TASK 2
P3 Prepare income statement by using marginal & absorption costing techniques
Cost: Cost can be anything which is measurable in terms of money . It is the amount that
has to be paid or given up in order to buy something. Cost is usually a monetary valuation of
efforts ,material, resources ,time and utilities, risk incurred and a opportunities forgone while
producing a goods or services. All expenses are cost but all cost are not expenses. Cost can be
the amount of money required to do the business or to do jobs. These are of two types Marginal
cost and Absorption cost.
Absorption costing : It is a cost accounting methods for valuing inventory. It includes all
the cost of manufacturing a product including both variable and fixed cost. It means all costs
such as direct cost, overhead cost are used for valuing the inventory. This is required to
differentiate the cost which is used for the creating and computing the cost of every items.
Marginal costing : It has been derived from the variable cost as the fixed cost remains
unchanged as output changes. It refers to increase and decrease in the cost of producing one or
more units or serving and additional customers. It is the cost of producing an extra units.
4

For calculating net profitability of the company the manager of cost accounting will use
different techniques of costing is the marginal costing and absorption costing (Fowzia, 2011).
Income statement for the month of May (Marginal costing)
Particulars Amount (in £)
Sales
Less- Marginal costs
Less- Opening inventory
Add- Closing stock
Gross profit
Less- Fixed cost:
Less- Sales commission
15000
(6400)
-
3200
11800
(10000)
(750)
Net profit 1050
Working note:
Calculation of sales amount (300x50) = 15000
Calculation of marginal cost: (Direct material cost+ direct labour cost+ variable production
overhead: 8x300+ 5x500+ 3x500)= 6400
Calculation of fixed cost: (Fixed selling expenditures + Fixed administration
expenditures+ Fixed production cost- 4000+2000+4000)= 10000
Income statement for the month of June (Marginal costing)
Particulars Amount
Sales
Less- Marginal cost
Less- Opening stock
25000
(6080)
(3200)
5

Add- Closing stock
Gross profit
Less- Fixed cost
Less- Sales commission
1280
17000
(10000)
(1250)
Net profit 5750
Working note:
Calculation of sales amount (500x50) = 25000
Calculation of marginal cost: (Direct material cost+ direct labour cost+ variable production
overhead- 8x380+ 5x 380+ 3x 380)= 6080
Income statement for the month of May (Absorption costing)
Particulars Amount
Sales
Less- Absorption costing:
Direct material cost- 4000
Direct labour cost- 2500
Variable production cost- 1500
Fixed production cost- 3000
Less- Opening stock
Add- Closing stock
Gross profit
Less- Fixed cost:
Fixed selling expenditure- 4000
Fixed administration expenditure- 2000
Less- Sales commission
15000
(11000)
-
5200
9200
(6000)
(750)
6

Net profit 2450
Income statement for the month of June (Absorption costing)
Particulars Amount
Sales
Less: Absorption costing:
Direct material cost- 3040
Direct labour cost- 1900
Variable production cost- 1140
Fixed production cost- 3800
Less- Opening stock
Add- Closing stock
Gross profit
Less- Fixed cost:
Fixed selling expenditure- 4000
Fixed administration expenditure- 2000
Less- Sales commission
25000
(9880)
(5200)
2080
12000
(6000)
(1250)
Net profit 4750
Budgeted and actual cost of metal used in
producing Product A
Budgeted material cost
per unit of the product 2kg at £10/kg
Actual output 1000 units
7

Actual material
purchased and used 2200kg
Actual material cost £20,900
Actual material cost 10450
May.1
Opening
Inventory of 40
units @£3 each 120 10570
May.12
Bought 20 units
@ £3.60 each 72 10642
May. 15 Issued 36 units 118.8 10523.2
May.20
Bought 20 units
@3.75 each 75 10598.2
May. 23 Issued 10 units 34.5 10563.7
May.27 Issued 25 units 86.25 10477.45
May.30 Issued 5 units 17.25 10460.2
M2 Management accounting techniques and financial reporting documents
There are some techniques of management accounting which are beneficial while
preparing the budgetary reports and proclamations. The plan has to be prepared by the
organisation for their monetary collection like Profit and loss, balance sheet for utilising the
strategies of book keeping and devices. Budgetary informations need the instructions of
bookkeeping to prepare the monetary reports. Prompt summary of budget with the help of
various bookkeeping instructions are given to the company Nero limited It also provides
strategies that work as an evidence for monetary information that is required for owning
budgetary expression that is influenced from the executives bookkeeping device.
8

D2 Financial reports which applies to interpret business activities
To analyse the financial condition if the firm in the market place companies use some
part of the financial statement that are profit and loss, balance sheet and cash flow statement. In
this given assignment various methods of costing has been used such as marginal and absorption
costing. During the period of may the sales of the firm was £15000 which state that the position
of the company Nero limited in the market place is at prime. In relation to this the firm has it
marginal costing £6500 and closing stock is £2000 . The organisation use the amount of its net
profit 2450 to maintain their supreme position in the marketplace.
TASK 3
P4 Advantages and Disadvantage of using different types of planning tools
Budgetary control refer to the process through which managers formulate effective
budget in order to set the standard to perform a particular activity. The main agenda of this is to
evaluate the actual performance with the expected performance of the management. There are
different kinds of tools that support budgetary control is explained as below:
Static Budget- This budget are decided by the management which are inflexible which
governs that there is no change in their budget (Kober, Subraamanniam and Watson, 2012).
Therefore it is also known as fixed budget as there is no change in them whether there is increase
or decrease in sale of its products. It includes those report which remain constant in the whole
process of budget. These type of budget are implemented by Nero limited for operate their
business in short term period. Some advantage and disadvantage of them is as follow:
Advantages
 These type of budget is not modified like another budgets. It helps them to reduce their
cost and time also.
 Static budget are easy to track because they are fixed and does not change easily.
Disadvantages
 Due to low flexibility it is very complex for the organization to modify and adopt
essential changes that improve the efficiency of the budget.
 This budget are specific which results that they does not provide new alternative to
achieve company goals.
9