Unit 5 Management Accounting Report: Creams Ltd Analysis

This report delves into the core concepts and practical applications of management accounting within the context of Creams Ltd, a UK-based company. It initiates with an introduction to management accounting, emphasizing its significance in strategic planning and decision-making. The report then explores various management accounting systems, including cost accounting, price optimization, and inventory management, evaluating their benefits and essential requirements. Different management accounting reporting methods, such as performance reports, budget reports, and cost managerial accounting reports, are examined. Furthermore, the report analyzes the integration of management accounting systems and reporting within organizational processes. It also discusses cost calculation techniques and the role of financial reports in interpreting business activities. The report further assesses planning tools for budgetary control, comparing their advantages and disadvantages, and examines how organizations apply management accounting to address financial challenges. The report concludes by summarizing the key findings and implications of management accounting practices for businesses like Creams Ltd.

MANAGEMENT
ACCOUNTING
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Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Management accounting and different types of system........................................................3
P2: Different method for management accounting reporting. ...................................................5
M1. Evaluation of benefits of various management accounting systems...................................6
D1 Management accounting system and management accounting reporting are integrated
with organisation process. ..........................................................................................................7
TASK 2............................................................................................................................................7
P3: Calculation of costs by using appropriate techniques...........................................................7
M2: Management accounting techniques and financial reporting documents..........................10
D2. Financial reports which applies to interpret many business activities...............................11
TASK 3..........................................................................................................................................11
P4. Advantages and disadvantages of different types of planning tools of budgetary control. 11
M3. Usage of different planning tools for preparing and forecasting budgets.........................14
TASK 4..........................................................................................................................................15
P5. Management accounting systems for responding to financial problems............................15
M4. Management accounting in response to financial problems..............................................17
D3 Various planning tools to resolve financial problems.........................................................18
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19
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INTRODUCTION
Management accounting is a very crucial component for an organisation in developing plans
and strategies for accomplishing their desired goals. Through this component, firms develop their
reports for taking effective decisions in order to ensure the successful implementation of
strategies and plans. Accounting managers has the roles and responsibilities for managing the
accounting activities so that organisational operations can run smoothly without any issues. It
helps an organisation to maintain their strong financial stability in competitive market
environment by preparing financial accounts such as profit and loss a/cs, balance sheet, and cash
flow statement. The taken firm for this assessment is Creams Ltd which is providing ice creams,
doughnuts, waffles etc. to their customers across UK. This report will discuss the management
accounting systems along with the methods used for management accounting reporting. Along
with this, essential requirements of management accounting systems are also discussed under
this report. The report also explains the different costing methods such as absorption and
marginal costing methods so that the management of Creams Ltd. can decide the selection of
method according to their business objectives. Further, the advantages and disadvantages for
different type of planning tool will be discussed used for budgetary control. This report will also
discuss the comparison of how organisations are adopting management accounting systems for
responding to their financial problems.
TASK 1
P1: Management accounting and different types of system.
Management accounting is the procedure of managing the different aspects of an
organisation by developing the reports. This concept is very beneficial for the business
organisations in developing effective strategies and plans through which objectives can be
achieved in future time of period. This method is not compulsory for the organisation but it can
be used in needy times for enhancing the efficiency and reducing the errors. There are various
types of management accounting systems which can be used by the firms as discussed below:
Cost accounting system: This system is beneficial for the organisations in determining their
various costs such as fixed, variable cost etc. The determination of these costs for their products
and services assist the firms in determining their profit and loss as they can keep an eye on the
expected and obtained results for determining the performance of their offerings. Creams ltd. Is a
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small firm due to which it is using this system for checking the costs and other financial data of
their products. Through this, the company is ensuring that focus is given to those products which
are serving the customer needs and proved beneficial for the organisation.
Essential requirements-
 Cost Accounting System should be able to provide the organizations with an input
measurement basis. By doing so it will ensure that it is able to identify the right way
through which the measurement of costs can be done. This can help the managers of
Creams Ltd. And the managers are required to ensure this. In a Cost Accounting System there should be the use of techniques through which the
costs can be reduced effectively in the organization. For Creams Ltd. This can be helpful
and the managers must ensure this.
Price optimisation system: This is another system which is used by the business firms for setting
the process of their products and services. This system provides the factors which can impact the
price of the offerings of company. Through this system, companies can analyse the reviews and
feedbacks of the customers regarding the price range so that better decisions can be taken for
ensuring customer satisfaction which will enhance the brand image too. Creams ltd. is also using
this system for setting their prices. This ensures that the prices set by the Creams ltd. will ensure
customer satisfaction and trust as products are provided to them at affordable prices which are
also value based. Along with this, it also helps company to acquiring information about the
actual thoughts of their targeted customers towards their old pricing strategies and make changes
accordingly so as to retain them with company for longer duration.
Essential requirements-
 In a price optimization system there should be a systematic use of right methods for
collection of historical data regarding the prices. Therefore this will ensure that Creams
Ltd.'s managers are able to make the correct use of this data. In a price optimization system, there must be a use of varied techniques of setting up
price according to a change in demand level. In this way the management of Creams Ltd.
will be able to identify the right price to be set according to a change in demand level.
Inventory management system: This system is used for managing and tracking the inventories
for an organisation such as products and services. This system is also beneficial for tracking the
status of the offerings provided by company to its customers. Through this system, firms can
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improve their supply chain management. Creams ltd is providing ice cream products to their
customers due to which it is essential for Cream ltd. to streamline their inventory for providing
products in an effective manner. This tool has been proved beneficially for the firm in improving
the gap between supply and demand. Adoption of such kind of system helps Creams Ltd. to
minimise business cost by controlling over storage cost of inventory by ordering whenever
required. This makes easy for company to meet the demands of their loyal clients on due date
which indirectly increases their brand image and reputations in rivalry market.
Essential requirements-
 In an Inventory Management System, there should be a use of Inventory Management
Software which manages and tracks the inflows as well as outflows of the stock items
and therefore is able to manage them in a highly effective manner.
 Inventory Management System must ensure that the methods like LIFO, FIFO, Weighted
Average Cost etc. can be used so that stock level can be monitored and if there are any
variances and deviations then they can be rectified effectively.
While considering various management accounting system the managers need to take
into consideration various essential requirements such as :
 Management style: The organisation follows different styles of management with the
help of which they can define to whom and how to inform and get the results. The
Creams ltd has been taking into consideration the democratic style due to which they
easily adopt different management accounting system.
 Organisation structure: It defines the roles and responsibilities of different persona and
the structure in which the people has to work. Creams ltd has been considering
functional structure within their organisation.
P2: Different method for management accounting reporting.
Management accounting of reports is very important for an organisation as these helps in
decision making process. Management accounting is also essential for the business organisations
in taking the decisions regarding the internal information and parts of business. Through these
reports, the business managers can take suitable and effective decisions for implementing the
business strategies so that better output can be obtained (Adler, 2013). The management
accounting reports consist of both monetary and non monetary information. Cream ltd is using
different types of reports which are discussed below:
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 Performance reports: These reports are developed for measuring and evaluating the
performance of business functions. Performance reports play an essential role in
determining the performance of employees and the business activities so that proper
rewards can be provided to them accordingly. Cream ltd is using the performance reports
for determining the efficiency and performance of their employees. Through this
determination, the company is providing enumeration to the employees so that they can
accomplish their goals in a more effective manner. Budget report: This report is used by the organisation for determining the variation in
expected and obtained performance. Through this, managers can develop better policies
and strategies based on the output obtained through report. This report also estimates the
expenses of the firm for a future time period which will be followed by the departments
and firm. Cream ltd is using this type of report for comparing their obtained financial
efficiency with the targeted goals in order to determine the errors and flaws in strategies.
This is beneficial in improving and implementing the future policies if the current
strategies are giving less output than expected. Accounts receivable ageing report: such type of reports contain the data associated with
the credit transactions of the company. This report is mostly used by the firms which are
making their transactions in credit form. This is beneficial for the firms in determining
the pending amount of customers in the marketplace (Arroyo, 2012). Also these reports
provide the date and time of the credit transactions for quick calculations. Cream ltd is
using this type of reports for determining the amount credited by the customers to the
company for their products.
 Cost managerial accounting report: This is also an essential type of report which is used
by companies for tracking the profit and loss from the different organisational functions.
This report is useful in calculating the expenses of products before selling and then
compares these expenses with the total amount of money received from selling of
products. When the total expenses are high then selling amount then the company is
facing loss whereas if the expenses are low then it is profit for the firm. Cream ltd uses
this report for determining their profit and loss and if losses occurs then strategies and
policies are developed accordingly.
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M1. Evaluation of benefits of various management accounting systems.
Advantage of cost accounting system:
 This is advantageous in determining the costs of the products and services through
which high margin of profit can be achieved.
 Also advantageous for Creams ltd in determining the issues and errors which are
enhancing the operating costs of the company.
Advantage of inventory management system:
 Advantageous for Creams ltd in tracking the supply and demand of products and
services provided by the company.
 Reduces the time required for tracking inventory which will also saves the costs
for Creams ltd.
Advantages of price optimisation system:
 Prices of the products can be set appropriately based on the reviews and feedback
from customers.
 Provides a tool to Creams ltd for determining the prices of products based on
analysis of customer behaviour.
D1 Management accounting system and management accounting reporting are integrated with
organisation process.
Both management accounting system and reporting system are very much interrelated with
each other which increases the contribution towards achievement of organisational goals and
objectives. It can be understood by the following example, cost accounting system and budget
report both are interrelate with each other in such a way that cost accounting system helps in
identifying the total cost incurred in manufacturing activities and on the basis of which pricing
strategies will be framed. This helps in preparing budget report containing all details regarding
the total funds that an organisation have. Another instance of interrelationship, inventory
management system and report are interrelate with each other as inventory management system
assist in maintaining sufficient amount of inventory which makes easy for accounting manager to
record documents containing the details of level of stock which brings motivation among
employees to perform its roles and responsibilities.
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TASK 2
P3: Calculation of costs by using appropriate techniques
Cost: It involves the amount which is used to invest in execution of project activities with
a hope of achieving efficiency and effectiveness. It is important for the management of Creams
Ltd. to use different costing methods such as marginal as well as absorption costing method
according to the nature and size of business organisation. These costing methods are briefly
explained as under:
Marginal costing- It is a method of cost which includes whole variable cost only and
avoid fixed cost thus it is also known as variable costing method. It is useful for small and
medium sized organisations whose main intentions is to show more profitability under the
financial statement of an organisation as using such method facilitate them to show more figures
of profitability than actual in books of accounts of an organisation.
Absorption costing- It is kind of costing method which is used to genuine actual
financial stability of an organisation by including both fixed and variable costs. It is also known
as full costing method. It is useful for large sized organisation to adopt which helps them in
showing actual figures of profitability under financial statements. It makes easy for them to
retain their loyal shareholders (Absorption costing, 2018).
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M2: Management accounting techniques and financial reporting documents
Management accounting and financial reporting techniques both are important to identify
the actual financial position of an organisation. In the context of Cream Ltd., it is important to
use management accounting techniques to maintain financial reporting documents such as final
accounts including profit and loss a/c, balance sheet etc. This will help in analysing the actual
financial stability of company which makes easy for an organisation to retain their loyal
shareholders.
D2. Financial reports which applies to interpret many business activities
It is important for the management of Cream Ltd. to interpret the information given under
the financial statements into understandable manner which makes easy to make an effective
decision and plans for the achievement of desired goals and objectives within limited time frame.
For this, there are various financial statement which includes profit and loss a/c, balance sheet
and cash flow statement thus it is important to analyse the information so as to identify the actual
financial position of an organisation.
TASK 3
P4. Advantages and disadvantages of different types of planning tools of budgetary control.
Budgetary control refers to the technique of developing future strategies and policies for
better financial performance by analysing the performance from past budgets. This tool is widely
used by the managers of firms for monitoring and controlling the financials objectives as well as
for managing the costs of a specific accounting period (Bennett and James, 2017). The
budgetary controls are essential component for an organisation as these help in managing the
performance of organisational activities through which organisational productivity can be
enhanced. These tools are useful in estimating the expenses of organisations for future activities
and operations. Managers of Cream ltd are setting several targets for controlling and monitoring
the financial activities of organisation. The advantages and disadvantages of these tools are
discussed below:
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