Management Accounting Analysis for Essentra Packaging - Unit 5

This report provides a comprehensive overview of management accounting principles and their practical application, using Essentra Packaging as a case study. It begins by defining management accounting and outlining its essential requirements, emphasizing the importance of reliable and up-to-date information. The report then delves into different types of accounting systems, including price optimization, inventory management (LIFO, FIFO, AVOC), and job costing, highlighting their benefits. A detailed comparison between management and financial accounting is presented. The second part of the report focuses on various management accounting reports, such as cost managerial, budget, and performance reports, explaining their significance for effective decision-making. The report also explores different cost analysis techniques, including marginal costing and absorption costing, illustrating how they are used to prepare income statements and calculate costs. It further examines the advantages and disadvantages of various planning tools and evaluates their role in preparing budgets. Finally, the report discusses how management adapts to respond to financial problems, providing a holistic view of management accounting practices.

Unit 5 Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1 ...........................................................................................................................................4
P1 Management accounting system and their essential requirement..........................................4
P2 Type of management accounting reports and its importance to management.......................7
M1 Various type of system and their benefits ...........................................................................8
TASK 2............................................................................................................................................9
P3 Cost analysis techniques to prepare income statement to calculate cost...............................9
M2 Range of management accounting techniques....................................................................14
P4 Advantage and disadvantage of various types of planning tool..........................................14
M3 Evaluation of planning tool for preparing budgets.............................................................15
P5 Adaption of management according to respond financial problem.....................................16
CONCLUSION .............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting known as managerial accounting system that aid organisation to
operate their business operations. Management accounts are of different types which is essential
for managers to undertake as to formulate decisions in best effective manner. With the help of
accounting system managers can make internal decision-making process related to financial and
non-financial aspects in best effective manner. Management accounting system benefits
organisation to take advantage of different tools, techniques and methods and conduct operations
of company in best effective manner. As to effectively understand concept and practices of
management accounting Essentra Packaging is used in present report. In this project formative
discussion has been made on management accounting concepts. Further report include
managerial techniques along with disadvantages and advantages of planning tool.
TASK 1
P1 Management accounting system and their essential requirement
Management accounting: It is a systematic process that include different types of
activities such as presentation, analysation and collection of non-monetary and monetary terms.
By undertaking management accounting organisation can effectively able to take numerous
advantages through which their can further able to accomplish their daily basis operations related
to planning, organizing, staffing, decision-making and controlling in best effective manner. Thus,
it is essential for Essentra Packaging to understand importance of management accounting in
order to conduct their daily basis operations. This will significantly aid them to accomplish their
short as well as long term objectives in best effective manner.
Reliability:
It is essential for an organisation to have all the essential and related data as well as
information in reliable manner. This will further aid company to undertake best effective form
decision-making process in order to improve future performance of organisation.
Up to date:
It is the basis responsibility to company managers to make sure that informations that are
covered in accounting statements are accurate and up-to-date. With the help of best effective
form of accounting system organisation can effectively able to maintain financial records as to
operate their business functioning in best effective manner while assuring market stability.
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Different Types of accounting system:
Price optimisation system –
Price optimisation system aid organisation to evaluate price of their related products as
well as services. This will allow Essentra Packaging to review perceptions of customers on
different pricing level. With the help this company can able to gain sustainable advancements in
marketplace with larger competitive edge organisation is required to set price of products and
services in a well structured manner. This will allow company to significantly increase overall
profitability of organisation. In order to accomplish this organisation is required to identify
behaviour of customers related to products and service.
Inventory management system -
Organisation is required to manage their day to day function, for this they are required to
keep constant track of their inventory segment. Inventory management system allow company to
have regular track on their utilization of resources. This will allow them to reduce unnecessary
amount of wastage. Further it has been identified that, it is essential for Essentra Packaging to
undertake different strategies related to inventory management as this will benefit them to
control their excess wastage and expenses. With the help of this company can effectively able to
engage in cost-effective manufacturing process. This will significantly aid company to enhance
their profitability and productivity. Thus, It is essential for Essentra Packaging to implement
inventory management system within their operational system as to gain maximum advantages
while reducing necessary amount of wastage.
 LIFO –
◦ This method indicates that those stock that come at the end will go out first. Thus,
LIFO method is last in first out.
 FIFO –
◦ FIFO method is stock coming first and sale out first. Thus, in FIFO there is the
process of first in first out.
 AVOC –
◦ AVOC method included calculations of cost of inventory on average basis.
Cost accounting system –
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Cost accounting system benefits company with numerous form of benefits for an instance, it will
allow organisation to effectively manage their cost input in each and every activity. With the
help of this they can enhance organisational overall profitability in best effective manner. In
addition with this, organisation can conduct their activities related to understanding, evaluation
and summarising of cost of services and goods in a well define manner. It has been further
identified that cost accounting system benefit Essentra Packaging to operate their business
functions with estimated cost and further increase overall profitability of organisation in best
effective manner.
Job costing system –
Job Costing system allow organisation to evaluate organisation overall expenditure rate
during the process of particular job. This method is mainly suitable in those organisations those
who are engage in providing multiple products and services to customers. As Essentra Packaging
engage in the process of offering different form of manufacturing services to customers. Thus, it
becomes important of company to make effective evaluation of every single individual unit cost.
Essentra Packaging by udertaking job costing system can able to gather required data which is
affiliated with particular assigned job. There are some certain data as well as information which
is being defined below that can be undertaken by company with the help of job costing system:
Direct material –
It is most crucial element in variable cost. This will allow organisation to have
continuous track on this manufacturing segment. This will benefit them to manage their
organisational cost linked with particular job.
Direct labour –
This factor signifies that organisation can have regular track on their specific job. With
the help of this company can effectively able to accomplish their tasks and operations within
specified period of time .
Overhead -
At the last ending phase of every accounting period all sum of every cost to apply
methodology linked with allocation.
Difference Between Management Accounting and Financial Accounting
Management Accounting Financial Accounting
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 In management accounting there is no
internal regulations and it is mainly use
of internal use only.
 Financial accounting is mainly
regulated by law and are basically for
external use.
 Management accounting provide
detailed analysis of qualitative,
financial and non-financial form of data
and information.
 In this there is a overview of
performance of organisation that
mainly include financial information.
 In this there is no indulgence of legal
requirements in order to prepare
management accounts.
 In this, organisations have limited
liability as per law as to develop
financial accounts.
P2 Type of management accounting reports and its importance to management
There are numerous form of management accounting report that aid an organisation to
maintain proper record of their financial informations. With the help of this they can
significantly able to manage their day-to-day functioning while assuring sustainability increase
in organisational profitability. Mentioned below there are some system that will aid beneficial
advantages of organisation in order to increase efficiency of daily basis functioning:
Cost managerial accounting report:
Cost managerial accounting effectively aid organisation with management of their daily
basis cost and expenses accurately. In order to effectively operate their functions company is
required to evaluate cost of products as well as services. With the help of this company can
effectively able to identify their ratio of profit as well as loss of products and services. This
further allow company to control their unnecessary cost and expenses. This will also benefit
company to conduct their operations in cost effective manner and further offer their products and
services to customers in cost effective manner.
Budget report:
With the help of budget report organisation can effectively able to determine the overall
amount of spending on organisation on annual basis and can further further able to control
unnecessary expenses and waste. In addition with this, it is essential for organisation to ensure
that budget should be genuine and are must be presented at the year end. Thus, it is essential for
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organisation to undertake this form of budget report in order to conduct comparison between
actual report and budget within accounting. After the completion of this report it is essential to
present this in front of upper level of manager in order to effectively access budget authenticity.
With the help of this company can effectively able to manage their cost as well as expenses in
best effective manner.
Performance report:
It is a systematic layout that basically include cost that incurred during the completion
of project. In this leader of an organisation effectively consider all essential resources in order to
achieve long term and short term objectives of organisation. With the help of performance report
organisation can effectively able to have accurate information related to organisation actual
position. This will further aid them to balance performance with set standards. With the
effectively evaluation of performance leader can able to undertake strategies and can further
implement plans and policies in order to effectively accomplish organisational goals in best
effective manner. In addition with this, it has been determined that performance report aid
organisation to accomplish their organisation goals and objectives in best effective manner. With
the help of performance report organisation can effectively able to identify the fund that are
required by them in order to expand their short and long term goals. This will allow them to
expand their services at international market in best effective manner. In order to ensure
efficiency of performance it is the basic responsibility of supervisors as to effectively have track
on their plan in order to ensure that all the activities are operated on continuous basis. With the
help of this managers can effectively able to expand their business while gaining more
competitive advancements.
M1 Various type of system and their benefits
System Benefits
Cost Accounting system  This system aid an organisation to identify
unnecessary and unexpected cost that prevails in an
organisation. With the help of this they can
effectively able to improve profit holding capacity
of organisation.
Inventory Management System  Inventory management system aid company to have
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proper and effective record of inventory ratio. This
will allow organisation to offer their products and
services according to defined cost.
Job Costing system  Job costing system benefit organisation to identify
their functioning in best effective manner and can
maintain profit holding capacity of organisation.
Price Optimisation System  Price optimisation system aid organisation to
effectively analyse current market condition and
then offer their products and services according to
need. With the help of this they can effectively able
to gain more competitive advancements while
increasing consumer base.
TASK 2
P3 Cost analysis techniques to prepare income statement to calculate cost
Marginal Costing:
It is termed as a techniques that are mainly undertaken in order to evaluate marginal cost
of units. Most important aim of this method is to identify expenses that undertake because of
production of additional unit of juices. In context with Essentra Packaging this technique is
undertaken by manager as to identify cost of every unit. Mentioned below cost of profit with the
help of this techniques is defined below:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales
Direct Material Costs -180000 -216000
Direct Labour costs -40000 -48000
Variable Production
Overheads -30000 -36000
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Contribution 250000 300000
Less:
Variable selling
overheads (10% sale
value) -50000 -60000
Fixed selling expenses -14000 -14000
Fixed Administration
Overhead -26000 -26000
Fixed production
overheads -99000 -99000
Net Profit 61000 101000
Absorption costing:
It is consider as a costing technique that are undertaken by organisational manager to
evaluate cost that are mainly linked with manufacturing activities of particular product. In
Essentra Packaging that technique is undertaken by organisational management to ensure that
costs that have taken place because of production of diverse unit get duly absorbed from the
revenue of then same. Mentioned below calculation of profit with the help of this method is
being defined:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales -340000 -408000
Gross profit 160000 192000
Variable selling
overheads (10% sale
value) -50000 -60000
Fixed selling expenses -14000 -14000
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Fixed Administration
Overhead -26000 -26000
Under/overabsorbed prod
expenses 9000 -9000
Net Profit 79000 83000
M2 Range of management accounting techniques
Organisation can effectively able to perform their operations with the help of
management accounting techniques. These techniques are most important tool that aid company
to effective-d prepare their financial reports and techniques in best effective manner. In order to
ensure smooth functioning management accounting will effectively benefit company to measure
to effectively determine variance in variable cost treatment.
P4 Advantage and disadvantage of various types of planning tool
Budget is known as an one of the important instrument which helps organisation to make
an estimate about the expenses that occur in the organization. It help companies to achieve their
task on time in an effective manner. In the organisational structure of Essentra, manager can
control their expenses with the help of different form of budgets. In addition with this, it also
permit organisation to solve different types of uncertain situations. There are two types of budget
which are discussed below:
Budgetary control:It is a system as to effectively monitor process in organisation in
terms of budgetary, monetary types, operating and non-monetary budgets. This budget
significantly aim towards provide benefit to manager as to help them to coordinate their
functions as to effectively fulfil organisational goals. This budget provide clear set of guidelines
related to expectation and organisation resource.
Operational budgetary control: This process effectively aid manage to frame performance and
financial goals in accordance with budget. In addition to this, it has been identified that
comparing budget with actual set of operational result is mainly termed as budgetary control.
With the help of operational budgetary control manager can define organisational goal and
further make formative efforts as to achieve them in well defined manner.
Advantages:
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 It aim towards making significant increase in organisation profitability and further
formulate coordination. It is also use in measuring performance and significantly reduce
the cost that are associated with manufacturing process.
 This helps in increase organisation productivity while maintaining cost margin. In
addition to this, it also aid in making introduction of incentive schemes of remuneration.
Disadvantage
 It may increase number of conflicts among various department as every manager have
different set of perception.
Variance analysis:
Variance analysis is termed as a study of derivations of actual behaviour against planned
behaviour within budgeting. In addition to this, it is also signified as quantitative investigation of
difference among planned and actual behaviour. Along with this there are distinguish variance
like labour rate, variable overhead variance and purchase price.
Standard costing:
This is mainly a standard costing that are undertaken by manufactures as to make
significant difference in between actual and desired cost that has been undertaken as to produce
goods. In this the cost that mainly take place for actual good output is termed as standard cost.
Fixed Budgets:
Fixed Budget effectively aid managers to allot funds in a fixed manner as to conduct
activities in best effective manner and also in perfect time frame. By undertaking fixed budget
managers can not change allotted funds in any possible conditions. This will effectively allow
company to operate their functions in best effective manner.
Advantages: With the help of fixed budget organisation can effectively able to
accomplish their short as well as long term goals and objectives in best effective manner and
further can accomplish their organisational objectives.
Disadvantage:In this there are many changes occurred within external and internal
environment. Thus, fixed budget create numerous obstacles in front of organisations that may
lead towards downfall of company.
Cash Flow Budget: In Essentra Packaging it is considered as total computation of outflow of
inflow of funds for particular time period.
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