Management Accounting: Techniques, Analysis, and Reporting in Practice

This report delves into the core principles of management accounting, emphasizing its role in organizational decision-making. It explores various techniques and methods used for management accounting reporting, including variance analysis, target costing, standard costing, and activity-based costing. The report also covers the integration of management accounting systems within organizational processes, highlighting the importance of budgeting and cost management. Furthermore, it includes detailed cost analysis, preparing income statements using both marginal and absorption costing. The report also assesses the advantages and disadvantages of different planning tools used for budgetary control. The assignment analyzes Elegant Furnitures Ltd's financial data using marginal and absorption costing and also provides calculations on overhead absorption and an ABC approach for cost allocation. Finally, the report also includes cash flow analysis and budgeting for effective financial management.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY 1....................................................................................................................................1
Part A...........................................................................................................................................1
Different techniques and methods used for management accounting reporting..........................4
Management accounting system and management accounting reporting is integrated within
organisational processes...............................................................................................................5
PART B........................................................................................................................................7
Annex (A)....................................................................................................................................7
Annex (B).....................................................................................................................................7
ACTIVITY 2....................................................................................................................................8
Part A...........................................................................................................................................8
Uses of different planing tools in forecasting budget................................................................10
Annex (c)...................................................................................................................................11
Part B.........................................................................................................................................12
Comparison of how organisations are adapting management accounting systems to respond to
financial problems......................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
In business world, the term management accounting is related to the managing,
controlling, analysing, useful information within an organisation that help the manager to make
meaningful decision in order to increase the overall profitability, productivity (Aksoylu and
Aykan, 2013). In general it is the process of developing accurate reports and final accounts at the
end of accounting year that support to give valuable and accurate financial information that are
needed by the internal manager to make day to day effective decision. Internal Accountant or
manager are more focused to collect and analysed the information that provide the detail picture
of company activity in a year so they use the best techniques and technology and accounting
system that improve and overall performance. The process of cost or managerial accounting start
with the determining, evaluating, measuring, examining, interpreting and transferring of useful
financial data with manager that support them to attain the predefined goals within specific time
period. In various system and effective report of management accounting with there importance
and value for integrated business system have been discussed. Additional, the report describe the
valuable costing techniques to calculate and evaluate net profit and proper cost analysis. To
better understand the importance of management accounting Bentley, is selected. The company
is a British manufacture of luxury cars and SUVs that have its Headquarters in Crewe, England.
In this report, this report also focuses on useful planning tool with there advantages and
disadvantages that help in financial stability and resolve financial different financial problems.
ACTIVITY 1
Part A
Management accounting, is referred to the procedure of monitoring, controlling,
recording, analysing, evaluating and reporting of crucial financial data in order to take decision
according to business need and make it productive and profitable. This process is mainly related
with accountants of company that which consists monitoring costs, increasing sales, analysing
and preparing budgets, timely internal audits, determination of past events and business happing
to predict future requirement and the most crucial to assist company leaders to make valuable
decision related to finance of company. The concept of management accounting differ from
financial accounting because the report prepared are helpful for internal manager and other top
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level manager while in reports prepared in financial accounting are presented to external
stakeholders to take meaningful investment decision.
Management accounting system
In business scenario, different type of management accounting system are applied by
manager in order to evaluate and calculate the overall performance during a specific time frame.
These system are mainly focused to evaluate and record the cost linked with manufacture of
goods, set the best price of produced goods, make record for each job related to manufacture of
goods so that valuable decision are made for better functioning of business operation and
maximize result. Significant management accounting system are discussed underneath:
Inventory management system: This system in supportable for entire supply chain so
that process of production keeps on going to maximise the profit of company. With the support
of inventory system manager of company are able to record each and every aspect of business
related to inventory such as raw material availability for production, goods in processed and
actual quantity of finished goods that are ready for sales. In Bentley, management uses this
system to maintain and hold a systematic record of raw parts to prepare luxury cars, total
quantity of these raw goods used in the manufacture process and overall quantity of hand dryer
that are ready for sales. This help respective company to increase their supply chain by
continuously providing finished goods to supplier on the demand this is also helpful for company
to expand business and increase overall profit. This system consider assets of Bentley, raw
materials, supplies and finished products and use of effective tools such as hardware tools to read
bar code labels, handled barcode scanners etc.
Price optimisation system: This in also an important system used by management of
company that is related to fixing price of manufacture goods as per the responses and demands of
customer. It is also used by company to evaluate and ascertain the best selling price of their
product that will help them to recover the production cost and maximize profit to meet the
desired objective. Thus the price optimisation system is crucial component of entire price
management that is effective and essential for profitability of company during a year. In Bentley,
manager uses this system to fix the best price of their hand dryer on the responses of customer.
They also keeps in mind to recover the overall cost involved in production of hand dryer and
ascertain profit to meet the actual objective of company.
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Job costing system: This types of system is used for the process of predicting useful
information related to the cost to a certain production or particular job within an organisation. It
is a system basically used by the accountant or production manager to track each cost of
producing jobs in fact of every process. In other words, job costing system is a system which
focus on cost of each job assigned regarding to a particular production process. In Bentley, there
are number of employees that are part of production unit so manager wants to assigns cost of
hand dryer and job relevant. Therefore, it is needed that company must evaluate and calculate
total amount spend on employees, actual material expenditure that help them to set price
accordingly to recover and maintain adequate profit throughput year. With the help of this
system manager of Bentley analyse important type of information that are discussed below:
Direct martial: This system keep a track of cost related to material that are used for
scrapped under the process of job. Company is producing hand dryer thus manager develop
systematic report to predict and actual expenses related to material and specific job.
Direct Labour: With the use of job costing system manager are able to track the total cost
of labour that are used on a particular job. This is directly related with, time sheet, card and
networked time recorded on a software.
Cost accounting system: This system helps to aim to get the cost of production after
calculating the input cost related to each stage of manufacture and fixed cost like depreciation
rent etc. This costing system provides a framework to company to forecast the entire cost of
goods and services for the purpose of analysing complete profit, valuation of inventory and also
control cost. In Bentley, management used two cost system that are:
Job order costing: It aid in evaluating production costs for every job involved in the
process of producing hand dryer. It is important to evaluate cost for hand dryer because
production of special orders and unique products helps company to grow profit.
Process costing: This system support to evaluate business cost of all job process that is
concerned with assorted kind of departments and cost flow.
Main function of management accounting:
There are important function of this accounting some of these are discussed underneath:
Margin Analysis: Is is related to figuring out of total sum of profit that company develop
from specific activity or product line, customer etc. In Bentley, manager determine the total
revenue and cash flow generated by selling hand dryer.
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Break-even analysis: It help to calculate the actual mix and margin for company and
determine the price where Bentley will face a situation of no profit no loss.
Inventory valuation: This is the main function of managerial accounting that support in
determining of direct cost linked with cost of good sold and other stock items. It is also related
with allocating of total overheads costs to the hand dryer manufacture within Bentley.
Different techniques and methods used for management accounting reporting.
In business scenario, companies proper various report throughout the year to keep a
systematic record of financial transaction of company. These report are prepare by internal
manager that give a detail information about overall business and financial position of company
in competitive world. Management accounting report and techniques are mainly prepared by
manager of Bentley to formulate useful decision for better functioning. Following are the various
methods which are used by the managers for management accounting reporting:
Variance analysis: Variance analysis is the difference between the actual amount and the
planned amount or the expected amount. This analysis is basically used in the manufacturing
cost of a product, in this managers try to find out the reason for the difference which is incurred
between the estimated cost of production estimated by the manufacture and the actual cost which
is incurred in producing that particular product. The analysis is considered for various factors
cost such as manufacturing overhead cost, variance analysis for material and all the other cost
which are related to the manufacturing process. Variance analysis for manufacturing overhead
cost is considered as more complex than the variance analysis for material. It is considered as an
important part as the percentage of overhead cost is largely spread over the cost of the product.
Target costing: Target costing is a costing techniques which is considered as a proactive
cost management tool which is used by the managers to reduce the total cost of production
incurred by the company a particular product, over its complete life cycle through production,
engineering, research and design. It help the companies to manage their business in the
competitive market. It is process through which a company can attain and ascertain the full cost,
at which the product was intended to meet the specific requirements at an anticipated selling
price.
Standard costing
Standard costing is a process through which companies substitute an expected cost for an
actual cost recorded in the books of the company. Later, it records variance which shows the
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difference between the actual cost and expected cost. It involves a process in which a company
creates the estimated cost for certain activities inside the company. This technique of costing is
used in the organisations which involves the number of application and it is difficult for the
companies to calculate actual cost of these activities. This technique symbolise an alternative to
the cost layering system such as LIFO and FIFO methods.
Activity based costing (ABC): Activity-based costing (ABC) is an accounting method
which identifies the costs and assign it to the various overhead activities and then assigns those
costs to the cost of products. This is basically used in the manufacturing industries as it enhance
the dependability of the data related to cost and produces the true and better classification of the
cost incurred by an organisation during the production process. Activity based costing system is
used in various activities which includes service pricing, product costing, customer profitability
analysis, product line profitability analysis, and target costing. This type of costing techniques
helps the mangers to properly analyse the cost and make necessary decisions to improve the
efficiency of its production units.
Management accounting system and management accounting reporting is integrated within
organisational processes
Budget Report – This is a report which help Bentley motors in making the estimate of future
expenses and incomes from their operations. These reports also help management of Bentley to
identify the problems due to which their budget exceeded and it also helps to deduct the
upcoming risks from budget and create reserve funds for financial problems.
Cost managerial accounting report – It is integrated with the organisational process as
it shows actual cost structure of Bentley Motors Limited which is related their production
process. This process includes different types of cost in order to present the actual value of every
car such as direct cost, over head cost and indirect cost.
Performance report – The performance report is directly integrated with Bentley
Motors Limited it present the individual and organisational performance. This report is prepared
on the basis of performance and the targets which are achieved by organisation in an accounting
period. For appraise of employees, the company has provided reward system to employees like
bonus, gift voucher etc.
Accounting receivable aging report – It helps the organisational process to present the
financial condition of Bentley Motors Limited as this report shows the net cash in flow and out
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flow of a company. On the basis of this report the company can take effective decision in order
to increase the financial position of the company and increase their market growth.
Benefits of management accounting systems
Different accounting
systems
Benefits
Inventory management
system
 This system benefit company in best utilisation of goods
and available raw material for better result.
 It is a system that support in tracking of stock and placing
of order on request of supplier that further help company
to grow profit.
Job Costing system  The main benefit of this system to to provide proper
stability in analysing and reducing assorted cost related to
particular job within Bentley.
 Job costing system aid management of respective
company by keep record of performances of employees so
that meaningful decision are made.
Cost accounting system  This system mainly support in evaluating raw material
cost, direct labour and overhead costs that gives proper
checks to the material used in making of Luxury cars.
 Cost accounting system assist in formulation of assorted
business policies and alternative other effective methods to
ascertain befitting message about the profit making and
non profit activity of Bentley.
Price optimization system  These system provide effective support by giving a
concise idea in respect to consumer perceptions related to
Bentley product.
 The main importance of this system is to give
management a framework that help them to fix the price of
SUVs and other cars that are suitable for customer as well
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as company.
PART B
Annex (A)
Budget 2019 2020 2021
Cost
Centre
Budgeted
production
overhead
costs in £)
Basis of
production
(overhead
absorption)
Cost
per
Hour Hours Cost Hours Cost Hours Cost
A 66000 22000 3 24200 72600 26620 79860 27500 82500
B 75000 15000 5 16500 82500 18150 90750 19500 97500
C 83600 41800 2 45980 91960 50578
10115
6 51500
10300
0
Annex (B)
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
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Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
ACTIVITY 2
Part A
BUDGET: Budget is a formal document prepared by the companies to make an
estimation of the company's income and expenses for a specific period of time. It is tool which is
used by mangers for planning and measuring the financial performance of the company. It used
by mangers to find out the problems and take necessary decisions to rectify the problems and
improve its efficiency and improve its financial position (Boiral, 2016). Budget involves the
estimate in spending for the training and development of its employees, controlling the operation
expense, fixed assets and targeting and making bonus plan within the allotted budget. Manager
of Bentley Motors Limited uses this budget methods to identify the requirement of funds in order
to improve the efficiency of its business operations and make necessary decisions. Following are
the various advantages of the budgeting tool:
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 Budgeting help managers to examine the problems which are related to the
implementation of strategies and generate a sense of carefulness within the line
managers.
 It helps the managers to define the organisation objective and involves all the mangers of
different level to set the organisation goal in numeric terms for a specific period of time.
 It helps in directing revenue and capital resources in order to improve the financial
position and achieve the task with the given time frame.
 It helps the mangers to decentralize the obligation with losing control of the business and
the can also helps in fixing the responsibility easily.
There are various types of budget methods which are used by the mangers which help in
planning and control. Following are the various types of budget used in an organisation:
Flexible Budget
Flexible Budget are the budget which helps the mangers to make changes in the original
budget which are required due the certain possibilities which cannot be controlled. This type of
budget is helpful to determining the changes which are made after the implementation of the
original budget. Mangers of Bentley Motors Limited also uses this type of budget to include new
expense which arises due to the certain situations and also to record the new sources through
which the company generate its revenue and increase it profitability within the same accounting
period (Bromiley and et.al, 2015). This budget is based on the changes which arises due to
change in the variable cost, semi-variable cost and fixed cost. Advantages and disadvantages of
flexible budget are as follows:
Advantages: The main advantage of flexible budget is that it allows mangers to take
better cost control measures and is updated with the current data of the company. It also help
mangers to adjust the changes in the cost and the profit margin of the company.
Disadvantages: Flexible budgets are more complex and confusing in nature and it
requires extra time and efforts, it also lacks discipline and can be altered at any time.
Functional Budget
Functional budgets are the budgets which are prepared for a specific function in an
organisation. It includes the functions like sale budget, purchase budget, production budget,
labour and personal budget, capital expenditure budget and various different budgets. Managers
of Bentley Motors Limited prepare these budgets to specify the expenditure required by these
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various functions and the revenue which a company can generate. Following are the advantages
and disadvantages of it:
Advantages: It gives the benefit to the mangers to keep track of the funds which are
utilized in various functions and make important decisions to increase the efficiency of various
functions.
Disadvantages: Functional budget increase the cost, time and effort in preparing budget
for different functions and makes it complex to relate to other functions (Malinić and Todorović,
2012).
Zero Based Budget
Zero based budgeting is a management accounting tool which involves the process of
preparing the budget from starting without considering the previous budget. It includes re-
evaluation of each line item in the cash flow statement and justify the various expenditure which
is to be incurred by the department. Bentley Motors Limited also uses this type of budget to
estimate the total cost of production which is to be incurred on the basis of actual expenses rather
than the previous data. Advantages and disadvantages of it are as follows:
Advantages: It gives the accuracy and efficiency as it re-evaluate every line item cash
flow statements, it also helps the managers to reduce the redundant activities. It provides the
better communication and coordination with in the departments.
Disadvantages: It requires the high manpower and is a time consuming process, it also
lack the expertise required in preparing a budget.
Uses of different planing tools in forecasting budget
Company uses the above mentioned tools in planning and taking strategic decisions in
order to improve the financial health of the company in order to increase its sustainability in the
market and take competitive advantages over its competitors. Bentley Motors Limited also uses
these tools as these various types of budget gives the estimate requirement of the funds and a
picture of the estimated profit which a company can earn in a given specific period of time. It
helps managers to plan for the future growth and implement new innovative technique which can
help them to reduce their cost of product and increase the profit margin by improving its
efficiency in the production process. With the help of budget, managers allot specific funds for
various activities such as selling and administration, advertisement and other necessary activities
which contribute in the profit of the company.
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