Management Accounting Report: EECL Financial Strategies

This report provides a comprehensive analysis of management accounting practices, focusing on Eastern Engineering Co. Limited (EECL), a manufacturing enterprise facing financial challenges. The report explores key management accounting functions, including data collection, analysis, and financial reporting. It details various management accounting systems like financial accounting, cost accounting, and inventory management, highlighting their benefits for EECL. The report delves into costing methods, comparing absorption and marginal costing through calculations and income statements. It also examines planning tools, their advantages, and disadvantages, particularly in budgetary control. Finally, it discusses how organizations, like EECL, can leverage management accounting to address financial problems, offering insights into cost optimization and financial strategy. The report provides financial data and analyses, making it a valuable resource for students studying management accounting. Desklib provides this and other past papers and solved assignments for students.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of various management accounting
systems.........................................................................................................................................1
P2 Various methods used for management accounting reporting ..............................................3
M1 Benefits of management accounting systems........................................................................4
TASK 2............................................................................................................................................5
P3 Calculation of cost and income statement using absorption and marginal costing................5
M2 Application of management accounting techniques and production of appropriate financial
reporting documents.....................................................................................................................7
TASK 3............................................................................................................................................7
P4 Advantages and disadvantages of various planning tools......................................................7
M3 Analysation of use of various planning tools and their application on budget.....................9
TASK 4............................................................................................................................................9
P5 Ways in which organisations adopt management accounting systems to manage financial
problems.......................................................................................................................................9
M4 Ways in which management accounting helps in reducing financial problems .................11
CONCLUSION .............................................................................................................................11
REFERENCES .............................................................................................................................12

INTRODUCTION
Management accounting refers to a function that contains a number of different tasks and
activities. Collection of data, analysing the data and reporting the financial information that is
obtained from various business operations are various activities included in it. The implication
of management accounting can be seen in the internal as well as external functioning of an
organisation (Golyagina, 2021). The following report takes into consideration Eastern
Engineering Co. Limited which is abbreviated as EECL that is a medium enterprise working in
the manufacturing sector. In the current pandemic of COVID 19 the business is facing some
losses.
The following report includes various ways in which business can make better use of the
financial resources that are available with them. Various ways to increase the financial resources
are also discussed in the report. Along with this, it also includes calculation of cost with different
techniques, benefits and drawbacks of budgetary control and different management accounting
systems are also discussed.
TASK 1
P1 Management accounting and essential requirements of various management accounting
systems
As described by Institute of Management Accounts, Management accounting is
incorporated with functions such as planning, analysing as well as creation of financial reports
that are used by management to gain assistance while in process of effectively implementing
different organisational strategies (Larsson, 2015). In Eastern Engineering Co. Limited, there are
a number of different functions included in management accounting. The Key functions of
management accounting are:
Providing data: Management Accounting incorporates of all the information that is
related to a number of different functions of business activities. The information available helps
all other functions of business to run smoothly (Amara and Benelifa, 2017). They help different
managers of Eastern Engineering Co. Limited of all different functions in organisations to plan,
control and then take decisions.
Analysing and interpreting data: An analysis is conducted on the data collected in order
to provide relevant statements so that decision making can be supported with the help of it.
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Methods for Communication: The information which is gathered and in management
accounting and analysed is then required to be communicated efficiently in order to make sure
that every one in the organisation is effectively working towards a common goal and objective
(Weetman, 2019).
Facilitating control: Management Accounting also helps is successfully managing
various expenditure of business in order to control all of those expenses which are not necessary
and can be avoided or controlled up to to maximum limit possible (Drury, 2018).
There are a number of different accounting systems available which can be effectively
used by organisations to manage the functions of their accounting. Some of such common
accounting systems used by Eastern Engineering Co. Limited are mentioned below:
Financial accounting system: The main objective of this system is to maintain financial
accounts in order to collect the feasible data of various different transactions which consists of
debit and credit of account balances in order to specifically create income statement, profit and
loss, cash flows and other financial statements that are required (Jovanović, Dražić-Lutilsky and
Vašiček, 2019).
Tax accounting: This system majorly focuses on managing taxes. All the rules and
regulations in this are governed with the help of an Internal Revenue Code while preparing for
tax returns. The tax accounting system is very helpful in making calculations in order to deal
with various government interventions.
System of Cost accounting: This is a system that can be effectively used by Eastern
Engineering Co. Limited in order to find out an estimated cost of various products that will be
produced by the company. This also helps in deciding the profits margins of product and
maintaining it for a longer period of time. It will also enable business in different stages of
production in order to efficiently manage their wastes.
System of Management accounting: System of management accounting is helpful in
measuring and evaluating processes in order to timely communicate various information to
managers in an organisation (Pedroso, Gomes and Yasin, 2020). The reports of organisation are
also prepared based upon various financial activities. This will allow Eastern Engineering Co.
Limited to manage all their expenditures appropriately.
Price Optimization: In this system determination of prices as per the product of
company is done according to the demand that is fluctuating in market place. In Eastern
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Engineering Co. Limited, this is used in order to tailor the prices of product as per the demand of
customers (Guni, 2019). In this various techniques such as initial pricing, discount pricing,
promotional pricing etc. are used.
System of inventory management: In this process various costs are maintained with the
use of technological processes. The changes can take place within different processes of
production in it. Eastern Engineering Co. Limited can use it to reduce cost and also make
optimum use of resources.
Job costing system: In this system determination of price of all the individual product of
an organisation is done (Williams, 2019). It will effectively help Eastern Engineering Co.
Limited to keep record of expenditures based on units costs.
P2 Various methods used for management accounting reporting
Management accounting reporting is referred to a process in which preparation of
different reports that is to be used by managers in future for decision-making process takes place.
Below mentioned are various methods of management accounting reporting:
Inventory Reports: In the following report various information about inventory is
provided in order to make sure that inventory availability is matching the demands of customers.
In Eastern Engineering Co. Limited, this report will consist of various information including
overhead cost per unit, labour cost as well as whatever wastage have formed the part of
inventory. This is also helping organisation to effectively reduce its wastages and any burden
that is put upon organisation due to improper management of inventory (Marques, Camacho and
Alcantara, 2015).
Job cost Report:This is a report that is used by organisations in order to identify various
expenses that are incurred by organisation. This also helps an organisation to effectively increase
the financial efficiency of organisation. With increasing efficiency in each job the overall result
of project can also be made more profitable. The evaluation of wastage that is conducted by
organisation can be managed in order to control overall cost.
Account Ageing Reports: In the following report all the details regarding credit
transaction is maintained. This detail is then used by managers later on in order to analyse the
amount that is required to be realised by their debtors. Eastern Engineering Co. Limited can
effectively use this report in order to develop collection policy and reduce total bad debts of
organisation. Liquidity in organisations can also be managed with its help (Samuel, 2018).
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Different objectives of financial statement
P&L accounts:This is used to understand the criteria of net profit in organisation. In this
at the end of year profit or loss that business have to face is derived.
Cash flow statement: In this statement the position of cash in business is mentioned in
detail along with all the inflows and outflows of cash (da Rosa, Lunkes and Mendes, 2020).
Cost of products sold:In this information related to cost of the products that are sold in
market are done.
Balance Sheet: This is a financial system in which liabilities and assets are evaluated at
the end of financial year.
M1 Benefits of management accounting systems
Systems of management
Accounting
Benefits Application on Organisation
(Eastern Engineering Co.
Limited)
Cost Accounting Cost accounting is helpful
while policies and procedures
to manage over all costs
(material, labour etc.) are
calculated.
Innocent drink uses this
system to calculate fixed cost
per unit. (per bottle of
smoothie).
Inventory systematic Inventory system can help to
reduce the storage costs of
inventory (Odar, Kavčič and
Jerman, 2015).
Maintenance of stock in
Eastern Engineering Co.
Limited is organised as per
the expected demand. This
also makes raw materials
available as per demand.
Job Costing Job costing is effectively used
to determine profit of
individual jobs or projects.
Eastern Engineering Co.
Limited uses job costing to
calculate cost of different
products.
Price Optimization Determination of prices of Innocent drink uses price
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products based on demand of
customers can be calculated
which will help in maximizing
profits (Maas, Schaltegger and
Crutzen, 2016).
optimization in order to keep
a check on their prices as
well as costs.
TASK 2
P3 Calculation of cost and income statement using absorption and marginal costing
Cost refers to the total amount that is used to produce any product which is required in
monetary terms. In order to calculate costs a number of resources are used which includes raw
materials, opportunity cost, labour and so on (Datar and Rajan, 2018). Various methods such as
marginal costing and absorption costing are used to prepare income statement from the data
gathered.
Marginal Costing: Marginal costing is an efficient technique to understand variable as
well as marginal cost that have occurred in production of one additional unit of product. When
producing in high quantity variable cost might change total cost as well. Whenever there is
increase in units for production changes can be reflected on marginal costing (Andrei, Gâlmeanu
and Radu, 2018).
Absorption Costing: This is a method used to calculate the amount for production of one
unit of product. It takes into account bot variable and fixed costs. Product cost is directly
associated with accumulated cost in this method of costing.
According to the figures provided for Eastern Engineering Co. Limited below mentioned
are calculation of absorption and marginal costing. Break even point is also used in order to
discuss the circumstance when no profit and no loss situation fro Eastern Engineering Co.
Limited arises.
Calculations of costs in order to produce income statement of EECL through Absorption
costing:
Absorption costing January
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Particulars Units
Price per
unit
Total
Amount
Total
Amount
Sales revenue 9,500 135 1,282,500
Less: COGS
Variable production 10,000 45 450,000
Fixed production 10,000 32 320,000
Add: Under
absorption 10,000 3 30,000
Less: Closing stock 200 80 16,000 784,000
Gross Profit 498,500
Net Profit 498,500
Absorption costing February
Particulars Units
Price per
unit
Total
Amount
Total
Amount
Sales revenue 11,200 140.00 1,568,000
Less: COGS
Opening stock 200 80.00 16,000
Variable production 11,500 45.00 517,500
Fixed production 11,500 32.00 368,000
Less: Over
absorption 11,500 5.43 62,500
Less: Closing stock 500 71.57 35,785 803,215
Gross Profit 764,785
Net Profit 764,785
Calculations of cost for producing income statement by Marginal costing for EECL
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Marginal Costing January
Particulars Units
Price per
unit
Total
Amount
Total
Amount
Sales revenue 9,800 135 1,323,000
Less: COGS
Variable production 10,000 45 450,000
Less: Closing stock 200 45 9,000 441,000
Contribution 882,000
Less: Periodic cost
Fixed production
cost 350,000
Net Profit 532,000
Marginal Costing February
Particulars Units
Price per
unit
Total
Amount
Total
Amount
Sales revenue 11,200 140 1,568,000
Less: COGS
Opening stock 200 45 9,000
Variable production 11,500 45 517,500
Less: Closing stock 500 45 22,500 495,000
Contribution 1,073,000
Less: Periodic cost
Fixed production
cost 340,000
Net Profit 733,000
Reconciliation statement
January February
Absorption costing Net Profit
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498,500 770,217
Add/Less: Difference in Closing
stock 33,500 (31,785)
Marginal costing 532,000 733,000
M2 Application of management accounting techniques and production of appropriate financial
reporting documents
Various accounting techniques can be used to maintain operations in financial reports in
order to make sure that position of organisation in market is analysed to accommodate further
decisions that are to be taken in organisation (Nishimura, 2019). When considering costing as a
tool marginal costing can be used in Eastern Engineering Co. Ltd as compared to absorption
costing as it takes into account both fixed and variable cost for calculating profits. While
calculating total cost of production this technique helps the manager to take various decisions.
TASK 3
P4 Advantages and disadvantages of various planning tools
Budget refers to a statement that contains various estimated future amount of revenues,
liabilities, expenditures etc. In an organisation which is also for a specific period of time. It can
be helpful for internal management and decision making within an organisation. Performance
management is also made possible with the help of a budget (Hoppe and Henderson, 2015).
Budgetary control on the other hand refers to determination of actual sales as well as other
figures for a pre determined period in an organisation. Various tools used in the process of
planning budget are mentioned below:
Flexible Budgets: This is a budget that is created and used to imply various controls over
an organisation. It helps in effectively controlling various volumes as well as activities in the
organisation according to their requirements and objectives (Nimtrakoon and Tayles, 2015).
Eastern Engineering Co. Limited can effectively use this method in order to keep a regular check
upon all the figures of their revenues. Benefits: This is beneficial for organisation as it provides the requirement of material and
other resources for targetted sales volume (Al-fadhel and Al-Chlaihawi, 2015). This also
allows possibilities to make required changes as per the requirement or changes in
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demand. In innocent drink it supports organisation to facilitate and understand the
required quantity to increase their profits.
 Limitations: There are some limitations attached to it too. They require competent and
skilled staff in order to make sure that the employees are equipped enough to deal with
the changes that is required to be brought in. the cost of flexible budget to an organisation
is also higher than that of a regular budget. Also if certain financial disclosures are not
made in various situation it could lead to the entire budget lapsing.
Master Budget: There are a number of different budgets of lower level included in a
master budget (Aureli and et. al., 2019). It can be said to be a divisional budget which is then
added up to form a single budget in which various different functions of different departments
are combined together. This budget consist of various features including financial planning, cash
flows, a budgeted statement for profit and loss account and so on. Innocent drink also uses
master budget which is prepared for a period of one financial year. Benefits: This budget also provides information for owners and other stakeholders in a
summarised manner. There ate reflection made of all the expenses and revenues relation
to different functions and departments in the organisation. This critically analyses all
these functions of different departments and creates budgets for each of them to solve
problems with in those departments.
 Limitations: Making changes in master budget can be troublesome. However, due to
dynamic environment and changing situations organisations need to make some changes
in budgets so that decisions could by taken timely in different circumstances in Eastern
Engineering Co. Ltd. Master budget bounds from making those alterations.
M3 Analysation of use of various planning tools and their application on budget
A number of planning tools are available to an organisation so that the best fit for their
functions and activities can be chosen (Ertl and et. al., 2020). A number of issues regarding
duplication or overlapping of processes is also possible. Eastern Engineering Co. Limited used
master budget and flexible budget to deal with any such situation. This helps in dealing with
changes without having any effect on the overall organisation.
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