Comprehensive Management Accounting Analysis and Financial Forecasting

This report provides a comprehensive analysis of management accounting principles and their application within the context of Lets Grow Ltd. It begins with an introduction to management accounting and its role in internal financial reporting, planning, controlling, and performance enhancement. The report then delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, outlining their requirements, benefits, and applications. It also explores the use of management accounting systems and reports, such as cost reports, inventory reports, budget reports, and performance reports, in effective decision-making. A cash budget for Lets Grow Ltd is presented and analyzed, along with its role in financial forecasting. The report further discusses adapting management accounting techniques to address financial problems and provides a critical evaluation of Lets Grow Ltd's financial position based on forecasted projects. The report concludes with a summary of findings and provides references.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
SCENARIO.....................................................................................................................................1
a) Requirements and benefits of different management accounting systems..............................1
b) Management accounting systems and reports in effective decision making...........................4
c) Cash budget of Lets Grow for six months for year ending August, 2020...............................5
d) Use of cash budget and its application for the preparation and forecasting the financial
position of the organisation.........................................................................................................6
e) Adapting management accounting techniques for dealing with the financial problems.........7
f) Critical evaluation of the financial position of Lets Grow based on forecasted projects........8
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUTION
Management accounting refers to the process that is used by the company in preparing its
internal financial reports. It involves the process of planning, controlling, monitoring and
enhancing the performance of the business. It provides the concept and techniques that are used
by the organisation for managing the operation and activities efficiently. It enables the company
in achieving its desired goals and objectives by effectively utilising the available resources of
company. Report is based on Lets Grow Ltd that is a manufacturing concern. Study will reveal
about the different management accounting systems and reporting methods used by business. it
will address about the different planning tools that are used by the business and ways of
responding to the financial problems using management accounting.
SCENARIO
a) Requirements and benefits of different management accounting systems
Management accounting
Management accounting refers to provision of the financial as well as non financial decision
making to the managers. In management accounting financial information that is essential for
decision making for the organisation. Management accounting techniques provides the managers
in effectively managing and performing the control functions (Otley, 2016). It allows the
managers to identify, accumulate, measure, prepare, analysis and interpretation of the
information assisting executives for fulfilling the organisational objectives.
Management Accounting Systems
Management accountings systems allow the managers to manage the operation and activities of
business. There are various management accounting systems such as inventory management,
cost accounting, job costing and price optimisation system.
Cost Accounting
Cost accounting is management accounting system that is used by the management for
approximation of product cost for the valuation of inventory, profitability and the cost control.
Cost accounting provides different methods that could be used for allocation of the costs over
products manufactured using cost accounting traditional methods or activity based costing. One
of the important tasks of the cost accounting is to ascertain the actual cost of the products or
goods manufactured during the year. Costing method record all the costs of producing the
products and weighs input cost including both variable and fixed costs such as depreciation of
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capital assets. It allows the managers to compare the actual outcomes with the estimated inputs
for assessing the performance of the managers. On the basis of these information strategies for
making the process cost efficient are made by company.
Benefits and Application
Cost accounting is used by company for evaluating the cost of manufacturing a product.
It provides all the cost information that is used by the management in decision making. They can
identify per unit cost for evaluating the prices earning reasonable rate of return. Using the cost
accounting methods managers can more accurately records the cost information for driving
towards the desired goals and objectives.
Inventory management systems
Inventory management provides all the information required for effectively management
of the various inventories. The inventory systems allow the company to control and monitor the
operations related with inventory such as ordering, use and storage of different raw materials or
components used in the production of products or services. Inventory management enables the
company to understand the present level of inventory and ensuring that situation of over stock
and under stock to minimum (Maas, Schaltegger and Crutzen, 2016). This has enables the
organisation and management in effectively managing their inventory and taking more informed
decisions. The software used in inventory management allows the company in centrally
managing the inventory levels of its branches. Orders for the inventory are placed on reaching
the requirement. Inventory management is one of the important aspect in management
accounting that plays an effective role in achieving the growth and sustainability
Benefits and Application
There are various benefits of the inventory management to the Lets Grow ltd. Inventory
management enables to keep record of all the inventory movements. They provide the
management to be updated with inventory levels of each day. System allows for inventory
counts, physical counts, bar codes and such other software and techniques for keeping proper
track of all inventories. It is applied in the organisation for making decision related with ordering
purchasing and for making technical decisions. this avoids the company to overstock that
increases the carrying cost of inventory.
Job Costing Method
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Job costing method is management accounting system that is used for describing the
allocation of production costs the products or items separately. System is used in the organisation
in which production process is different from each other. job costing measures the cost of
producing a job separately using the job costing system managers identify all the costs such as
raw materials, labour and the overhead cost for producing a particular job. Companies
accumulate the data related to the processes involved in the specified job. It enables the company
in effective decision making for the costs related to job.
Benefits and Application
It is useful for making accurate estimates about the cost involved in production of job from
the previous estimates. Using the cost information they could more accurately quote prices for
earning reasonable profits over the job. This information is also used for allocating inventory
cost to processed goods. Lets Grow ltd uses the job costing for estimating the cost of producing a
job for dealing with special orders (Bromwich. and Scapens, 2016). It enables the management
with essential information for the job so that customers could be given the estimates for which
costs will be refunded by the customers. It allows the managers in earning reasonable profit
margins.
Price Optimisation
Price Optimisation system involves application of mathematical concept and techniques
to determine the response of customers over different levels of prices that are determined by
management for goods and services. Demand at every price levels is different and therefore the
managers evaluate the different price levels that will enable the company to reach its break-even
point and reasonable profit (Christ and Burritt, 2017). Price optimisation method involves the
application of different concepts and techniques that gives more reliable estimates of the price
levels. Using the price optimisation system ascertain the prices that will be optimum for products
and services.
Benefits and Application
Price Optimisation provides the management in deciding the most optimum prices for
goods and services to be set by Lets Grow ltd. it is useful in decision making process and making
pricing strategies for products by analysing the sales required for achieving the goals and
objectives. This is applied for making effective pricing strategies for the products where
company achieves the target revenues. Deciding the prices of goods is a crucial decision of the
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management which is required to be taken after analysing all the factors associated with the
products and services.
b) Management accounting systems and reports in effective decision making.
MA pays attention towards the internal information reflected in the financial accounting.
MA is used for effective plans, controls and for sound decision making. It also considers
financial statements such as income statement and cash flow statement. Internal MA reports are
used by the management for effectively managing the resources and to evaluate the corporate
performance from the information. Different cost reports are used for framing strategies for
improving the internal performance of business such as cost reports, budget reports and
performance reports.
Cost Reports
MA accounting is concerned with measuring cost for making or producing the goods or
services. Cost accountants in calculating the cost includes raw material, labour cost, overheads
and any extra costs for manufacturing the products and items. Cost per unit is ascertained by
dividing the aggregate costs with units produced. Cost report contains all the information related
to the costs from raw materials to all the costs that are incurred for preparing the finished goods.
Managers use this information to evaluate the different costs and for determining the price levels
earning reasonable rate of returns (Ameen, Ahmed and Abd Hafez, 2018). It enables the
managers to identify whether the selling prices and products will be able to cover the production
cost. This information is used by the managers for dealing effectively with the operations and
activity by planning and controlling. Managers evaluate the sales level using break even analysis
where the costs and revenues are equal. It must earn the break even sales for covering the costs.
cost information provides the managers to analyse the variances between the actual and budgeted
figures.
Inventory Reports
Inventory reports contain the information about all the inventories of the organisation. it
contains the quantity of inventory purchased, inventory in work in progress and the finished
goods produced. It keeps all the records of inventory wasted or damaged. This enables the
management to take decision about the inventory related with their procurement, consumption
and storage. Also the estimates about the future orders are made by the management analysing
the frequency with which movements are made in inventory of company. This enables the
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company to decide about the peak months in which inventory consumption is higher and
similarly in down months which is essential for managing the costs.
Budget Reports
Budgeting is one of the important part in planning process. Budgets are prepared using the
budgets of previous. Managers make adjustment to the budget for current year after analysing the
influencing factors related with the budget. These adjustments are made related to inflations,
market conditions, economic conditions, demand and supply and such other factors. it involves
projecting the future sales and expenditures from previous trends. These projections are made on
the basis of previous budgets for current year (Hopper and Bui, 2016). Managers evaluate
different factors that are associated with the budget. It lists all the expenses and incomes to be
incurred during the year. Focus of the managers is at attaining the goals and objectives by
staying in the budgets. Budget reports help the company in keeping the costs and expenses under
control by implementation of effective cost effective strategies.
Performance Reports
Performance reports are prepared by the management to analyse the performance of various
operations and employees during the specified period or related with specified project.
Performance reports consist of information on the difference between actual and budgeted
figures. Managers analyse whether the department have been able to achieve their targets with
the available resources. They identify the reasons lacking them from achieving the defined goals
and objectives for which strategies are framed by the organisation to improve the performance.
Performance reports are essential for assessing the performance of departments and employees to
enhance efficiency & productivity.
c) Cash budget of Lets Grow for six months for year ending August, 2020.
Particulars March April May June July August
Sales (received in
same month) 30000 36000 24000 28000 32000 34000
Sales (received in
following month) 96000 120000 144000 96000 112000 128000
Total sales 126000 156000 168000 124000 144000 162000
Less: expenses
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Purchases 50000 50000 70000 80000 90000 100000
wages 30000 30000 30000 30000 30000 30000
Rent (paid quarterly) 12000 12000
Depreciation 2000 2000 2000 2000 2000 2000
Variable overheads 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000
Total expenses 134000 127000 150000 166000 166000 178000
Cash surplus / deficit -8000 29000 18000 -42000 -22000 -16000
Opening cash balance 20000 12000 41000 59000 17000 -5000
Closing cash balance 12000 41000 59000 17000 -5000 -21000
d) Use of cash budget and its application for the preparation and forecasting the financial
position of the organisation.
Cash Budget
Cash budget is defined as the plan or budget of the expected receipts and expenses to be
incurred during the year. Cash budgets includes inflows and outflows includes the revenues,
incomes where the outflows contain expenses, purchases, payments and other operational
expenses. Cash budget is the estimated projection of future revenues and expenditures reflecting
the cash position of company at the end of the period. Cash budgets are usually developed by the
organisation after the purchase, sales and expenses budgets are already prepared by the
organisation. It is essential to prepare the cash budget after these budgets have been prepared for
accurately estimating the cash flows affected during the given period.
Use of Cash budget for forecasting financial position
Cash budget is used by the management for adequately managing the cash flows of
company. Cash management records the cash inflows and outflows from different sources. Cash
budgets budget is prepared using the previous budgets and making estimates about future
expenses based on previous trends. It is used by the organisation adequately allocating the funds
into different departments. Cash budgets are prepared analysing the requirement for ever
department of company and resources are allocated for carrying out their operations
(Rikhardsson and Yigitbasioglu, 2018). It enables the managers to keep control over the business
operations by defining the fixed budget for each department. Cash budgets are the spending plan
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of the company that reflects the budgeted for every department. This enables management to
keep the costs and expenses under control by making most effective use of the available
resources. It is used for preventing overspendings and increasing the costs and expenses. Cash
budget enable the company to move towards a well defined direction for achieving the goals and
objectives of the business by staying in the limited budgeted funds.
It is used by the management for analysing the year end cash position of company. it is
assessed for ensuring that the company is available with enough monetary funds for meeting the
cash expenses and payments. It represents the financial position of the company at the end of the
year. Cash budgets are prepared by the organisation to enable the management to take required
decision for improving the cash position of company. Companies take steps for making effective
utilisation of the resources and managing the inflows and outflows so that company do not goes
out of cash during the period. Negative cash position reflects that management is not having
enough funds for meeting the expenses. Negative cash position impacts the operations and
functioning of the organisation. Non availability of funds puts stop to production process.
Therefore it is essential for the managers to make necessary arrangements for meeting the
operations of funds in advance so that operations of company are not affected.
e) Adapting management accounting techniques for dealing with the financial problems
Corporation are encountering questions about how the business models are adapting to
strategies business models and the procedures for responding to the environmental & social
challenges by establishing value for the stakeholders and achieving financial success (Messner,
2016). Many organisations miss out the advantages of the management accounting taking
insights and valuables for resolving the financial issues.
Identifying the financial issues - Lets Grow ltd uses budgetary target, financial and non
financial key performance indicators and benchmarks for identifying the variances and problems
for addressing them on time
Financial Governance – Company should efficiently define the financial governance as well as
understand how it could be applied for preventing or pre-empting the financial issues. Financial
governance could be used by Lets Grow for monitoring the strategy.
Managerial accounting skills – Lets Grow ltd must have knowledge about the features of
effective and efficient managerial accountant. They should understand how skills are applied for
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dealing and preventing such problems like misappropriation of the resources that are used for
growing the business.
Effective systems and strategies – Company for dealing with these financial issues is requires
development of efficient and effective strategies and systems which requires timely reporting. it
requires full disclosure of the financial statement that are responsibly owned and governed by
the organisation.
There are different ways in which accounting can help the management in effectively managing
the financial issues and leading the company towards sustainable success.
 Management accounting involves identifying the environment and social trends that are
impacting the capability of company to build value over time.
 It could describe impacts of sustainability issues in the strong business terms containing
how it will be impacting the performance of company and its operations.
 Management accounting tools and techniques such natural resources, scenario planning,
lifecycle costing and carbon foot printing for assisting the managers to incorporate the
sustainability issues in the decision making process.
 Generating reports that include the information over the sustainability effects for
informing pricing & budgeting decisions, investment appraisals and strategic planning
(Weetman, 2019). It established the reporting strategies incorporating sustainability
matters for ensuring relevant financial information is revealed.
 Different management accounting systems could be used in managing the internal
process and operations on time. It includes processing the goods and services at time
reducing the wastage of materials in the production process.
f) Critical evaluation of the financial position of Lets Grow based on forecasted projects.
Cash budget of the company could be used for analysing the financial position of company.
Cash budget for the six months reflect that sales and revenues of the company have increased
continuously till April. Month of June and Jul could be seen as months with low sales level.
Months with peak sales are May and August. Purchases have increased continuously over the 6
months. There is stead increase in the expenses of company but the inflows are not increased in
the same proportion to that of the outflows (Quattrone, 2016). Company has shown a cash deficit
in month July and August. This reflects that company has gone out of cash in last months of the
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cash budget. Inflows and outflows are not managed efficiently that leads to negative cash
balance. It has negative cash position that is required to be improved using effective strategies.
CONCLUSION
Organisation using right managerial accounting systems is able to achieve their goals and
objectives in the desired manner. Managerial accounting is required to provide the management
with accurate and reliable information for ensuring that effective cost structures are appointed by
the company. it enables the management to implement right model for the business. study of
management accounting enhance the understanding about the concepts and techniques for
managing the business operations. MA is considered as the cornerstone and therefore it requires
providing accurate and reliable information. Lets Grow using the management accounting
system could effectively manage the internal operations of business ensuring that company
achieves maximum profits at minimal cost. Management accounting reports provide the
management with all the information that is essential for decision making. Efficient use of the
planning tools enables the company to achieve growth and sustainable success.
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REFERENCES
Books and Journals
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management accounting, control, and reporting. Journal of Cleaner
Production.136.pp.237-248.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research, 31, pp.1-9.
Ameen, A.M., Ahmed, M.F. and Abd Hafez, M.A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
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Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research.31. pp.10-30.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
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Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Christ, K.L. and Burritt, R.L., 2017. Water management accounting: A framework for corporate
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