Management Accounting Report: Cream Ltd. Case Study Analysis

This report provides a detailed analysis of management accounting principles and their application within a business context, using Cream Ltd. as a case study. The report covers essential aspects of management accounting, including cost accounting, inventory management, job costing, and price optimization systems. It explores various methods of management accounting reporting, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports. Furthermore, the report delves into cost calculation techniques, comparing marginal and absorption costing methods, and their application in producing financial reports. The report also examines different planning tools for budgetary control, evaluating their advantages and disadvantages. Finally, the report compares organizations to solve financial problems with the help of management accounting systems, providing a comprehensive overview of the subject matter.

Management
Accounting

Contents
TASK 1..........................................................................................................................................................4
P1: Explanation of management accounting and essential requirements of its systems...........................4
P2: Various methods used for management accounting reporting...........................................................7
Critical evaluation of management accounting systems and reporting...................................................8
TASK 2..........................................................................................................................................................9
P3: Calculation of costs by using appropriate techniques.......................................................................9
Application of management accounting techniques.............................................................................13
Producing of financial reports...............................................................................................................13
TASK 3........................................................................................................................................................14
P4: Advantages and disadvantages of different kind of planning tools of budgetary control.................14
Use of different planning tools and their application for preparing and forecasting the budget.............16
TASK 4........................................................................................................................................................16
P5: Comparison of organisation to solve the financial problem with the help of management accounting
system....................................................................................................................................................16
CONCLUSION.........................................................................................................................................18
REFERENCES..........................................................................................................................................19

INTRODUCTION
Management accounting is defined as an act of observing and analysing final accounts of
an organization with the motive of making suitable policies and decisions which brings
beneficial results at the end of financial year (Agrawal, 2018). For this, management must have
better coordination with financial manager so as to collect relevant and accurate data about
financial position of company and make proper decisions accordingly. It aids an organization to
achieve long term objectives which includes minimizing business cost and increasing
profitability. The present report is undertaking the case study of Cream Ltd, which is engaged in
providing wide range of products that includes ice-creams, doughnuts, waffles etc. The
assignment report explains the essential requirements of various systems of management
accounting and reporting, application of techniques to resolve financial issues and preparing of
an effective budget as well as comparison of two rivals on the basis of techniques used to resolve
their particular financial problem.
TASK 1
P1: Explanation of management accounting and essential requirements of its systems
Management accounting is integral part of accounting that enables management to frame
suitable business policies and strategies so as to increase the possibilities of achieving
organizational goals and objectives. Here are the explanation of various system of management
accounting along with their essential requirements:
Cost accounting-
It is the process of identifying the total cost incurred in manufacturing and selling
products to the end customers. It is also called as the method of minimizing cost. Creams Ltd.
Can utilize this system to identify the future cost and make strategies in advance to minimize
them (Baiman, 2014).
Advantages-

 It facilitates management in acquiring knowledge about incurring of cost in production
which stands management in strong position to make decision regarding elimination of
wastage by identifying its causes.
 It minimizes the inefficiencies which may happen during process of production so as to
bring efficiency into production.
Disadvantages-
 It is complex in nature and requires complicated calculations which creates difficulties
towards manager thus not easy to use such kind of system.
 of such system requires huge cost which brings more burden on small sized
organizations.
Essential requirements-
 It is easy and doesn’t have complications to use practically. It brings long term
profitability to business.
 It supports business in getting accurate data which maximizes the chances of getting
beneficial outcome in future. It ease manager to identify the accurate cost of business
(Management accounting and its importance, 2020)
Inventory management system-
It is one of the useful system which guides the manager to maintain sufficient level of
inventory by tracking on consistent basis. Creams Ltd. Can use such kind of system to
avoid any interruptions in production process due to shortage of raw materials.
Advantages-
 It saves time and storage cost which adds maximum to the profitability of business
 It assist business to retain loyalty of regular basis on long term basis by meeting their
requirements on time.
Disadvantages-
 Using of such system and its implementation is quite costly.

 Utilizing of such system involves various complexities in terms of tracking the right level
of inventory the company have at present (Cohen, 2012).
Essential requirements-
 It facilitate managers to track the level of inventory available at the warehouses which
assist them to order further inventory on time whenever needed.
 Using of such system adds up revenue to the business by minimizing business cost and
retention of loyal customers.
Job costing system-
Job costing system involves procurement of information regarding execution of a
particular task or job. Creams Ltd. can use it so that it can easily track its different orders
and can fulfill them on time.
Advantages-
 Ascertainment of cost incurred in manufacturing of individua or bunch of products which
makes easy for manager to decide production of which goods brings profitable outcome
to company.
 It assist business in reducing business cost by focusing more on investing amount on
production of such products whose production cost is less and demands more.
Disadvantages-
 It consumes more time and cost by identifying incurred cost on production of Individual
products.
 Recovery of cost in case of failure of particular product will be more difficult.
Essential requirements-
 A good job costing system makes assurance about accounting of direct materials.
 A good job costing system should account for the overheads being incurred in an
enterprise (Garrison and et. al., 2010).
Price optimization system-

It is useful in identifying the fluctuations in price at various level of demand of product.
Creams Ltd. Uses this system to frame an effective pricing policy which can easily
acceptable by the targeted customers.
Advantages-
 Creams Ltd. Can generate huge profits by setting up an appropriate pricing policy.
 It helps in retaining loyal customers with company by updating their existing pricing
strategy to meet their expectations.
Disadvantages-
 Failure of setting right price at right product could cause negative impact on overall
profitability of business.
 Failure of identifying the perception of customers towards pricing policy of company
brings them backward from their rivals.
Essential requirements-
 is important to use such kind of system to retain loyal customers with company for long
duration.
 It requires price segmentation.
P2: Various methods used for management accounting reporting
Management accounting reporting mainly focuses on the details gathered through
financial statement produced by accounting manager. It drives managers to make suitable
planning, regulating and decisions and monitor the performance level of organization. Here
are the options Creams Ltd. Can opt for their own beneficial purpose:
Budget reports- It facilitates improvement of performance in different departments of
the company. It is useful in monitoring the performance level of various business functions
working for the betterment of an organization. Using of such system by Creams Ltd. Help in
preparing various of kinds of budgets which includes cash budget, flexible budget, master
budget etc. that manages business cost efficiently. Framing budget after identifying future

incurred cost assist business in dealing with contingencies coming in the progress of business
project (Gray III, 2015).
Accounts receivables aging reports- This report provides detailed information about the
receivables and payables of company in respect of their stakeholders. Using such reporting
system help Creams Ltd. In disclosing all unpaid debtors which allows managers to frame
recovering strategies with a hope of getting unpaid amount along with the interest. It is quite
useful for manager to avoid bad debts and collect unpaid amounts which further adds to the
net revenue of company.
Cost managerial accounting reports- This report contains the information related with
raw materials, overhead labor and any other cost. It shows summary of all cost incurred in
the production process in order to direct manager to make decision of framing pricing
strategy after adding certain percentage of margin on it. It restricts company to avoid any loss
thus will be more beneficial for Creams Ltd. To use such kind of reporting system.
Performance reports- It is a report contains information about the financial performance
of company during last year and make comparison with current year performance so as to
identify deviations if any, which restrict company to achieve pre-determined targets. This
makes easy for manager of Creams Ltd. To improve the performance level on consistent
basis by identifying the causes of affect their further target and make proper decisions
accordingly (Gray, Coenenberg and Gordon, 2013).
Critical evaluation of management accounting systems and reporting
Management accounting systems and reporting are helpful for an organization to frame
its policy. Creams Ltd.’s management can use them effectively and efficiently to optimize the
performance of the entire company. This will result in strategic decision-making which can put
the company ahead of its competitors and can facilitate maximization of profits and help in
achievement of short-term, medium-term and long-term goals and objectives which are set up in
the organization.

TASK 2
P3: Calculation of costs by using appropriate techniques
Cost: It refers to the amount which is essential to start any project activities. To avail
resources, an organization needs to have an amount which further be recovered from the
customers through selling manufactured products in the competitive market.
The different types of costs which Creams Ltd. has used are as follows-
Marginal costing- It is a costing technique which also names as full variable costing
method due to considering only variable cost and ignore fixed cost. This will leads increment in
figures recorded as net profitability of company under the financial statement thus such kind of
technique is commonly used by small medium sized organization.
Absorption costing- It is a method which is used to calculate accurate and genuine net
profitability of business by considering bout fixed and variable cost. This will help organizations
to show their actual financial position into the market due to which it attains trust and loyalty of
its stakeholders. This method is commonly used by large sized organization who takes interest of
stakeholders on priority instead of attracting new investors (Absorption costing, 2018).
Income statement under Marginal costing method for month of May & June

Preparation of income statement by Absorption costing:

Application of management accounting techniques
There are various management accounting techniques which is used to calculate net
profitability of business in accurate manner. It includes marginal as well as absorption costing
method which are having different concepts. Marginal costing ignore fixed cost to include in the
calculation of net profitability whereas absorption costing method considers both fixed and
variable in the same calculation. Creams Ltd. Is small medium sized organization due to which
their manager may prefers to adopt marginal costing method due to seeking attention of new
shareholders with their financial statement.
Producing of financial reports
Financial reports consisting budget reports, cost accounting reports, account receivable
cost etc. which brings beneficial result to an organization if adopted. For examples, producing
account receivable report assist manager to recover all amount from unpaid debtors which adds
to their overall revenue. Likewise, inventory management report makes easy for managers to

maintain sufficient amount of stock in warehouses so as to meet the needs of their loyal clients
on time. This will leads increment in brand loyalty and market position.
TASK 3.
P4: Advantages and disadvantages of different kind of planning tools of budgetary control.
The budgetary control might be characterized as a sort of procedure wherein supervisors
of organization build up specific standard of execution with the assistance of budget. After that
contrasting with the actual performance (Needles, Powers, and Crosson, 2013). Because of this,
organization can assess the genuine degree of the exhibition. There are different sort of planning
tools of budgetary control which are referenced beneath:
Static budget: This kind of budget is additionally known by the fixed budget. It is a sort
of budget which doesn't change according to change in deals or volume. Essentially, this sort of
budget is appropriate for those operations which will stay consistent in whole planned timeframe.
This budget is being utilized by the Creams Ltd. organization for brief timeframe period. In this,
merits and demerits are referenced beneath:
Merits:
 This sort of budget shouldn't be update like different budgets. So it helps in time and
cost sparing.
 As well as this budget is exceptionally simple to follow on the grounds that it doesn't
change.
Demerits:
 It's demerits is that absence of adaptability. Because of this, it gets hard for the
organizations to refresh the budget if there is any tremendous change in the deals.
 Additionally, this budget doesn't give any efficient method to follow the costs.
Zero based spending plan: It is a kind of budget which is set up from the zero level. That
is to say, this budget doesn't think about past spending's plans. Just as in this budget every
movement is defended before going into the financial plan (Qian, Burritt and Monroe, 2011).

ZBB can be helpful for the Creams Ltd. organization in setting up the spending plan with
straightforwardness. The merits and demerits of this kind of budget are as per the following:
Merits:
 This financial plan gets proficiency and relevancy in budgeted outcomes.
 As well as this, wipes out those activities from the budget which are not advocated.
Demerits:
 One of the principle weakness of this budget is that it takes an excess of time and
cost.
 This budget can not be get ready by individual, it requires gigantic labor.
Flexible budget: This is a budget which can be change according to the adjustment in the
deals and volume. In the end, flexible budget is increasingly appropriate in contrast with the
static budget (Shah, Malik and Malik, 2011). The Creams Ltd. organization can utilize this kind
of budget for those activities which are of evolving nature. Aside from it, this budget has
following merits and demerits:
Merits:
 The budget is less unpleasant in light of the fact that it tends to be change according
to the adjustment in sales.
 This financial plan improves the performance evaluation due to updating on timely
basis.
Demerits:
 Due to more changes, now and again this spending plan gets befuddling.
 In this financial plan, real information can be controlled which bring about extortion
or cheating.

Use of different planning tools and their application for preparing and forecasting the budget
The planning tools of budgetary control helps in planning and determining the financial
plans precisely. This is the reason on the grounds that based on the planning tools, for example,
fixed budget, flexible and zero based budget gives a system to making the financial plan. Like in
Creams Ltd., static spending helps in recognizing those exercises which are consistent in nature
just as zero based budget acquires precision the readiness of the financial plan.
TASK 4.
P5: Comparison of organisation to solve the financial problem with the help of management
accounting system.
The management accounting system assumes multiple jobs for the associations. It isn't just
restricted to the intrinsic management of the associations yet in addition supportive in unraveling
the money related issues of the organizations.
Financial issue: It is a sort of issue which happens because of absence of funds. Because
of this issue, different capacities and exercises of the associations get sway. Thusly organizations
should attempt to defeat from these issues at the earliest opportunity. In this, a few sorts of
financial issues are referenced beneath:
Spending more than earnings: This sort of budgetary issue emerges when organization's
income are less than the spending. Because of these issues different capacities and exercises of
the associations get sway.
Inconsistent income: Another sort of monetary issue is unbalanced cash flow. In this
issue, organization's money inflow doesn't coordinate with the money out stream (Ter Bogt and
Scapens, 2012).
So these are primary monetary issues which can affect the organization's performance and
different activities. In this manner it is important that these budgetary issues ought to be settled
as quickly as time permits with the assistance of various management accounting systems. In
this, a few sorts of techniques related with accounting are referenced underneath:
Benchmarking-This is a sort of procedure which is identified with the contrasting
organisational procedure and plans with industry's best organizations. The primary target of this

strategy is to roll out reasonable improvements in the plans and systems according to the fruitful
organizations of the business.
KPI (Key Performance Indicators)- It can be characterized as a sort of method to solve
the budgetary issues wherein those exercises are emphasized which are advantageous for the
organization. Because of this, association can utilize their assets adequately.
Differences of two organization in dealing with financial issues using different planning
tools and techniques:
Basis Creams Ltd. Kelly’s
Financial issues Such company is facing
financial problem related with
unbalanced cash flow which
may causes due to
insufficient cash or liquidity.
This affects the business
operations executed on daily
basis which brings company
backward from their rivals
Such company is facing
financial issue due to
spending more than the actual
earnings. This happened due
to having errors in books of
accounts.
Techniques Benchmarking is the best tool
for company to adopt as it
helps them in setting target of
achieving profit at the end of
financial year. This increases
the treasury of organization.
KPI is an appropriate tool for
company to adopt as it help
them in comparing their
actual revenues with the past
year revenues. This will bind
company to spend limited
after overseeing net income.
Management accounting
systems
Cost accounting system is
best to use as it helps in
controlling cash outflows by
analyzing the total cost that
will be required to incur in
future business activities.
Price optimization system is
best to adopt as it help in
updating existing pricing
strategies as per the
company’s actual financial
position and customers

perceptions. This helps
company to recover any
damage through shifting
burden on the customers,
CONCLUSION
It has been concluded from the above report that the market stability of an organization is
very much depends on the figures recorded under the financial statements as manager makes
suitable plans and decisions on the basis of such financial information. For this, the management
must have proper knowledge about using various management accounting and reporting system
according to their actual market position and business objectives. Apart from this, there are
various tools which can adopt by an organization to resolve financial issues which includes KPI,
Benchmarking etc. This will increases the possibilities of an organization to achieve desired
goals and objectives within limited time period.

REFERENCES
Books and Journals
Agrawal, R. K., 2018. Principle of Management Accounting. Educreation Publishing.
Baiman, S., 2014. Some ideas for further research in managerial accounting. Journal of
Management Accounting Research. 26(2). pp.119-121.
Cohen, S., 2012. Cash versus accrual accounting measures in Greek municipalities: proxies or
not for decision-making?. International Journal of Accounting, Auditing and
Performance Evaluation. 8(3). pp.203-222.
Garrison, R.H. And et. al., 2010. Managerial accounting. Issues in Accounting Education.
25(4). pp.792-793.
Gray III, A. W., 2015. Evaluating ethics education for accounting students. Management
Accounting Quarterly. 16(2). p.16.
Gray, S .J., Coenenberg, A. and Gordon, P., 2013. International Group Accounting (RLE
Accounting): Issues in European Harmonization. Routledge.
Needles, B .E., Powers, M. and Crosson, S .V., 2013. Principles of accounting. Cengage
Learning.
Qian, W., Burritt, R. and Monroe, G., 2011. Environmental management accounting in local
government: A case of waste management. Accounting, Auditing & Accountability
Journal. 24(1). pp.93-128.
Shah, H., Malik, A. and Malik, M.S., 2011. Strategic Management Accounting-A Messiah For
Management Accounting?. Australian Journal of Business and Management Research.
1(4). p.1.
Ter Bogt, H. J. and Scapens, R. W., 2012. Performance management in universities: Effects of
the transition to more quantitative measurement systems. European Accounting Review.
21(3). pp.451-497.
Online:
Management accounting and its importance. 2020 [Online]. Available through:
https://www.invensis.net/blog/finance-and-accounting/what-is-management-accounting-
and-its-importance/
Absorption costing. 2018.[Online]. Available through:
<https://www.accountingtools.com/articles/what-is-absorption-costing.html>.