Management Accounting Report: Analysis of Financial Data and Reports

This report analyzes management accounting practices at Katie Walker Furniture, a British furniture design company. It covers essential aspects of management accounting, including its requirements within an organization and the description of various management accounting reports such as inventory management, budget, and cost accounting reports. The report delves into costing methods, comparing absorption and marginal costing, and explores the role of management accounting in maintaining capital structure, developing information systems, and making decisions. It also examines inventory management systems like FIFO, LIFO, and AVCO. Furthermore, the report discusses planning tools used for budget control, including their advantages and disadvantages, and compares how corporations adopting management accounting systems respond to financial problems. The report provides a comprehensive overview of management accounting principles and their application in a business context.

Management Accounting
(Unit 5)

Table of Contents
INTRODUCTION...........................................................................................................................4
Task 1...............................................................................................................................................4
About management accounting and its requirement in organization...........................................4
P2 Description of management accounting reports.....................................................................6
Task 2...............................................................................................................................................6
P3 Calculation of cost by using absorption and marginal costing...............................................6
Task 3.............................................................................................................................................13
Advantages and disadvantages of different planning tools which are used to control budget . 13
Task 4.............................................................................................................................................15
P5 Comparison between corporation that are adopting management accounting system to
respond towards financial problems..........................................................................................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting means a process and procedure which is related to providing
financial information and resources, helps to run a business by making decisions. This is only
used by internal team of business corporation where it helps to keep proper records of function
and financial information. The main objective of management accounting is to use statical and
financial data by taking a better and accurate decision (Abernethy and Wallis, 2018). This report
is based on Katie Walker Furniture UK that is British furniture designer company that provides
designing and creative furniture items to customers. The management of company uses
management accounting to keep information and make right decision that can help to increase
the organizational productivity. Topics are going to be cover in this report are essential
requirement of management accounting, methods that are uses in accounting reports, income
statement through absorption and marginal costing, planning tools and its merits, demerits as
well. Apart from this cover comparisons of accounting system that are used to respond towards
financial problems.
Task 1
About management accounting and its requirement in organization
Management accounting system- It is the internal system of organisation, which is
concerned with provision of information to provide better decision making. It is essential for
decision- making and identifying the innovative ideas to run company more effectively and
efficiently. The management's information includes capital budgeting, break- even charts,
product cost analysis, etc. Managers analyse information to advise business strategy and drive
sustainable business success. Different types of management accounting systems are described
below:
Inventory management system:- It is a systematic approach to source, store and sale
raw materials and finished products. The manager of Katie Walker Furniture are applying this
system to maintain detailed record of each new or returned product as it enters or leaves
warehouse at sale (Coyne, Coyne and Walker, 2016). It is essential for managers to examine
inventory management and procurement practices and their impact on organisational
performance. This system is further sub-categorised in the three parts, they are:-

 First In First Out (FIFO):- It is an asset-management and valuation method in which
assets produced first are to be sold first.
 Last In First Out (LIFO):- It is also the asset valuation method which involves the
assets produced last has to be disposed off first.
 Average Cost (AVCO):- In this asset valuation method, the assets are valued at different
rates are being averaged with the number of stocks to identify the accurate cost per unit.
From the above descriptions of inventory management, it is essential for Katie Walker Furniture
to adopt the FIFO valuation method for the optimum utilisation of scarce resources.
Cost accounting system:- This system consists enterprise's cost information related to
the manufacturing processes. It is beneficial for estimating the accurate price of products which
is critical for profitable operations. The manager of Katie Walker Furniture; has implied this
system for simplifying the work of manufacturers, who need to track the flow of inventory. It is
essential for the Katie Walker Furniture to keep a tab on production activities using perpetual
inventory system (Jinga and DUMITRU, 2015). This is essential for Katie Walker to get the
proper cost of its products and services that can help to get profits by running business activities.
Job order costing:- It is a system for assigning and accumulating the manufactured costs
of an individual unit of output. The implication of it can be analysed when there are various
items produced with different speciality and significant cost. Managers of Katie Walker
Furniture use this system to treat every customer uniquely and deliver products specifically to
fulfil their individual needs. It provides the firm to usually receive orders for customized
products and services. It is mostly required by Katie Walker Furniture to have an overview on
their cost control and unit of output. This is essential for Katie Walker to allocate the cost of
products in different sections so it can be recognised easily and smoothly in order to make
profits.
Price optimisation system:- This system determines the customer's responses on
different prices of products and services through different channels. It also evaluates best price
for the organisation to meet it's objective of consumer satisfaction with maximisation of
operating profit. The managers of Katie Walker Furniture apply this system as it leads to
determine the pricing structures for initial, promotional and discounted pricing. It is
advantageous for Katie Walker Furniture to examine the best price of product which will
increase sale for profit maximisation (Dauth, Pronobis and Schmid, 2017). This is essential for

Katie Walker to set the prices of its provided products and services which are important to make
profits and increase productivity.
P2 Description of management accounting reports
Management Accounting Reports:- In all the organisations managers prepare different
types of reports to track business performance which are known as management accounting
report. In Katie Walker Furniture some of them are generated by managers so that they can
analyse that company is performing well or not. Description of all of them is as follows:
Inventory management reports:- The manager of Katie Walker Furniture use this
report for reducing the risk of spoilage, theft, damage and change in demand of stock. It is
mandatory for managers to keep non-capitalized assets (stock) insured, as if it is not sold in
particular duration, than it has to be disposed of at clearance prices- or simply destroyed
(Elmassri, Harris and Carter, 2016).
Budget report :- This report is used by management to identify the difference between
the budgeted performance as compared to the actual performance during an accounting period.
The manager of Katie Walker Furniture uses this report to enhance budget control, create
compatibility with other reporting applications etc.. This is beneficial for them to evaluate the
performance, on track to meet its business objectives. It also guides them to take corrective
action where it is required.
Cost accounting report:- It is a report with systematic set of procedures for recording
and reporting the costs and comparing them with set standard. It provides the detailed cost
information to management to control current operations and plan for future. The Katie Walker
Furniture's managers apply it to determine the manufacturing cost of each product of company
for optimum selling prices. It is most beneficial for Katie Walker Furniture to identify that
business is able to earn more than its total cost incurred or not (Florio and Leoni, 2017).
Task 2
P3 Calculation of cost by using absorption and marginal costing
Definition of management accounting - Management accounting is the way of
presenting accounting information that assist management in creation of policy and run day to
day operations (Golyagina and Valuckas, 2016).

Management is the need of all department where all accounting information and activities
are managed by managers in order to attain the business goals and objectives. In other words,
this is a process of providing financial information and resources to management so, decisions
can be made accordingly (Qian, Hörisch and Schaltegger, 2018).
Role of management accounting:
Every organization wants to make profits by running is activities and functions that also
increases brand image. It is managed and control by a manager which is known as management
accountant. This manage all activities and functions effectively and improve organizational
profitability. The role of management accounting are as defined:
Maintaining optimum capital structure – The management accountant of Kaite walker
are playing a role of managing capital structure in raising funds and their applications. In this, it
decides about maintaining a proper mix between debt and equity.
Developing management information system – In this, organization get prepare a
report with the help of managers who make long term decision and take corrective actions to run
a business successfully. In Katie walker, accountant is responsible for using and developing a
management information system effectively (Roles of management accounting, 2019).
Decision maker – This is important role which is played by management in order to
make decisions and increase profitability. In Kaite walker, management accountant are playing
decision maker role where all function and accounting information are controlled by managers.
And if organization is facing through problems so it suggest the idea and perform business
effectively (Fallan and Opstad, 2014).
Stewardship accounting – This role is played by management accountant by designing
the framework of cost and financial accounts that helps to make routine report. With the help of
this manager become able to make decisions.
Long term and short term planning – Management accountant plays an essential role
in running and forecasting business future. In Kaite Walker, future plans are prepared by
managers that helps to complete the target and attain business goals (Roles of management
accounting, 2019).
Control – The management accountant play this role in management accounting where it
analyses the accounts and prepares reports such as standard cost, budgets, variance analysis and

cash flow analysis used to control cash liquidity and increase business performance (Richardson,
2015).
Marginal costing - This method is used to calculate the profitability in organization by
deducting all marginal cost from revenues. Marginal cost is relied on production's volume where
as fixed cost is consider as separate that is used to determine the profits (Seal and Mattimoe,
2014).
Absorption costing – This method is states all production cost are variable and fixed are
absorbed cost that uses to assess the profits. This helps to increase the productivity and
profitability in organization (Golyagina and Valuckas, 2016).
Calculation of profit by absorption costing

Calculation of profit by Marginal costing

Inventory management - This is the process which is used by management in order to
track the inventory and increase business performance. It system is mainly used in manufacturing
company where number of products are produced in a bulk and needed to manage them. In Kaite
walker, this is used by managers in order to track inventory and run a business successfully
(Saleem Salem Alzoubi, 2016). The main aim behind this to keep proper record and maintenance
of stock which is available in market. This involves different types such as:

EOQ – This means economic order quantity which is used by an organization in order to
purchase stock and inventory at minimum cost. The cost which consider are shortage cost, order
cost, holding cost etc. In Kaite walker, this is using by management in order to minimize the cost
of inventory and increase business performance.
ROP – This means re ordered point which is based on assumptions that the item ordered
are certain and to be consumed in immediate future. This is used by organization while
assuming there will be always demand of product. It states a point from where manager make
decision to re order the material and keep continue their business (Golyagina and Valuckas,
2016).
JIT – It is considered as a inventory management system that aligns raw materials orders
from suppliers directly with production schedules. This method requires producers to forecast
demand accurately. Kaite Walker uses this system to increase efficiency and decrease waste by
receiving goods that increases business performance. It is needed producers to forecast demand
appropriately (Florio and Leoni, 2017).
Task 3
Advantages and disadvantages of different planning tools which are used to control budget
Planning tools are consider as instrument which are used to guide and control over budget
in organization. This provide detailed descriptions regarding budget plans and states how it is
developed in order to make profits. Katie Walker Furniture is using planning tool that supports in
budgetary control by tracking cost and activities. It consider kind of budgets that directly related
to process and procedure of budgets. Different types of planning tools and budget are defined
below:
Master budget - It is consider as superior budget by involving all budget and financial
information. This includes documents expected future sales, capital investment, future expenses
and cost of products which helps to improve the organizational productivity. Katie Walker
Furniture's management uses this budget for expansion planning and keeping records of all
detailed information (Saleem Salem Alzoubi, 2016).
Benefits – This is important planning tool which is used by top management to discusses
about overall profitability and productivity. Katie Walker Furniture taking advantages of

achievement of goals by maintaining inter divisional coordination between all division of
company.
Drawbacks – Master budget leads low revenues estimations and higher expenses
estimates that reduced organizational profits. This budget is not easy to modify and update
therefore, it may be problem for Katie Walker Furniture to make changes in budget (Fallan and
Opstad, 2014).
Zero based budget – The basic planning tool of organization is zero base budget that
involves preparation of budget by zero base. This does not involve any previous data and
financial information to get the budget. Katie Walker Furniture is using this budget to make the
quick decisions without concluding any prior figures. In this, fresh assumptions and data are
taken by managers that helps to control over excessive budget and maintain the performance.
Benefits – In Katie Walker Furniture, managers are applying this tool to make the quick
decisions and complete the information effectively. There is proper coordination and
communication which helps to get profits accordingly.
Drawbacks – There is lack of expertise that can create problem to prepare the budget. It
can create wrong decision because it does not involves any past data and information.
Cash budget: An estimation of cash flows for a business which is prepared by
management is consider as cash budget. This budget is used to know the do enterprises has
sufficient fund and cash to operate business. Katie Walker Furniture is using this budget to know
the availability of cash in their organization and run business effectively. With the help of cash
budget chosen organization forecast sales and production and states account receivable
collections (Richardson, 2015).
Benefits – This tool is advantageous for Katie Walker Furniture to avoiding the debts and
making business more resourceful. It helps to maintain the proper records of cash and
receivables which increases profitability (Seal and Mattimoe, 2014).
Drawbacks – Cash budget is easiest assets for any organization that can be steal because
it is easy to trace. This can limits the spending power of Katie Walker Furniture while buying
raw material and other goods. Moreover, cash budget includes budgeted inflows and outflows
that relies on future needs and meeting of them.

Task 4
P5 Comparison between corporation that are adopting management accounting system to
respond towards financial problems
The key problem of business is related to finance which is facing by any corporation
while running its business. To operate and run a company there is need to solve financial
problem that helps to increase the productivity and profitability. Such problem creates many
doubts and confusions to survive in the market, so there is need to identify the problem and
respond it properly to manage business activities (Qian, Hörisch and Schaltegger, 2018). Katie
Walker Furniture is preparing design furniture by using various process and functions. It faces
different types of issue in its business which are related to finance that are as defined:
Rising inventory cost: This means cost of raw material and other inventory is increasing
continuously that is increasing overall cost of organization. Katie Walker Furniture is facing such
problem sue to increasing cost of raw material, designs and others that is reducing overall profits.
This cause arises in organization because of improper management of inventory and lack of
control over production.
Poor cash management: It is another crucial problem of organization where it faces
money related problems because of mismanagement of cash in corporation. Katie Walker
Furniture is having lack of management on its funds which is creating problem and reducing
profits margin. The management has identified that there is mismanagement of cash where is
creating problem to operate the business.
High spending than income: When high spending is done by corporation than income
then financial problem is faces by business which need to respond by management in order to get
solution. Katie Walker Furniture is spending money on designs, structure and other activities that
are not useful and creating problems (Giacomini, Sicilia and Steccolini, 2016).
The entire system of MA involves some tools and techniques that are used to identify the
problems and get them solution. Following key techniques are used by Katie Walker Furniture to
find out the financial problem, as defined:
KPI - This means key performance indicator that is used to analyses financial and non
financial performance. This involves financial and non financial indicator that are used to
measure and track the organizational performance. Katie Walker Furniture is using KPI tool to
measure and track progress in important areas of company performance. Financial indicator of

selected company are gross margin, operational margin, cash flow and net profit margin that
states the health of business. While non financial indicator are brand value, structure, nature and
customer relationship which helps to improve the organizational profitability. With the help of
this managers allocate activities and control the budgetary operations (Mizikovsky and et.al,
2016).
Bench marking – This is the process, uses to measure the performance of organization's
product and services. In Katie Walker Furniture, manager are using this tool to measure the
results against other's performance. With the helps of this, performance is evaluated by
management that helps to control all performance and standards which are creating financial
problems. This is effective tool that can be used by organization to improve the organizational
performance by comparing with other entity. This suggest and helps to make strategic planning
what steps need to be taken for increasing business activity and taking competitive advantages.
Financial governance: This refers as direction, policies and different ways through
which organization capture financial information, records, process and control it appropriately. It
encompasses how a corporation track financial information, business activities, productivity and
monitoring the performance that helps Katie Walker Furniture to solve problems. This also
supports management and staff to control over operations and make a list of current financial
problem. Therefore, financial governance make policies for organization to get solution of
financial issues.
Comparison between Katie Walker Furniture and Wow fabrics
Basis Katie Walker Furniture Wow fabrics
Financial
issue
This is furniture design organisation
that offers variety of furnitures with
different designs and encourage
customers to buy them. This is facing
issue high spending than income
which increases cost of operational
activity and ultimately impacting
profit margin.
This is cloth manufacturing company
that provides different types of clothing
designs to customers. This organisation
is facing low productivity and
profitability due to increasing cost
inventory and improper management of
raw material.
Detection of Katie Walker Furniture is applying Wow fabrics should apply

problem KPI tool detecting the problem and
root causes in spending that can help
to get a solution.
benchmarking to detect the problem and
getting core reason of facing financial
issue.
Uses of system Such corporation should adopt cost
accounting system to access the cost
and recording data of expenditure
that will help to respond financial
problem accurately (Nimtrakoon and
Tayles, 2015).
This organisation should use inventory
management system that can assist
managers to monitor and control over
inventories and reduce the irrelevant
activities in order to respond towards
problem.
From the above it has defined that Kaite Walker identify the problem in relation to cost
accounting because its cash flow are are not matching properly so managers has decide to use
cost accounting system that will help to find out the income and expenses of company and would
also defined cost where expenses are occurred. With the help of this system, all cost will be
managed and will reduce the wastages that will help to match the cash flow and reduce irrelevant
spendings (Elmassri, Harris and Carter, 2016).
On the other hand, Wow fabrics is facing inventory management issue as it is unable to
track produced material properly because it was not using inventory management system. Due to
this, there is no record of inventory that increased cost and reduced profitability. To overcome
this, management has decided to use inventory management system that will help to record the
inventory and would track properly. This will help to make profits effectively.
CONCLUSION
From the report it can be articulated that accounting management is important for
organization where small, medium and large as it helps to keep records and track the financial
information. This mainly used to make right business decision by evaluating all activities and
matching all financial statements. The involvement of multiple system and reports are effective
which helps to complete the task and process in order to gain profitability. Different planning
tools are used by management which helps to control over excess budget and make a clear
conclusion. There are different types of accounting system that are used to make right business
decision and improve organizational performance.

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