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: