Management Accounting Report: Analysis of Cambridge Manufacturing Ltd.

This report delves into the realm of management accounting, also known as cost or managerial accounting, and its crucial role in analyzing business costs and operations. Focusing on Cambridge Manufacturing Ltd., a medium-scale organization, the report examines various management accounting systems, including price optimization, inventory management, and cost accounting systems. It explores different types of management accounting reports, such as cost managerial accounting reports, aging reports, budget reports, and performance reports, highlighting their importance in decision-making. Furthermore, the report discusses the benefits and applications of these systems, providing critical evaluations of various reporting and accounting methods. It also addresses cost calculation techniques, including marginal and absorption costing, and explores planning tools used in budgetary control, along with strategies to overcome financial issues. The report concludes with a comprehensive analysis of the role of management accounting in achieving sustainable success in addressing financial problems.

Management
accounting

INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system and their essential requirement..........................................1
P2 Type of management accounting reports and its importance to management.......................3
M1 Benefits and application of management accounting system...............................................4
D1 Critical evaluation of various reporting and accounting system............................................5
TASK 2............................................................................................................................................5
P3 Calculation of cost by using appropriate technique...............................................................5
M2 Type of accounting techniques............................................................................................10
D2 Data interpretation...............................................................................................................10
TASK 3..........................................................................................................................................10
P4 Merits and Demerits of using planning tools used in budgetary control..............................10
M3 Different planning tools and their applications...................................................................12
TASK 4..........................................................................................................................................12
P5 Comparison with other organisation to overcome financial issues......................................12
M4 Management accounting can lead organisation to sustainable success in responding
financial problems.....................................................................................................................14
D3 Planning respond appropriately to resolve financial problem.............................................15
CONCLUSION..............................................................................................................................15
REFRENCES.................................................................................................................................17

INTRODUCTION
Management accounting is also known as cost accounting as well as managerial
accounting. It is the procedure utilise for analysing business cost or operations for preparing
internal financial report and account which help manager within decision making process for
accomplishing business goals. Management accounting help in conducting business activities
within effective manner like planning, organising, staffing, directing and controlling. For
understanding this overall concept medium scale organisation which is named as Cambridge
manufacturing Ltd. This organisation manufacture variety of specialist dietary products as well
as offers nutritional assurance. Respective manufacturing organisation conduct its operation
within United Kingdom. This report will going help in understanding concept of management
accounting, type and their requirement in organisation. Along with this, calculation of cost
through suitable technique has been done and various type of accounting technique will discuss.
Furthermore, merits and demerits of using planning tools in budgetary control will explain as
well majors to overcome financial issues.
TASK 1
P1 Management accounting system and their essential requirement
Management accounting system is related to collecting, analysing and presenting
monetary as well as non-monetary information to its end user according to requirement. It is

crucial part of an organisation because it is implemented in internal system for controlling
organisational activities within proper manner. This system help in keeping financial record and
help in making effective accounts. There are different type of management accounting system
which help in growth of company as well as in building market image.
Difference between Management accounting and financial accounting
Basis Financial Accounting Management Accounting
Meaning It indicates to an accounting
system which make
concentration on the
preparation of financial
statement of a company to
offer financial information to
those parties which shows
interest.
It refer to an accounting
system which provides relvant
information to the managers to
make or design plans, policies
and strategies to operate the
business effectively.
Objective The major purpose of this
accounting system, to provide
financial information to
outsiders.
The objective management
accounting is to assist the
management in planning and
decision making process by
offering detailed information
on various matters.
Time frame Financial statements are
prepared at the end of the
accounting which is usually
one year.
The reports are prepared as the
need and requirements of the
organisation.
Explanation of these accounting system in relation of Cambridge manufacturing Limited
mention below :-
Price optimisation system – Every organisation work with the motive of profit
maximisation so they mainly focus towards price structure of different products. Cambridge
manufacturing limited implement specific system for setting price of their products. But before

setting price of offering company conduct market research for identifying perception of
customers related to particular product and services. The main requirement of this system to
Cambridge manufacturing Ltd is about ascertainment of the price in respect of the demands they
have in market.
Inventory management system - The particular system major part of manufacturing
company to track record and manage stocks within organisation. Mainly manufacturing
organisation can use inventory management system for keeping proper records analysis of stock
on every production level. This method can assist respective manufacturing company within
their activities as well as assist in identifying need of material at different level. This system will
help an organisation to manage their inventory and achieve better better outcomes within given
time period. Respective method will be advantageous for business firm in maintaining proper
stock within proper manner and use resources in production procedure. As a result it can reduce
wastages and help to place next order of goods and services. There are various techniques of
inventory explanation of these are as follows :-
 LIFO – As per this method stock which come last will goes out first. Thus, LIFO is
simply last in first out.
 FIFO – There are stock coming first and sale out first. Thus, it depends that in FIFO
method first in first out take place.
 AVOC – It is calculating cost of inventory on average basis.
Cost accounting system – This accounting system gives direction to organisation by
concentrating on cost and increasing profitability. Cost accounting system involve systematic set
of activities such as understanding, analysing, entering, summarizing cost of goods as well as
services. In relation of Cambridge manufacturing Ltd implement specific system for analysing
variance by comparing within actual as well as estimated cost. Cost accounting system is
generally utilise by Cambridge manufacturing Ltd with the motive of improving their production
level as well as profitability.
Job costing system – This is kind of accounting system which help in analysing
expenditure which occur for particular job. With the assistance of job accounting system detail
information related to cost will be gained which is connected to accounting period. In respective
Cambridge manufacturing Ltd, this costing system is implemented for gaining knowledge about

various assigned job. There are several information which gained through job costing system are
as follows :-
 Direct material – It is part of variable cost that is related to the production unit as well as
track cost of material within particular job.
 Direct labour – In this cost of labour will be track related to specific job and also involve
time card and time sheet.
 Overhead - At the end of every accounting period the total amount of each cost to apply
methodology regarding to allocation.
P2 Type of management accounting reports and its importance to management
There are different type of management accounting report which will be use by
Cambridge Manufacturing Limited for keeping record of every transactions. Management
accounting report will help in taking better decision on the basis of provided information which
help in generating profit for business firm in future. Explanation of these reporting system are
mention below :-
 Cost managerial accounting report – This type of report is design for identifying cost
of amount spent on manufacturing process. Respective reporting system will give full
detail related to amount invested for conducting business activities. Cambridge
manufacturing Ltd. Have to prepare cost managerial accounting report because it help in
controlling cost which affect profitability of company as well as also help in
understanding actual expenditure. So that, optimum utilisation of available resources
method will be use in company.
 Account receivable ageing reports – It is most important tool which help in managing
organisational activities as well account receivable ageing report shows amount which
customer have to pay company. Respective report help Cambridge manufacturing Ltd. In
identifying that finance division is collecting receivable slowly as well as credit policies
also.
 Budget report – Motive behind designing this report is to compare actual budget with
its estimated. Financial data of an organisation are recorded within budget report which
is prepared by expertise. It also assist in identifying level of expenditure within an
organisation. Cambridge manufacturing limited prepare budget report foe ensuring that

resources are allocated within proper manner as well it help in reducing operational cost
and assist in determining availability of sufficient funds.
 Performance report – This report is design on the performance of any particular
activity and help in measuring, evaluating as well as analysing performance of company
and staff members. Performance report help in identifying difference between actual and
standard performance of Cambridge manufacturing limited and also staff working with
them. In addition to this, respective business firm have to make performance report on
regular basis so that present performance will be identified, future forecast will be
conducted as well as difference within actual and baseline will be fined.
M1 Benefits and application of management accounting system
There are several management accounting system which play important role in every type
of business firm. Thus, Cambridge manufacturing Ltd. Will implement several type of
accounting system within their working which are advantageous for them as well as client also.
Advantages of accounting system are as follows :-
Type of accounting system Benefits
Inventory management system  This accounting system is beneficial
for organisation because it help in
identifying how much inventory
exactly required for conducting work.
 Inventory management system will
assist Cambridge manufacturing in
proper planning and also in tracking
inventory.
Cost accounting system  Cost accounting system help
calculating overall cost of various
operations as well as activities.
 Along with this, respective accounting
system will assist Cambridge
manufacturing Ltd. in fixation of prices,
decreasing prices as well as in identify

the profitable or unprofitable activities.
Price optimisation  Price optimisation is the system which
help in identifying reaction of
customers at different price of product
and services.
 It will provide benefits to respective
organisation by time saving, providing
with the market transparency as well as
full control.
Job costing system  Job costing system is advantageous in
calculating cost of each job which is
assigned for different activities.
 Respective costing system will adopt by
Cambridge manufacturing Ltd. For
identifying price of every job.
 Along with this, it also help in examine
the over as well as under recovery of
overheads.
D1 Critical evaluation of various reporting and accounting system
Management accounting system and management accounting report are integrated each
other in order to contribute towards the organisation. As it will help an organisation to prepare
their financial statement in accurate and systematic manner. Cost management accounting
system helps in preparation of cost report of Cambridge manufacturing Ltd. Both management
accounting as well as reporting system are interrelated with each other and help management is
taking effective decision for organisation. With the assistance of an illustration it will be easy to
understand: cost accounting system assist in overall cost incurred within production as well as
other organisational activities. This enable management in preparing budget report because
these are designed in the basis of actual financial position of business firm.

TASK 2
P3 Calculation of cost by using appropriate technique
Cost can be the thing which is measurable in term of money or it can be the amount paid
against product or services to be purchase. It is monetary valuation of resources, efforts,
resources and so on while producing product or services. Every expenses which incur while
production are cost but all cost are not expenses. There are mainly two type of cost i.e., marginal
and absorption cost. Explanation of these are as follows :-
 Marginal costing – The marginal cost of any particular product is its variable cost as
well as marginal production cost is simply sum of direct labour cost, direct material cost,
variable production overhead cost and direct expenses. Thus, if their will be enhancement
in volume of production as well as sale then total variable cost automatically get rise.
Apart from this, marginal costing is also principle costing technique utilise in decision
making process. Respective costing approach allows management attention on changes
that result from decision under consideration.
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000

Contribution 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
 Absorption Costing – This cost indicates that all manufacturing cost has been assigned
to the unit produced. Absorption cost involve all the cost related to manufacturing of

products which can be variable as well as fixed cost such as direct, overhead which utilise
for evaluating inventory.
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4

Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
From the above practical it has been interpreted that the net profit in marginal costing is
lower than the net profit of absorption costing that is -550 and 1050.
Cambridge manufacturing Ltd. Can utilise marginal costing method because it show
more revenue within financial statement which result in attracting large number of share holders.
Whereas, respective organisation can use absorption costing method also because it will help
them in getting actual information related to organisation financial position.
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms