Detailed Management Accounting Report: Unit 5, Cost Analysis

This report provides a comprehensive overview of management accounting principles, focusing on cost analysis techniques and their application within a business context. The report begins with an introduction to management accounting, highlighting its importance in organizational decision-making, and then delves into specific accounting systems such as price optimization, inventory management, and cost accounting. Task 1 explores the essential requirements of a management accounting system and the various types of reports, including cost management, budget, and performance reports, along with their benefits. Task 2 focuses on cost analysis techniques, including marginal and absorption costing, used to prepare income statements. The report also examines the advantages and disadvantages of planning tools and the adaptation of management accounting to respond to financial problems, concluding with a summary of key findings and references.

Unit 5 Management
Accounting

Table of Contents
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..................4
M1 Various type of system and their benefits .......................................................................5
TASK 2............................................................................................................................................6
P3 Cost analysis techniques to prepare income statement to calculate cost...........................6
M2 Range of management accounting techniques...............................................................11
P4 Advantage and disadvantage of various types of planning tool......................................11
M3 Evaluation of planning tool for preparing budgets........................................................12
P5 Adaption of management according to respond financial problem................................13
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting known as managerial accounting system that aid organisation to
operate their business operations. Management accounts are of different types which is essential
for managers to undertake as to formulate decisions in best effective manner. With the help of
accounting system managers can make internal decision-making process related to financial and
non-financial aspects in best effective manner. Management accounting system benefits
organisation to take advantage of different tools, techniques and methods and conduct operations
of company in best effective manner. As to effectively understand concept and practices of
management accounting Essentra Packaging is used in present report. In this project formative
discussion has been made on management accounting concepts. Further report include
managerial techniques along with disadvantages and advantages of planning tool.
TASK 1
P1 Management accounting system and their essential requirement
Management accounting: It is a systematic process that include different types of
activities such as presentation, analysation and collection of non-monetary and monetary terms.
By undertaking management accounting organisation can effectively able to take numerous
advantages through which their can further able to accomplish their daily basis operations related
to planning, organizing, staffing, decision-making and controlling in best effective manner. Thus,
it is essential for Essentra Packaging to understand importance of management accounting in
order to conduct their daily basis operations. This will significantly aid them to accomplish their
short as well as long term objectives in best effective manner.
Reliability:
It is essential for an organisation to have all the essential and related data as well as
information in reliable manner. This will further aid company to undertake best effective form
decision-making process in order to improve future performance of organisation.
Up to date:
It is the basis responsibility to company managers to make sure that informations that are
covered in accounting statements are accurate and up-to-date. With the help of best effective
form of accounting system organisation can effectively able to maintain financial records as to
operate their business functioning in best effective manner while assuring market stability.
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Different Types of accounting system:
Price optimisation system –
Price optimisation system aid organisation to evaluate price of their related products as
well as services. This will allow Essentra Packaging to review perceptions of customers on
different pricing level. With the help this company can able to gain sustainable advancements in
marketplace with larger competitive edge organisation is required to set price of products and
services in a well structured manner. This will allow company to significantly increase overall
profitability of organisation. In order to accomplish this organisation is required to identify
behaviour of customers related to products and service.
Inventory management system -
Organisation is required to manage their day to day function, for this they are required to
keep constant track of their inventory segment. Inventory management system allow company to
have regular track on their utilization of resources. This will allow them to reduce unnecessary
amount of wastage. Further it has been identified that, it is essential for Essentra Packaging to
undertake different strategies related to inventory management as this will benefit them to
control their excess wastage and expenses. With the help of this company can effectively able to
engage in cost-effective manufacturing process. This will significantly aid company to enhance
their profitability and productivity. Thus, It is essential for Essentra Packaging to implement
inventory management system within their operational system as to gain maximum advantages
while reducing necessary amount of wastage.
 LIFO –
◦ This method indicates that those stock that come at the end will go out first. Thus,
LIFO method is last in first out.
 FIFO –
◦ FIFO method is stock coming first and sale out first. Thus, in FIFO there is the
process of first in first out.
 AVOC –
◦ AVOC method included calculations of cost of inventory on average basis.
Cost accounting system –
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Cost accounting system benefits company with numerous form of benefits for an instance, it will
allow organisation to effectively manage their cost input in each and every activity. With the
help of this they can enhance organisational overall profitability in best effective manner. In
addition with this, organisation can conduct their activities related to understanding, evaluation
and summarising of cost of services and goods in a well define manner. It has been further
identified that cost accounting system benefit Essentra Packaging to operate their business
functions with estimated cost and further increase overall profitability of organisation in best
effective manner.
Job costing system –
Job Costing system allow organisation to evaluate organisation overall expenditure rate
during the process of particular job. This method is mainly suitable in those organisations those
who are engage in providing multiple products and services to customers. As Essentra Packaging
engage in the process of offering different form of manufacturing services to customers. Thus, it
becomes important of company to make effective evaluation of every single individual unit cost.
Essentra Packaging by udertaking job costing system can able to gather required data which is
affiliated with particular assigned job. There are some certain data as well as information which
is being defined below that can be undertaken by company with the help of job costing system:
Direct material –
It is most crucial element in variable cost. This will allow organisation to have
continuous track on this manufacturing segment. This will benefit them to manage their
organisational cost linked with particular job.
Direct labour –
This factor signifies that organisation can have regular track on their specific job. With
the help of this company can effectively able to accomplish their tasks and operations within
specified period of time .
Overhead -
At the last ending phase of every accounting period all sum of every cost to apply
methodology linked with allocation.
Difference Between Management Accounting and Financial Accounting
Management Accounting Financial Accounting
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 In management accounting there is no
internal regulations and it is mainly use
of internal use only.
 Financial accounting is mainly
regulated by law and are basically for
external use.
 Management accounting provide
detailed analysis of qualitative,
financial and non-financial form of data
and information.
 In this there is a overview of
performance of organisation that
mainly include financial information.
 In this there is no indulgence of legal
requirements in order to prepare
management accounts.
 In this, organisations have limited
liability as per law as to develop
financial accounts.
P2 Type of management accounting reports and its importance to management
There are numerous form of management accounting report that aid an organisation to
maintain proper record of their financial informations. With the help of this they can
significantly able to manage their day-to-day functioning while assuring sustainability increase
in organisational profitability. Mentioned below there are some system that will aid beneficial
advantages of organisation in order to increase efficiency of daily basis functioning:
Cost managerial accounting report:
Cost managerial accounting effectively aid organisation with management of their daily
basis cost and expenses accurately. In order to effectively operate their functions company is
required to evaluate cost of products as well as services. With the help of this company can
effectively able to identify their ratio of profit as well as loss of products and services. This
further allow company to control their unnecessary cost and expenses. This will also benefit
company to conduct their operations in cost effective manner and further offer their products and
services to customers in cost effective manner.
Budget report:
With the help of budget report organisation can effectively able to determine the overall
amount of spending on organisation on annual basis and can further further able to control
unnecessary expenses and waste. In addition with this, it is essential for organisation to ensure
that budget should be genuine and are must be presented at the year end. Thus, it is essential for
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organisation to undertake this form of budget report in order to conduct comparison between
actual report and budget within accounting. After the completion of this report it is essential to
present this in front of upper level of manager in order to effectively access budget authenticity.
With the help of this company can effectively able to manage their cost as well as expenses in
best effective manner.
Performance report:
It is a systematic layout that basically include cost that incurred during the completion
of project. In this leader of an organisation effectively consider all essential resources in order to
achieve long term and short term objectives of organisation. With the help of performance report
organisation can effectively able to have accurate information related to organisation actual
position. This will further aid them to balance performance with set standards. With the
effectively evaluation of performance leader can able to undertake strategies and can further
implement plans and policies in order to effectively accomplish organisational goals in best
effective manner. In addition with this, it has been determined that performance report aid
organisation to accomplish their organisation goals and objectives in best effective manner. With
the help of performance report organisation can effectively able to identify the fund that are
required by them in order to expand their short and long term goals. This will allow them to
expand their services at international market in best effective manner. In order to ensure
efficiency of performance it is the basic responsibility of supervisors as to effectively have track
on their plan in order to ensure that all the activities are operated on continuous basis. With the
help of this managers can effectively able to expand their business while gaining more
competitive advancements.
M1 Various type of system and their benefits
System Benefits
Cost Accounting system  This system aid an organisation to identify
unnecessary and unexpected cost that prevails in an
organisation. With the help of this they can
effectively able to improve profit holding capacity
of organisation.
Inventory Management System  Inventory management system aid company to
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have proper and effective record of inventory ratio.
This will allow organisation to offer their products
and services according to defined cost.
Job Costing system  Job costing system benefit organisation to identify
their functioning in best effective manner and can
maintain profit holding capacity of organisation.
Price Optimisation System  Price optimisation system aid organisation to
effectively analyse current market condition and
then offer their products and services according to
need. With the help of this they can effectively able
to gain more competitive advancements while
increasing consumer base.
TASK 2
P3 Cost analysis techniques to prepare income statement to calculate cost
Marginal Costing:
Marginal costs is considered as a variable cost that cover material costs, labour costs and
portion of fixed costs such as administration, selling expenses and overheads. This is a procedure
within charging of variable expense is done all-out of expenses. Organisation can effectively able
to take long term advantages with the help of marginal costing technique. In addition with this
they can further able to increase overall net benefit of organisation. Formula in order to
appropriately calculate marginal cost is being defined below
Marginal Cost= Direct material+ Direct Labour+ Direct expenses+ Variable overheads.
Absorption costing:
This costing approach is related to cost strategies and is also known as administrative and
cost bookkeeping. With the help of absorption costing company can incorporate their cost related
to conception of particular decent. Further it has been identified that fixed cost also include
compensation, different overheads and cost of crude material.
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Income statement under Marginal costing method for month of May & June
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Income statement under absorption costing method for month of May & June
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