Management Accounting Report: Methods, Costing, and Analysis

This report delves into the core concepts of management accounting, using Eastern Engineering Co. Ltd. as a case study. It defines management accounting, outlining its importance in strategic decision-making, and explores the evolution of the field. The report details various management accounting systems, including cost accounting, inventory management, price optimization, and job order costing, highlighting their benefits. It explains different management accounting reporting methods, such as performance reports, inventory reports, and cost accounting reports, and how these are used to monitor financial and non-financial results. The report includes cost analysis using marginal and absorption costing techniques, demonstrating how to prepare an income statement. Furthermore, it examines the advantages and disadvantages of planning tools used for budgetary control. Overall, the report provides a comprehensive understanding of how management accounting principles are applied to solve financial problems within an organization.

Management
accounting

Table of Contents

INTRODUCTION
Management Accounting is considered as an integral part of management that mainly
concerned with the identifying, presenting & interpreting the information that used for various
purpose such as to formulate strategy, specific decision making & optimizing the use of
resources, safeguarding assets, etc. It tends to deals with policy determination and for formation
of plan so that planned objectives can easily be achieve. The organization that was selected under
this project is Eastern Engineering Co. Ltd. It is a manufacturing company established in the year
1999 on 6 July. It was established in the states of United Kingdom. The topics that were
discussed under this project are definition of management accounting & important requires of
management accounting system. The explanation of different methods of management
accounting reporting are also cover this report. Cost analysis with support of related illustration
is done under this project. Merits and demerits of planning tools used for budgetary control are
also discussed under the respective assignment. How management accounting is used to solve
the problems related to financial terms are also explain in detail in this report (Chen, 2021)
TASK 1
P1 Management Accounting & give the requirement of various type of management accounting
system?
Management Accounting: It is a strategic process to analyses the financial information
which are tends to be receive from financial statement with the intention to take effective
decision so that organization objectives can easily be achieved within a specified time period.
Origin and evaluation of management accounting: During industrial evaluation this
concept is tends to be introduced. It is introduce after financial accounting concept. The data
related to management accounting is tends to derive from financial & cost accounting.
Management accounting is mainly concerned equally with long as well as short range of
planning.
Management accounting system: without proper cost and financial accounting system
the following respective system cannot be installed. To analyze the true and fair financial
position various systems are used by company in terms to gain competitive advantage. As the
company Eastern engineering pvt ltd. Are concerned to manufacturing industry with regards to it

is important to consider the advantage to respective systems and according to that
implementation are tends to be done.
Difference B/w management & financial accounting
Management accounting Financial accounting
It supports managers to do such type of
decision making which is profitable in context
to organization (Eugster, 2021)
Their main objective is to present true as well
as fair view of overall results of the
transactions & events. And also to analyses the
actual financial position of company with the
help of creating an maintaining annual
financial records(Foroodi, 2012)
It involve all monetary a well as non monetary
items.
It expresses the details of entity in terms to
figures and money.
Types of management accounting system
Cost Accounting System: This system facilitates in providing information related with
company’s cost that are invested in manufacturing different products and services. As per CIMA,
London cost accounting can be define as establishment of actual cost, standard cost, budget,
process activity, variance analysis etc. Primarily it basically deals with the collection and
analysis of relevant cost data for the interpretation as well as representation of different types of
problems which are relates to management. It is used in the organization to ascertain the cost f
services and product. Also it tends to be concerned with actual incurred cost and also the
estimation of cost that were incurred in near future (Ha, 2021)
Inventory management system: It is used to maintain data that are relates to inventory
which is beneficial to satisfy the requirement of customers. Inventory management can become
possible by using different types of method such as LIFO (Last in first out) & FIFO (first in first
out) & HIFO (Highest in first out) Weighted Average method. Different organization use
different method as per suitability of business. This is very important to it control over because
with the help of it issues relates to under stocking and over inventory are tends to be diminish or
eliminated. It also supports to make control over carrying cost, ordering cost by maintain stock in

the stores as according to economic order quantity. The appropriate accounting system will force
the organization in determining raw material, finished product, semi-finished and many other
important decisions related to inventory (Hwang, 2021)
Price optimization system: Eastern engineering pvt ltd adopt this method for the
purpose to fix the cost of manufactured item at optimum level as it leads to add value because it
support to analyses those prices which is fixed by entity for their product an also to give surety
that whether clients expectations are tends are satisfied or not. To find appropriate price for the
product this method is necessary to follow by entity to serve the purpose and according to that
only it become possible to fix the most suitable price for commodity or items so that organization
can gain competitive advantage.
Job order costing system: It is also known as specific order costing. In this method
work is carried by as per the guidance and specification of customers. This method is followed
generally in that industry which is related to general engineering workshop, printing concern,
foundries and advertising. In this each job is mainly treated as the separate entity for purpose of
costing. For this job cost sheet is tends to be prepared. In the respective method cost of each job
is identified separately (Nagasawa, 2021)
Benefits of the management accounting system
Management accounting system Benefit
Inventory management accounting system It is commonly adopted by organizations for
the purpose to track inventory so that
difficulties with regards to over stocking and
under stocking are tends to be easily sought
out. Eastern engineering company use this
method to overcome the problems which are
relates to inventory.
Cost accounting system By following this method ascertainment of per
unit cost can easily be done. This method is
used to calculate production cost. And
important decision making is tends to be done

on the basis of it only.
Job costing system As per demand of customer product are tends
to be develop and prices are fixed as per their
features therefore each item has unique pricing.
This method is used where goods are produced
as per specification of clients.
Price optimisation system In it appropriate price are set to product so that
it helps to satisfy the expectations of clients.
(Sabuncu, 2021)
P.2 Explain different method used for management accounting reporting?
To serve the purpose of management accounting reporting many approaches are tends to be used
by organisation as it tends to help to monitor financial as well aas non-financial results. Different
Accounting reports are tends to be prepare by Eastern Engineering finance team that provide
support to various distinct accounting systems. For effective or smooth functioning it is
necessary for business to prepare following types of report by experienced and expert people.
 Performance report – Such type of reports reflects actual position of the firm. On the
basis of this report comparison between the actual and standards become possible and if
there is great various between then than effective decision making regarding that is done.
Through using smart strategies, the problems related to differences are tends to be resolve
and than it become easy to achieve the objectives.
 Inventory report – These report are prepare to determine the actual status of inventory.
With the help of these type of reports issues related to overstocking and under stocking
are tends to be decrease or eliminate. These can be developed for inventory management
purpose. These report include details of issuing date, purchase date, quantity of stock as
well the pricing. So that it become easy to understand by anyone.
 Account receivable ageing report – The main purpose to prepare these report are to
determine the number of debtors from whom company can amount. company shall

maintain account receivable aging report with the intention to collect details of debtor as
well make sure that what was the debtors collection period (Tallaki, 2021)
 Cost accounting report – The main purpose behind preparation of these report is that to
analyses the types of cost incurred to produce the item. Some times apportionment of cost
are tends to be done on the basis of these report only. With this per unit cost of product
can easily ascertain. And effective initiatives are taken to eliminate unnecessary cost.
For example, Management personnel in the Eastern Engineering use following report to
maintain the record all the accrued cost at the time of performing a specific job. In term of
process costing, Eastern Engineering need to transfer all costs that incurred, when performing a
specific process that can utilized to maintain and manufacture a specific portion of the furniture.
By preparing these report how much cost are incurred to manufacture particular items can easily
be recognize.
TASK 2
P3 Calculate the cost using appropriate technique of cost analysis to prepare an income statement
using marginal & absorption cost?
Cost represent specific resources that mainly sacrificed to obtain the particular objective. In
other words cost in term of expenditure and actual or notional, incurred or attributable to a
given product or services. Cost is considered as the resources utilized for something that
tends to be analyzed in terms to the money.
There are various type of cost that are incurred in business as these are explaining as
follows:
Direct cost: direct cost is considered that cost that can be recognized easily & indisputably
with a unit of specific operation. Cost of the direct material, labor & overhead can directly
allocated with specific cost center an can directly charge like cost center.
Indirect cost: This is not directly allocated to cost center and have to recover into cost
units are termed as indirect cost. Therefore all overhead cost is considered as indirect cost.

Fixed cost: it is that type of cost that mainly tends to be not affected by the changes in
level of the activity during a given time period as they are not mainly change by variations in
volume of the production. There is like an inverse relationship between the volume & fixed cost
per unit.
Variable cost: such type of cost are vary in the accordance with the specific level of all
the activity with in an appropriate change and with in a provide in specific period of time. Direct
material, direct labour & direct expenses are vary in direct proportion to the appropriate activity.
As per the enhancement in the volume mean proportion improve in the total variable cost &
decrease in the volume will leads to a specific proportionate decline in total variable cost. As
they are constant per unit but changes in totality.
Cost analysis: it is the process of apportionment of cost according to different activity as
in this identification; analyzing, assessing and allocation are done to all the functional
department.
Marginal costing: it explained as specific amount of any provide volume of output by
which can aggregate cost are mainly changed if volume of output is decline or increase by one
the unit. It is considered as variable cost of the one unit of product or service (Varma, 2021).
Absorption costing: In this fixed as well as variable cost mainly allocated to the cost
unit. In term of fixed cost, it is charged to production. As absorption costing is known as
historical costing.
Standard costing: It is a system of accounting where pre determined cost are used for
analysis of variance and control of entire organization. It can be expressed in both quantitative
and monetary measures.
Calculation of marginal costing

Calculation of absorption costing

TASK 3
P.4. Explain advantage and disadvantage of planning tool used for the purpose of budgetary
control?
Definition of Budget: It is financial based quantitative statement that was prepared as
well as approved prior to specific time period of specific policy to pursued during the period for
reason to attain provide objectives. It may cover expenditure, income, capital employment etc. It
is generally prepared with the intention to make comparison between the actual and standard
one. As budgets are estimate on the basis of planned events.
Meaning of Budgetary control: It define as the establishment of the budgets relating to
the responsibilities of the executives to the requirement of specific policy & actual comparison of
the actual with budgeted result. , either to secure by the individual action, the objectives that

policy or to give a basis for its revision. As budgetary control is a process which is performed on
regular basis , it helps to perform various task that are related to planning, coordinating,
controlling of business decision. As budget is consider as mean & budgetary control is the end
outcome. As per the budgetary control system is the assist in setting up goals & affords are made
for its achievement. The prime objectives of the budgetary control are – that it is useful to predict
future, eliminate waste etc.
Types of Budget
Capital expenditure Budget: It is mainly present the planned outlay on the fixed assents
such as building , machinery and plant and many more. In the budget time period, this
budget mainly concerned to the strict management control that contain the long time period
of the year. It mainly project the specific capital and maintain the cost over the appropriate
time period.
Advantages Disadvantages
It outlines the capital development
programme and estimated expenditure
during the budget period.
lack of specificity is drawback of this
method because it include collective
information of all the departments.
It serve the tool for controlling
unnecessary expenditure.
due to high level of collective
information it is not easy to observe.
Operating Budget: it is consider as the that type of budget that is created to the specific
project and estimate the income & expenditure that is mainly based on the forecast sales &
revenue of the company.
Advantages Disadvantages
It support entrepreneur to ensure that It tend to overstate revenues as well as

the financial resources are tends to be
used properly or not.
other figures in statements and
documents of company
past and current expenses can be on the
basis of it only.
in operating budgets manipulation can be
done which is easily observe.
Zero base budgeting : As each budget is tends to be justified from zero therefore is
commonly known as zero base budgeting. In this previous year budget are not to be
considered. It is planning and budgeting process that needs that every managers to justify the
whole budget as well as shift the burden of proof to each manager to justify why he should
spend any money at all.
Advantages Disadvantages
 With the help of this method
wasteful or unnecessary
expenses are tends to be
eliminate.
 To perform activities by using
systematic approach.
 As it is traditional method so it it
is consumes lots of time.
 It needs lots of paper work and
more personnel is needed that in
turn raise the set up cost with
regards to zero based budgeting
system.
TASK 4
P.5. Compare how organization are adapting management accounting system to respond to
financial problem?
In any company financial issues are arise when there is shortage of fund or where
adequate capital is not available. It is necessary to business to find out the reasons behind such
financial issues. For this purpose following tools are used to identify the cause of financial

problems. The organization Eastern Engineering company face many financial challenges such
as:
Late or delayed payment by their clients or from their customers.: organisation give
their customers facility of credit so sometimes the problem related to late payment by customers/
clients arise which leads to create problems related to lack of financial resources so it creates
problem related to shortage of working capital which company needs to run their business
operation.
Sudden expenses: due to the reason of lack of effective planning , unnecessary expenses
are tends to be arise. And to handle the situation there is requirement of funds as it tends to create
problem of shortage of funds.
To resolve the problem following tools are used by eastern engineering company so that
sufficient funds are available always and business can run smoothly without facing any
problems.
KPIs (Key Performance Indicators): It is mostly used for performance measurement
purpose of the organization. There are two forms of the KPI, one is related to the financial that is
commonly utilized for the purpose to analyzed unnecessary expenses that are mainly made by
company. And another one is relates to non-financial which is used to analyses issues that arise
to perform business operation, supply chain etc. KPI tool is adopted by Eastern engineering to
analyses the problem of sudden expenses as it helps to determined unnecessary expenditures.
Benchmarking: It is considered as the measurement tool as it is commonly used by
business entities for the reason to compare their performance with their rivals. In terms to
recognize the problem of late payment by the clients this method is adopted by Eastern
engineering and through comparing its credit policies with their competitors and variations are
tends to be done.
Budgetary targets: It define as the estimation of the money for an appropriate financial
year. It is utilized by Eastern Engineering for specific purpose to recognizing various variances
through making comparison between actual and the standard figures of the organization in terms
to deal with the financial issues.
Financial governance: It defines as the set of the various financial principles that are
needed to followed by organization in term to deal with the money that related specific issues.
With the help of it, consultants in the company Eastern engineering try to sought out the issues

that most commonly faced and tends to try to find appropriate solutions with regards to all of
them. It is utilized for purpose of monitoring strategy of organization by analyzing that
appropriate financial principles are followed or not.
Characteristics of an effective management accountant & the way in which it used to
prevent problems:
 In term of effective management account are need to have skills to the forecast as well as
formulate plans so they can handle the critical situations by determining it and according
to the condition plans formulated so they can deal with it.
 Decision making skills are needed by the management accountant as it can aid to form
an appropriate decisions to prevent issues experienced by the company.
Comparison:
Eastern engineering Ltd LM engineering
Cost accounting system is adopted by the
company in terms to analyse cost of material
and formulate effective plans so it become
possible to resolve the problem of sudden or
unplanned expenses.
the organisation used the system of inventory
management so they can easily keep the track
record of stock as well as ignore the problem of
non availability of sufficient products in their
stores.
Eastern engineering follow prise optimisation
system in order to set appropriate prices for
their product so that customers do not thought
about credits and late payments issues are also
be eliminated.
Cost accounting system is utilised to solve the
problem of inappropriate records of cost by
keeping track record of them in detail.
for timely reporting purpose financial reporting
are used by it
It adopt financial governance strategy is used
for the purpose to disclose appropriate position
of the entity to the outsiders.
CONCLUSION
After deep study it has been conclude that management accounting as well as their various
types of different methods and systems is key for every organization success. To solve the

financial issues different planning tools are tends to be adopted by management team. As it
offer protective framework in terms to financial Problems. Also these tools recognize the
main reason of different financial issues to assure sustainable success. Thus, managers of
Eastern Engineering Company must apply the systems that are related to management
accounting along with using effective planning tools for the purpose to optimize the effect of
financial issues and respond to issues. After analysis it is also reflected that for every type of
business it is necessary to follow management accounting system because it involves so
many activities like analyses, measurement, monitor controlling etc. so these elements can
support to take effective decision making. Different management accounting system is
adopted by organization to assess actual status of entity. Different technique such as bench
marketing, key performance indicator, financial governance, as well as various other related
financial issues can also be tackle easily.