Unit 5 Management Accounting Report: Openhouse Products Analysis

This report delves into the core concepts of management accounting, using Openhouse Products Ltd. as a case study. It explores the definition and essential requirements of management accounting systems, including inventory management, cost accounting, job order costing, and price optimization...Read More

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems...........................................................................................1
P2 Explain different methods used for management accounting reporting...........................4
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context.............................................................................................................5
D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes..........................................................6
TASK 2............................................................................................................................................6
P3 Calculate costs using appropriate techniques of costs analysis to prepare an income
statement using marginal and absorption costs......................................................................6
M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents..............................................................................................11
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities................................................................................................................................11
TASK 3..........................................................................................................................................12
P4 Explain the advantages and disadvantages of different types of planning tools used in
budgetary control..................................................................................................................12
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets...............................................................................................................13
TASK 4..........................................................................................................................................13
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems................................................................................................................13
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.....................................................................................16
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.........................................................17
CONCLUSION..............................................................................................................................17

REFERENCES..............................................................................................................................18
APPENDIX....................................................................................................................................19

INTRODUCTION
Management accounting is defined as the framework that is concentrated through entities
for assuring that the operative practices which are performing through them within a year. This
render advice to manager in order to formulate effective strategies related to business growth as
well as attaining longer objectives. With the assistance of this, they can able to ascertained that
internal records that are kept through staff are efficacious or not (Ax and Greve, 2017). As per
the scenario, the undertaken organisation for this report is Openhouse Products Ltd., which is a
British manufacturer. It design as well as manufacture bags and operates in manufacturing
industry. It render a huge range of off shelf bags and medical equipments as well as
consumables. Its headquarters is in UK. The main objectives of this report is to maximise the
understanding of management accounting in effective and efficient manner. So, this report
covers role of management accounting, several management accounting system, computation of
income statements by using marginal and absorption costing as well as benefits and drawbacks
of various kinds of planning tools which is utilised into budgetary control. Apart from this,
comparison among firms how they are adopting management accounting system for responding
to financial issues are also discussed in this report.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
Management accounting is defined as the practices that is comply through entities for
analysing the plans which are developed for the effectiveness of company that outcomes in
favourable or adverse manner. Within Openhouse Products Ltd., their managers comply it for
ensuring that they will develop their business in upcoming times with the assistance of recent
strategies that are make through them. The main aim of this is to accumulate the detailed data for
generating internal reports which assists respective organisations manager to take significant
decision into several circumstances (Bennett and James, 2017). Moreover, this plays vital role
for Openhouse Products Ltd. Some of them are discussed below:
Company's background
Openhouse Products Ltd. Design as well as produce bags which is basically for
emergency service as well as health sector, however, its range of products do not stop. It also
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supply a huge range of off the shelf bags and medical equipments and consumables. This is
developed in year 1992 by Brian Jones. Helpful in effective controlling: Management accounting is advantageous for entities to
develop effective control over several forms of operation as well as practices. It is so as
through using key data from internal report, managers become competent to concentrate
upon that practices which are result into low profitability or high costs. In context to
Openhouse Products Ltd., it manager can control several aspects in efficacious manner
through assistance of management accounting. Helpful in effectual planning: The management accounting plays a vital role in respect
of developing efficacious planning of several kinds of available resources. This is only
possible as according to the accumulated data, managers of firm can competent to
examine future practices that aids into effectual planning. For example: Within
Openhouse Products Ltd., its several department managers develop better planning with
the assistance of generated internal reports as per this accounting.
 Helpful in decision making: Management accounting also plays crucial role as this
assists organisation to develop efficacious decisions (Bromwich and Scapens, 2016). For
example: The manager of Openhouse Products Ltd. can competent to take effective
actions as well as decisions with the aids this particular accounting.
Management accounting system is considered as the internal system that is utilised
through ample number of firms for the intent of observing as well as assessing overall direct and
indirect procedures of business entities. Openhouse Products Ltd. Utilised few systems of
management accounting which are described below:
Inventory management system: Whole firms that are manufacturing as well as
delivering their products to utilise that. This directs managers for evaluating that, entity is
competent for accomplishing users needs with adequate stock that can be utilised through them
for performing business practices like promotions, advertisement and many others. With the
assistance of this, company may able to maintain as well as observe stock in systematised way.
Thus, this is crucially needed for them (Christ and Burritt, 2017). The three examples of this, that
are utilised through firm as per their preferences these are mentioned underneath:
 LIFO: It is considered as the methods which directs firms to utilise currently needed
inventory for performing out overall implementational business practices.
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 AVCO: This is considered as the average cost method that directs firm to utilise stock
for business practices through considering overall costs based on average.
 FIFO: It is defined as the types of inventory management system that permit entities
to utilise that products for operation which are produced earlier.
Cost accounting system: These are defined as the set of frameworks that are
concentrated through huge and small enterprises for the intent of examining actual cost that are
associated with firm's operations (Collis and Hussey, 2017). Within Openhouse Products Ltd.,
these are applied through managers fro ascertaining that the operative activities may produced
higher profitability through evaluating their cost. This is needed for entities to utilise this as with
the aids it most effective practices can be find as this render information of exact cost that incurs
into manufacturing procedures. There are two crucial kinds of cost accounting system that are as
follows: Direct costing: This is considered as the particular kinds of costing, into which only the
changeable expenses are preferred for the intent of developing efficacious decision for
upcoming times. Overall costs that are fixed for all the year are not considered in this.
 Standard costing: This is refers as the cost system, into it approximated cost is minimises
from the exact one for ascertaining the variances among as well as the reason beside this
in order to develop the futuristic decisions in efficacious and appropriate manner.
Job order costing system: This is defined as the management accounting system which
directs administration for allocating costs to whole business practices as per its nature. This is
mainly utilised through entities at the time they are doing the several practices that are
adequately different from one another. As Openhouse Products Ltd. Design as well as
manufacture various kinds of bags so with the assistance of this accounting system its production
section can able to evaluate the cost of each units of manufactured bags.
Price optimisation system: This is considered as a forms of management accounting
system which is aligned into systematized procedures of directing firms for using strategies of
corrective pricing. It becomes possible only because of this, an efficacious investigation is
performed regarding requirements, demands etc. of users (Dekker, 2016). According to this,
organisation get to know that which kinds of modification are required to be performed into
recent pricing pattern. Therefore, this system of management accounting is helpful for firms to
set out the price level which may assists in enhancing overall revenues as well as sales. For
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example: Openhouse Products Ltd., its sales section is utilising this particular system for revising
the product price which aids in maximising the sales units.
P2 Explain different methods used for management accounting reporting
For whole organisation, this is very essential for them to keep the elaborated data of
overall external and internal practices for analysing the defects reasons as well as develop
strategies for upcoming times. For this intent, a particular procedures is utilised for producing
several reports that is considered as management accounting reporting (Hopper and Bui, 2016).
Moreover, this report is also helpful for them to take corrective actions in order to manage the
available resources. So, the Openhouse Products Ltd. Managers are developing several reports
for recording relevant entities information. Some of them are discussed below:
 Performance report: It is considered as the forms of report which involves data related
to approximated as well as relevant results several types of practices as well as activities.
According to this, the organisation's manager may take efficacious actions related to
developing whole performance. In context of staff promotion, data rendered through this
particular reports. It is so as manager evaluate the performance of every staff so that its
developed can be ensured. In relation to Openhouse Products Ltd., it staff can be
promoted to one level up as per their performance that is accumulated with the help of
this report.
 Accounts receivable ageing report: This is refers as the forms of management
accounting reports which includes data regarding whole debtors whose payment does not
get received after the due date. Moreover, this report keeps systematised records related
to date such as transactions, interest rates, whole debts amount and many more. With the
aids of accounts receivable ageing reports, manager can competent to approach the data
regarding debt amount that needs to be accumulated. For example: Within Openhouse
Products Ltd., its finance section owed the amount of debt from its clients into less cost
as well as time. Because of this, its receivable turnover ratio will also get developed.
 Budget report: This is refers as the reports which consists data regarding approximated
expenditure as well as expenditures (Ji, 2017). Because of this, variances is computed of
several practices which assists in considering effective actions for upcoming period. In
context of Openhouse Products Ltd., its accountants generate this report with an intent of
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maintaining it monetary results. Moreover, for efficacious usages of available resources
related to monetary as well as non monetary.
 Inventory report: This is refers as the report which includes data related to quantity of
whole types of stocks like work into progress, raw material as well as final products.
Within this particular reports, data is involved as per the basis of efficacious stock
valuations while using FIFO, LIFO and many others. This is advantageous for business
concerns for controlling whole inventory cots. Such as within Openhouse Products Ltd,
its manufacturing section usages key data regarding raw materials as well as final
products through the aids of inventory report.
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context.
The management accounting system benefits as well as it usages into Openhouse
Products Ltd. are discussed underneath: Cost accounting system: It is refers as the system of management accounting which is
associated with appropriate cost as well as expenditure management of several forms of
operations and practices (Maas, Schaltegger and Crutzen, 2016). For example: within
Openhouse Products Ltd., it finance section examine the key data with the assistance of
this particular system as well as maintain their overall operations and practices costs. Price optimisation system: It is considered as the forms of management accounting
system which is affiliated with the procedures of setting as well as revising the prices
level which may assists into maximising whole revenues as well as sales. In context of
Openhouse Products Ltd., it sales manager set their bags price with the assistance of this
accounting system. Inventory management system: This is the system which is affiliated with appropriate
administration of stored stock in appropriate and efficacious way. Within Openhouse
Products Ltd., its production section execute this system for developing effective usages
of available stocks.
 Job costing system: This system is related with the procedures of aligning job costs fro
computing the cost of every single manufactured outputs. In context of Openhouse
Products Ltd., it managers execute this particular system for obtaining data related to cost
of individuals manufactured products.
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D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes.
Within management accounting, the crucial kinds of report as well as systems are
involved which aids organisation for effectual insider administration of several aspects (Malina,
2018). Such as within Openhouse Products Ltd., they are utilising many forms of management
accounting system like cost accounting, job costing and many others all these are aligned with
several sections. For example: price optimisation system are incorporated with sales division and
cost accounting system with finance section. Moreover, the management accounting reports are
also incorporated into the procedures of Openhouse Products Ltd. Manufacturing procedures. It
is so as account receivables reports is related with finance section as well as performance report
with HR division. This shows that both management accounting report and system are united
into respective firm manufacturing procedures.
TASK 2
P3 Calculate costs using appropriate techniques of costs analysis to prepare an income statement
using marginal and absorption costs.
Costing techniques is considered as the methods which is utilised for determining cost for
cost control as well as decision making intent. It may be utilised for making or buying decisions,
price appraisal, negotiation and evaluating buying performance (Nørreklit, 2017). So, Openhouse
Products Ltd. Utilise techniques which is described below:
 Marginal costing: It is refers as the costing techniques in which overall cost are incurred
to cost units, while fixed costs for period is totally written off against contribution. So,
Openhouse Products Ltd. Utilise this costing techniques for computing the income
statement of three months.
 Absorption costing: This is considered as the forms of costing techniques that is
incurred in accomplishing the practices of business allotted in fair way. In this the fixed
cost as well as non fixed costs are allotted as unit costs. So, Openhouse Products Ltd.
Applied this for preparing income statement through considering both non fixed and
fixed costs.
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P&L Account
Calculation of profit & loss statement while using marginal cost for January months.
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Calculation of profit & loss statement while using marginal cost for February month
Calculation of profit & loss statement while using marginal cost for march month
8

Calculation of profit & loss statement while using absorption costing for January month.
9

Calculation of profit & loss statement while using absorption costing for February month.
Calculation of profit & loss statement while using absorption costing for March month.
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Reconciliation statement among marginal as well as absorption costing.
M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents
The accountants of organisation formulate income statements while using marginal as
well as absorption costing. So, Openhouse Products Ltd., its accountants formulate income
statements as per the above described costing techniques. Beside these techniques future
practices cost is approximated as well as according to this the variance is computed through
comparing the exact outcomes. While using activity based costing, the costs are allotted
according to every practices. Because of which, the managers get aware regarding to overall cost
and individual cost of every output.
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities
As per the above prepared income statements, it may be interpreted that the value of
profitability is variant in whole three months that are January, February and March. While
calculating with marginal costing methods, the net profitability value is £563000, £666000 and
£575000 in January, February and March. On other side, with the assistant of absorption costing
the profitability value is £689000, £768000 and £669000 into January, February and March.
Though financial information is same for both but the outcomes is not similar. It is so due to cost
considerations into several way within marginal as well as absorption costing.
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TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used in
budgetary control.
Budget is refers as the precise statements that shows that monetary estimation of
revenues as well as expenses for particular durations. This assists them to obtain profitability
through approximating the firm's cost (Otley, 2016). Moreover, this is considered as the
quantitative statements that is developed for the fixed durations for estimating the futuristic time.
Overall entities have to make budgets which assists them to understand the upcoming risk as
well as profitability by the assistance of budget. So, the manager of Openhouse Products Ltd.
Can competent to develop budget with the aids of previous years budgets for obtaining
profitability. They develop budgets for raw materials which assists them to understand that how
much it may spend upon raw materials. Budgetary control is defined as the techniques which is
utilised through managers for deciding performance as well as monetary objectives with
approximation and perform comparison with exact expenditure for obtaining profitability. It
includes essential range of planning tools as well as few of them are discussed underneath:
Production budget: It is considered as the types of budget which includes data regarding
desired manufacturing units and potential expenditures which can incurs into the production
procedures (Quattrone, 2016). According to this data, the firm's manager set its policies as well
as plans for attaining targeted manufacturing units. The accountant of Openhouse Products Ltd.
Formulate this budget which aids manufacturing section fro taking corrective actions. Benefits: It is appropriate for that entities which are included into production procedures
for manufacturing various goods. So, Openhouse Products Ltd may utilise this particular
budget for making efficacious utilisation of raw material and develop goods in cost
effectual way.
 Drawbacks: This have few common disadvantage like more time taking, costly and
others. Whole these prospects develop it not affordable for small firms.
Cash Budget: This is defined as the planning tools which includes data regarding whole
practices related to cash In and Out. This assists owner of the business to handle the networking
capital. In wider way, this budget highlights how much cash is considering through entities as
well as how much is not (Renz and Herman, 2016). So, the accountant of Openhouse Products
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Ltd develop cash budget as its assists their finance section for making efficacious administration
practices regarding cash. Benefits: This particular budget aids Openhouse Products Ltd for identify possible
deficits in faster time duration.
 Drawbacks: Its major disadvantages is that this is wholly depends upon approximation
as it can be lost in easier manner.
Sales budget: This is considered as the forms of budget which involves data regarding
desired sales units as well as incomes and potential expenditures which can incurs into selling
procedures. Depending upon this data, manager of entities can set its strategies as well as plans
for attaining the targeted expected sales. The accountant of Openhouse Products Ltd can
formulate sales budget which aids to its manufacturing section for taking corrective actions. Benefits: It is advantageous for respective entities for delegating resources to several
goods, sales and many others with an intent to realize anticipated sales.
 Drawbacks: The major disadvantage of this budget is, this is accomplished as per the
previous information as well as in few cases it may drives towards major monetary loses.
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
Within the budgetary control planning tools several kinds of budgets are involved that
assists in development of another budgets. For example: Openhouse Products Ltd, its
accountants utilise several kinds of budgets like production, sales and many more. For making
efficacious forecasting of realizable outputs. This only become possible for entities as according
to the previous financial data its accountants can competent to trace the approximated results in
order to formulate another kinds of budgets in proper as well as efficacious manner.
TASK 4
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.
This is considered as the types of pessimistic circumstances where entities can not has
sufficient amount of finances for accomplishing several forms of operations as well as practices.
It is vital for firm for sorting out these problems into less time duration differently this can
drives towards dissolution of organisation (Rikhardsson, 2017). There are many forms of
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financial problems which are faced through organisation such as Openhouse Products Ltd. Few
of them are discussed underneath: Enhancement into the amount of whole expenditures: This is considered as the
financial problems which is faced by various organisations. The cause of this particular
problems into entities is ineffective monetary resource management. Due to this, they
can not able to perform its practices efficaciously.
 Shortage of sales revenues: It is the kinds of financial problems which is associated
with shortage of sales revenues because of minimising overall units of sales into graph.
This financial problems becomes the reasons of enhancing few another issues like
inappropriate capital structure and reducing into financial liquidity. In context of
Openhouse products Ltd., this may be identified that they are going through with
problems. It is so as its bags sales is reducing annually.
Various techniques that is utilised for addressing the monetary issues are discussed
underneath:
 Benchmarking: Benchmarking is the chain of activities related to the measuring the
performance of organisational products, services or various processes in against the
another business which is considered one of best (Schaltegger and Burritt, 2017). It
provides insights about the internal opportunities to apply improvements for superior
performance and breaking down into different components to build superior performance
and after that crucial comparison to other business. In a business there are majorly two
kinds of improvements that are continuous and dramatic in which continuous
improvements is incremental by including some important but small kind of adjustments
to reap important outcomes. In context of Openhouse products Ltd. They by using
respective tool set the standards and accordingly measure performance in order to gain
continuous and dramatic changes within organisational in order to remain competitive in
marketplace. For respective organisation benchmarking helps to identify or evaluate the
major areas, styles or processes to bring major improvements in order to gain competitive
advantages in positive manner.
 Key performance indicators: KPI is one of most measurable tools to evaluate value by
demonstrating how much effectively an organisation can achieve organisation business
objectives in proper manner. KPI used by an organisation at multiple level to examine
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the success by reaching at target at optimum level. In context of Openhouse Products Ltd.
They by using one of most measurable tool to examine the gaps in order to put one of
their best efforts in order to gain potential outcomes. There are two kinds of KPI that are
Financial KPIs which is one of important tool which indicates conditions about How well
an organisation is pursuing in context of revenue and profits. A perfect financial KPI
shows the present real kind of updates with help of financial figures such as cash flow,
current ration and Burn rate (Suomala and et. al., 2017). In context of respective
organisation they in a specified time period build various documents to gain financial
propositions. And another one is Non financial KPI kind of KPIs are very much effective
for an organisation that are not measurable in nature but very much effective as they not
have finance based mission and vision statements. In context of respective organisation
there mission is to provide best customer service in that aspect revenue no. are not
effective way to track consumers but customer satisfaction score proved beneficial for
organisation.
 Activity based costing: This is considered as the costing methods which find practices
within firm as well as allot the cost of every activity to whole goods or services as per the
actual consumption through each. Moreover, it delegate manufacturing overheads costs
to goods into more logical way in comparison to traditional approach of simply allocation
of cost as per the machine hours basis. Openhouse Products Ltd. may utilises this
methods to identify practices and delegating the cost of each activity to overall products
or services.
 Financial governance: This is regarded as the approach in its whole financial transaction
of enterprises are recorded into systematised way for specific duration. In respect of
Openhouse Products Ltd., its accountant utilise this particular approach as monitoring
strategy for overcoming from monetary problems in appropriate and efficacious way.
 Balance scorecard – This is a strategy which is used by business organisation to manage
the business performance which helps to face all financial problems effectively. In other
words, this is a structure which is used by managers to keep track of business activities
by monitoring them. Open house organisation uses balance scorecard to record and
manage the information effectively by solving financial problems which helps to
15

maintain the profits of organisation properly. By using this organisation can control and
monitor their business performance and increase profits.
Compare among two entities for resolving financial problems:
Basis of differences Openhouse Products Ltd. Columbus Medical Ltd.
Financial problems This entities is facing financial
problems of shortage of sales
revenues because of
minimising into sales units. As
an outcomes, it may be
initiated that it does not has
sufficient amount of finance
for paying its creditors as well
as performing several
practices.
It is facing with the financial
problems of enhancing overall
expenditures. As an outcomes,
its liquidity funds are
minimising as well as it does
not competent top pat its
longer as well as shorter debts.
This is impacting its image as
well.
Accounting techniques Its manager are utilising the
benchmarking techniques in
order to identify as well as
resolving its monetary
problems (Tucker and
Schaltegger, 2016). This
becomes manageable as it
assess distinguish among own
monetary performance as well
as competitive firm's
performance.
Its manager is utilising key
performance techniques for
identifying the actual
problems. It is so as through
assistance of this they can
competent to concentrate upon
that prospects that leads
towards high expenditures.
Management accounting
system
It is utilising price
optimisation system for sorting
out its financial problems. It
become possible as it revised
its previous pricing strategies
Its monetary problems have
been sort out through
assistance of utilising cost
accounting system. The cause
of using this particular
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as well as modified this as per
the clients requirements. As an
outcomes, its sales revenues
initiated for enhancing as well
as the problem of sales
revenues shortage have been
resolved.
accounting system is that this
assists in making anticipation
of upcoming expenditures.
Moreover, through the aids of
this respective organisation
manager become competent
for preventing that practices
that are leading as high cost.
Therefore, through the
assistance of this its financial
problems have been sort out.
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success
The Openhouse Products Ltd. Managers utilised the system of management accounting as
well as another planning techniques such as benchmarking, financial governance and many
others for acknowledging as well as taking actions against the financial issues like delay into
payment, mismanagement of money and so on. Through the aids of all these tools the
administrative workforce may competent to monitor or examine adverse circumstances into
entities as well as brining new modification through efficacious decisions for resolving the
problems in efficacious manner (van Helden and Uddin, 2016). As key performance indicators
render guidance to administrative workforce for examining overall unfavourable as well as
favourable prospects of issues where as on another side bench marking facilitates directions in
developing comparative examination of decision as well as policies of firm while undertaking
the rivals plans.
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.
There are many planning techniques like cash budget, sales budget, and many others that
were utilised through Openhouse Products Ltd. managers for the intent controlling budgetary bit
this can be utilised into the procedures of responding to monetary problems like useless
17

spendings, mismanagement of money and many more (Weetman, 2019). So, all these tools
assists Openhouse Products Ltd. Managers to allocate the fund to overall business practices in
efficacious way that outcomes into reduced chances of problems regarding finance and can able
to sustain for the longer duration in appropriate and efficacious manner.
CONCLUSION
As per the above report, it have been concluded that management accounting is vital for
the organisation as with the assistance of this they can able to evaluate as well as control insider
circumstances of firm in order to formulate decision for the betterment of entities. Managers into
various company can utilise range of accounting report as well as systems for developing the
effective strategies for upcoming times and develop plans for reaching a predetermined
objectives. Both marginal and absorption costing are utilised through entities for computing the
income statements. There are several planning techniques that are applied through organisations
for controlling budgetary as well as also helpful for dealing with the monetary challenges. The
tools are sales, production and many others. In addition to this, benchmarking, financial
governance are some techniques which are mainly utilised to respond the issues regarding
monetary that are tackle through entities.
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APPENDIX
Three months financial statements from marginal as well as absorption costing:
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