Management Accounting Report: CARWOW's Financial Strategies

This management accounting report provides a detailed analysis of financial strategies and methods applicable to CARWOW, a car sales company. The report explores various aspects of management accounting, including inventory management, job costing, profit optimization, and cost accounting systems. It examines the different types of management accounting, such as inventory control, job costing, and profit optimization systems, and their essential requirements. The report also discusses various accounting methods like inventory control reporting, accounts receivable and payable reporting, performance reporting, and budget reporting. Furthermore, it delves into marginal and abnormal costs within the context of CARWOW's financial operations, including the application of absorption costing and its impact on income statements. The report emphasizes how these accounting principles help in making informed decisions, optimizing financial performance, and ensuring effective resource allocation within the organization. This report is designed to provide a comprehensive overview of financial planning and cost analysis, essential for the company's growth and success.

MANAGEMENT
ACCOUNTING

REPORT
From:- Management Accounting officer
To:- General Manager of company
Subject:- It is required to produce the report for the general manager that include management
accounting with different methods which is available for the costing and it helps in creating
report which will be useful for business.

INTRODUCTION
Management accounting helps a company to take effective decisions related to
organisation and it records like financial and non-financial that assists in making investment in a
perfect way. Moreover, companies try to have a research of market and receive information
about where to invest the amount so that maximum revenues can be collected. Hence, nowadays,
technology is helping company to bring effectiveness in their accounting system so that they can
maintain their records at one place only (Ward, 2012). Although, few issues are also faced by
organisation likewise not making proper decision and making changes in policy and procedure of
firm and bring efficiency in working by reducing wastage of resources and utilising such in
maximum mannerism so that higher profit and income can be attained. The report is based on
CARWOW which sells new cars to customers and working at a small scale. Although, company
is looking forward to increase their business and use new technology to improve their working
criteria as well. Financial management is such which uses different methods and uses of it in the
report. Apart from this, planning tools and comparison in between two firms and such thing help
in solving financial problems of company in better manner.
TASK 1
P1. Different types of management accounting and its essential requirements
Management and accounting such which help company to collect information and
somewhere this also relate with their various operation like sales data, raw materials and changes
in stock as well, although all criteria is being used and transformed into a useful data and it will
be used for analysing the data. Therefore, this is something which also gathers data like
operational and cost which somewhere help in compare budget expenses with real scenario.
Moreover, management accounting department is that which also helps top executive of
CARWOW with their information which will help in making proper decision for organisation
(Vasile and Man, 2012). Hence, it has been seen that financial and management accounting is
different from each other as MA includes the internal system of company and this also executes
various steps of management and on the other side, they also provide information and data to the
industry. Although with information, CARWOW can make an effective decision and strategy
which will allow them to fight and make themselves stable in market. Management accounting
and their different types is as follows:
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Inventory management system: It has been seen that various types of plans and policies
which help in making a control over the inventories in better manner. Although this is something
which is being a continuous process and CARWOW is that which help company to take effective
decision related to their money and investment. Normally, the common issues faced by company
is over stock of different things and under stock as well. If company is suffering from under
stock then CARWOW is not being able to provide the cars to their customer on time and this
lead to affect in their relation as well (Vasile and Man, 2012). If, company is having an over
stock and this is also an issue for company as this leads to wastage of resources as many people
is not aware about CARWOW so selling and using the service of firm is at lower level only.
For all such, the inventory control software is there which can track the orders and
deliveries of cars. Implementing and executing such on time will help the firm to reduce the
criteria of under stock and over stock as well. Entity is having another method that is Bar code
reader, although, this can help business to track the cars that it is being taken out from showroom
or not and is it delivered to customer in better way or not. Moreover there is another method is
there like EOQ which help entity to reduce the wastage in entity and somewhere this help them
to perform in perfect way as well. All such scenario help CARWOW to make an proper
accounting and produce effective policy to reduce all such criteria in company.
Job Costing System: In an organisation, there are many jobs which can help business to
earn higher income and profit as well as well as somewhere they are increasing the cost of
company. Therefore, this costing system has the responsibility to identify such job which can
help to earn higher revenues and attainment of goals and objectives can also be there. Although
with all such, CARWOW is having a prime motto of providing efficient services to customers so
that they can make them satisfied and in the future, can take corrective measures (Van der Stede,
2011).
Profit Optimization System: Pricing is that factor in market which has to be set
according to the customers so that they can buy cars in an easy manner. If the price does not set
at reasonable way then the consumer move towards different companies as because millions of
people are there who does not have such income as they can spend on car. Prices also should not
be set lower because having such situation make customer to think that quality product would
not be there. This will bring down side in sell of cars and will not be able to earn higher profit as
well.
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Cost accounting System: This helps the business to calculate real cost gained in
performing every function of company so that profitability, inventory and control on cost can be
seen. Although, it helps in reducing expenses and can take corrective actions to minimise the
wastage of resources. This also makes organisation to reduce the labour and material cost with
such expenses can be minimised as well (Van der Meer-Kooistra and Vosselman, 2012).
P2 Various methods which help in accounting report.
Accounting is such which is needed concept in the organisation like CARWOW. This
report of accounting is such which help senior manager of firm to make an effective decision and
strategy in company so that higher profit with controlling and monitoring can be attained in
proper scenario. This is something which can help them to complete their task on time and even
in better way as well. Although some of the method of accounting system is like:
Inventory Control Reporting: This is something which is being used by company to
check the stock in warehouses. This concept help business to know that their warehouses is being
managed in right manner or not. If it is not section then the warehouses is such which needs
improvement required in better manner (Vakalfotis, Ballantine and Wall, 2013). This also help in
minimising the chances of over and under stocking in perfect way.
Application:- Therefore the application of such is very effective on CARWOW as they can help
this method to analyse their warehouses anytime. With this they can manage their accounts and
reporting can be done in corrective measure and such thing bring improvement in warehouses as
well. Although such thing can help in making customer happy by providing them services on
time and with this they can earn higher profitability as well. Chances of problem and issues is
that which can reduce the wastage and can make report in effective way.
Account Receivable Reporting: This concept is such which help to manage the cask
flow of company. Moreover, this make firm to have an account as from which party or customer
the money has to receive and how much. In this report information about party and date, time
and amount is included and such help in minimising the consequences in cash flow as well
(Suomala, Lyly-Yrjänäinen and Lukka, 2014).
Application:- This scenario is also helpful for the company CARWOW as this can make them to
know that from which party the amount is remaining and how much to receive from them and
within which time period as well. This is something which also help in weekly, monthly and
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quarterly as well. Effective policy and procedure does also help to have a better working scenario
in company.
Account Payable reporting: This method is somewhere opposite of receivable reporting
as in this the method help company to know that to whom the amount has to be paid and this also
help them to make an effective relation in between the supplier and firm (Parker, 2012). This
also make them to have and bring a positive image in the eyes of supplier and customer as well
Application:- The firm CARWOW uses various methods and this is something which help in
payable reporting which somewhere bring business in smoother manner. Availability of
resources is such thing which help employees to perform in better manner and thus such scenario
is that which also bring better goodwill of company. Paying payment and amount on time make
supplier to provide healthy relation among most important trust in between both the parties.
Performance Reporting: This is something which is being used by every company not
only CARWOW as such concept help to identify the performance of employees and staff in
organisation and to make effective measure to improve the performance and productivity of
company and this will help firm to attain their goal and objective in right manner as well.
Identify help business to know that where the pitfalls and consequences are there (Otley and
Emmanuel, 2013).
Application:- This method is Applicable in CARWOW as with such thing company can identify
performance of employees and can find out where the issues and problems are faced by them and
bringing proper policy and procedure for them. This will help them to perform in right contrast
as well.
Budget Reporting: Budget is that which company to know that which department or
division is taking most the amount in company. Although this kind of thing is known as expense
in performing, it also help in making compare estimated amount and this is equal to budget or
not in proper manner or not. Moreover, the fund has to be used in effective manner and it will
make to reduce the expenses as well, so that proper decision can be taken in right prospect.
Application:- The CARWOW is that company who uses their fund in better manner and this is
something which has to be done in right prospect and utilisation can be done where required.
Available funds help company to make effective decision and bring strength in their minds as
they can work in right manner as well.
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TASK 2
P3 Marginal cost and abnormal cost in CARWOW.
In accounting system there is a income statement which helps and thus it includes the
document of the company and it also help to manage the accounting and it does report to needed
concept of small business like CARWOW. Moreover, it is the summary of various thing like
revenues and expenses which has been taken into various course and business also and thus it
also include operating and non-operating activities, although this also help to calculate the net
profit and or the loss in such a particular year (Macintosh and Quattrone, 2010). Various
methods which somewhere help in making statement as well and some of those are as follows:
Absorption cost: This method is such which is being used with the selling and
administration expenses which also requires and it also include the income statement as well.
Although this is that which also include the cost of finished stock and somewhere this is such
which is consist of the direct labour and material, variable and fixed cost overhead. Therefore,
this is something which also include the costing criteria which is being very much significant for
firms and this is used for adequate decision as well and can be made with the minimisation of
wastage of the resources in efficient manner. Hence, this method was earlier used at the time of
traditional accounting. As this also assisted in reducing wastage and this somewhere resulted into
the traditional cost as well.
Marginal Costing: This is something which is normally include the cost which occurred
due to additional production made in and somewhere because of their fixed cost get affected as
well (Lukka and Vinnari, 2014). This is the thing which is being included as extra production
and manufacturing of product and service make out into variable cost and it has to be considered
as the income statement. Although the cost is such which is being related to labour and raw
material which is being used to manufacture additional part of product.
The difference among the marginal and absorption cost is discussed as below:
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Basis of difference Marginal Cost Absorption Cost
Meaning It the technique of decision
making by organisation as this
somewhere help firm to make
to discover the total cost of
production made is called as
marginal cost.
This include the total cost
which allocate the cost centre
and it is being used to
determine the total cost of
manufacturing which is known
as absorption cost of company.
Overheads Marginal cost are the variable
and fixed cost as well
Administration, distribution
and selling is such which is
included in this only.
Highlights Although in this the
contribution was done on basis
of per unit.
Therefore, in this the net profit
is such which is being used on
per unit basis.
Cost Data Moreover, this is being
presented with the total
contribution which is made on
every product.
This is used to present the
conventional thing in perfect
way as well.
Profitability This is something which is
being measured to have a
profit volume ratio in such
concept only.
Although in this the fixed cost
is included and it also gets
affected and this can be done
in bad manner as well.
Cost reduction Variable cost is that in which
the product cost is considered
and in this the fixed cost is
also known with the period
cost.
Although this is that cost
which is totally different from
the marginal cost and variable
and fixed cost both are
considered in this as product
cost.
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There is a calculation ad this is being done on the basis of absorption cost and although
this help company to make an effective decision related to budget as well.
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Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: Calculate value of inventory and production
Opening inventory Production amount Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: Under/ Over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
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Administration cost: In this budget cost the £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using Absorption costing £ £
Sales
(-) Cost of Sales:
Initial stock
Manufacturing (Production)
End stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
Net Profit
0
11200
(1600)
600
700
600
(100)
21000
(9600)
11400
(1800)
9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening Stock Production End inventory
0 700*14 = 9800 100*14 = 1400
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Net profit using Marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
Net Profit
0
9100
(1300)
2000
1300
600
21000
(7800)
13200
3900
9300
From the above statement, it has been concluded that absorption method is quite effective
then marginal costing and the CARWOW can use the absorption method as this is showing
better result for company. In this criteria and Box it is like, profit of firm is approx. £9600 and
from marginal cost it was around £9300. Moreover, it can be seen that there is a gap of £300 this
is because it is considered as fixed cost in the company (Kotas, 2014). Although, in the marginal
costing the profit is being showed on after having reduction after the fixed cost. Fixed cost
amount is being different in the every method of using such in effective manner.
Sometimes this result into the profit marginal and somewhere it is not appropriate
according to company. Moreover, it is required that firm is adapting the marginal technique in
better manner and thus it is because this help them to earn higher profit in entity. Normally it is
quite interesting to know that this is being used in internation accounting standard.
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