Management Accounting Report: Techniques, Costs and Systems Analysis

This report provides a comprehensive overview of management accounting, focusing on its application within Ovation Systems Ltd. It begins by defining management accounting and its importance in organizational decision-making, contrasting it with financial accounting. The report then explores various management accounting systems, including price optimization, cost accounting, and inventory management, highlighting their advantages and applications. It examines different reporting methods, such as budgeting and performance reports, and evaluates the benefits of these systems. The core of the report delves into cost analysis techniques, specifically marginal and absorption costing, and their use in preparing income statements, supported by a reconciliation statement. Furthermore, the report integrates management accounting systems with organizational processes, illustrating how these systems support effective business operations and decision-making. The content covers various systems of management accounting and their application, and also covers cost analysis and the preparation of an income statement using managerial and absorption costs. The report also discusses how management accounting systems and reporting are integrated with organizational processes.

Management
Accounting

INTRODUCTION
Management accounting can be defined as demonstrating the activities of the business to
the internal people in the organisation so that they can make better decisions. By doing so best
outcomes can be achieved in the global market. Every organization perform this aspect in their
working premises so that smoothly business functions can be performed. Management
accounting is also well known by other names which are, cost accounting and managerial
accounting (Abernethy and Wallis, 2018). This is essential to perform cost accounting as it is a
link between the finance department and other departments of an organization. The organization
selected for the purpose of the report is Ovation Systems Ltd which is associated with design and
manufacture of rugged, high performance video surveillance goods for military, police etc. From
the last 20 years firm is successfully serving best services in the global market.
Company's product range mainly involves small & rugged audio/video systems and
recorders for extremely covert. Corporation also engaged in manufacturing of wider range of
supporting items like high quality microphones, low-light miniature cameras etc. Other ancillary
items includes picture-in-picture modules for displaying various video-channels on single screen
and stabilization unit for video designed to cut down camera shingle from long lens/high
zooming video-surveillance equipments or cameras.
This assignment covers meaning of management accounting and why it is required in
various accounting procedures and with that some distinguished techniques adopted in the
reporting of management accounting is also discussed in the report. However, design income
statements using managerial and absorption costs. The benefits and weaknesses of the tools used
for planning the budgetary control are discussed effectively. Additionally, comparison is done

how business associates are executing the systems of management accounting to react to the
financial problems.
LO 1
Throw-light on the concept of management accounting as well as discuss the important need of
several types of management accounting systems.
In the modern era, management and cost accounting means presenting accounting data
and information in sequence order so that it helps top level management to frame policy and day
to day operation activities effectively. This is directly related to the adoption of accounting data
gathered from numerous sources like, cost accounting and financial accounting so as to control,
planning, policy formulation and decision making process by the management. There are varied
kinds of MAS used by the organizations like job costing method, cost accounting method,
inventory management method and price optimising method. These systems help the
organizations in doing efficient planning, helps in controlling and making good decisions for the
company.
Main motto of MA is to develop and establish framework for providing assistance to
management in different key managerial personnels. Various systems of MA supports
managerial planning, controlling of operations and management decision-making.
Difference between Financial Accounting and MA:
Management Accounting Financial Accounting
It mainly support managerial functions within
entity.
It generate information for finalisation of
accounts.
No specific time-frame specified for reports of
MA.
Mostly reports under Financial Accounting is
prepared at year end.
Adoption of MA systems is not compulsory for
entities.
Financial Accounting is compulsory task for an
organisation.
Following is a discussion on different systems as follows:

Price Optimising System: In this case, Ovation Systems Ltd will be able to measure the
right cost so that huge revenue can be maximized in the cut throat competitive world. Along with
this it helps firm to better understand how demand of the consumers keeps on changing with the
slight differences among the price structure of goods as well as services. Additionally, this kind
of optimizing technique assert administration in considering all the elements which are, prices of
their goods, rivalry pricing tactics and product life cycle so as to discover the best cost. By doing
so business associates is able to decide effective prices for their goods and services in the
competitive market place (Ax and Greve, 2017). It also covers pricing strategies to resolve any
particular issues related to pricing and its effect on company's revenue.
Cost Accounting Systems: It is an essential requirement for Ovation Systems Ltd as this
method helps in finding out the cost of it's goods to control the cost of inventory, doing valuation
as well as analysis related to profitability aspect of the business. Cost accounting systems aid in
calculating efficiency so that set goals and objectives can be achieved in the world with full of
competition. Cost accounting includes two methods i.e. costing for job order and for process.
However, job order costing directly helps business associates accumulate manufacturing
expenses for each and every process in the working premises. While, process costing assist aid
enterprise to figure out the cost of each process. Ovation Systems Ltd study this aspect before
deciding the prices of the goods in order to maximize huge profit. Here, this particular system
render authentic information to the firm that is useful to ascertain the variable and fixed cost of
the products and services. With the help of this optimum prices can be set for the goods as well
as services in the global market (Azudin and Mansor, 2018.). Mainly two methods are adopted
by companies under this system named: Job and Process Costing Methods. The first method
helps the organisation in assigning the overall costs to different jobs while in process costing
costs are systematically assigned to different key organisational processes.
Inventory management systems: Ovation Systems Ltd adopts this method in their
company so that they can easily track the supply of its goods from their office itself. It is
essential for the business administration because it includes all the activities that helps company
to keep sufficient raw material and finished products in stock. By doing so administration can
fulfil the ever increasing demands of the consumers. Those business who are dealing in retail
sector for them inventory management system turned out to be more profitable in nature.
Ovation Systems Ltd by effectively implementing this system raises overall productivity and

profitability ratio of the firm which is a positive mark for the enterprise (Bedford and Speklé,
2018). By performing this system company will not face stock deficiency at the time of
manufacturing and production process. Here three major methods are applied by business
enterprises named: FIFO, LIFO and Average cost method. FIFO method allow to make
assumption that oldest or first purchased inventories are sold at first place. The LIFO technique
in managing the inventory means the last items which are bought will be sold out first. While
LIFO method assumes that latest bought inventory items are sold first. While in average cost
method a simple mean rate is used to value closing inventory.
Study numerous methods used for management accounting reporting.
Reporting of Management accounting means providing relevant information to
distinguished levels of administration so as to become a base for taking correct decision. This aid
in planning, decision making, regulating and measuring performance activities which leads in
fulfilling the demands of the consumers. As per the necessities these reports are regularly
modified throughout accounting and bookkeeping period.
Budgeting report: Organization adopts this in the working premises as it helps them to
measure overall performance of enterprise. By designing budgeting report company manage cash
amount of every single activity. It helps in making comparisons among the actual and forecasted
budget so that proper monitoring and control can be done on various outcomes. Better incentives
and benefits are given to the staff members in order to reduce the cost which provides complete
satisfaction to workers (Bui and De Villiers, 2017).
Performance reports: Ovation System Ltd is executing performance report so as to
examine the performance of the business administration and their staff members. This directly or
indirectly aid enterprise to take the quick and smart decisions in order to upgrade workforce
productivity and profitability ratio. By appropriately scanning this report Ovation Systems
determine the efficiency of their tactics towards stated aims and objectives. The effectiveness
motivates workers to work day and night in order to attain the companies set standards
Job costs reports: Organization by taking job costs report within the enterprise is able to
investigate the cost of each individual project. It leads in providing benefit to Ovation Systems
Ltd as they are capable enough to find higher earning areas. Moreover, by using this
progression and succession of the project areas can be determined. This helps in measuring and

monitoring the wastage of precious time and money in the low margin areas in the global market
(Busco and Quattrone, 2018).
Inventory Valuation Report: This reports primarily concerned with inventories like
RM, WIP, packaging materials, finished goods etc. This report hep to determine how much
materials have been consumed and how much quantity of RM required for further production
with aims to minimise inventory costs. In respective corporation production and inventory
managers are using this report to tack the actual movement of stock and optimise normal and
abnormal costs.
M1. Evaluation of benefits of management accounting's systems and their application:
List of systems Advantages
Price Optimisation: By appropriately using this in the company,
management can make best decisions related to
the prices. Optimum prices can be set for the
goods as well as services. It leads in raising
productivity and profitability volume at a large
scale.
Cost Accounting: Cost accounting helps in measurement of
predicted costs that will be incurring in the
near future. By this act extra amount will be
deducted and ratio of revenue maximization
will be uplifted.
Inventory management systems: Firm by adopting inventory management
system effectively they are able to full-fill the
emerging demand of the clients as they manage
and handle their stock properly.
D1. Examine how management accounting systems and management accounting reporting are
integrated with organisational processes:
Management accounting systems and management accounting reporting are very much
related to one another in this huge competitive world. Both the aspects assist them in effectively

handling administration operation activities in systematic order. In Ovation System inventory
reporting system and inventory report are interconnected with each other due to which sufficient
stock is maintained. By doing so emerging preferences of the consumers are accomplished.
However, it consume more time in reporting inventory data which sometime leads to
dissatisfaction among the consumers.
LO 2
Compute costs using appropriate techniques of cost analysis to prepare an income statement
CVP analysis: This states the sum of money that has been invested so as to produce a
goods and services as well as to receive product and services (Cooper and Qu, 2017). With the
increasing expenses on buying plant and machinery, raw material, labour and so on. However,
there are two common techniques to find out the estimated costs i.e. marginal or variable and
absorption costing. Here in this context an analysis with regards to cost, volume and profit is
applied to measure the fluctuations in the costs and volume of production and its impact on
corporation's net and operational income. They are explained as under:
Absorption costing: It is globally adopted by the business administration as it covers
each and every aspect of fixed as well as variable costs to find out the estimated prices of goods
as well as services. Moreover, Ovation systems use this method as it assure that incurred cost
will be taken back by selling the goods as well as services in the huge competitive environment.
By this act, administration is able to achieve the set standards in this ever changing competitive
era.
Marginal costing: It is a best and the most appropriate method for computing the costs
and under this method the variable costs whether related to manufacturing or not are treated as
product costs and is applied to calculate the unit costs. On the other hand, fixed costs are treated
as period costs and are treated separately. Moreover, marginal costing is very significant for
short time duration as in this method only expenses are covered which are in variable nature
(Englund and Gerdin, 2018).

Reconciliation statement:
January February March
Profit from absorption costing 689000 768000 669000
Change in stock -126000 -102000 6000
Profit from marginal costing 563000 666000 675000
Net profit 689000 768000 669000
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00

05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000
05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £
3.75 each 20 3.75 75. 49 3.4427 168.6923
05/23 Issued 10 units 10 3.4427 34.4270 39 3.4427 134.2653
05/27 Issued 25 units 25 3.4427 86.0675 14 3.4427 48.1978

05/30 Issued 5 units 5 3.44 17.2135 9 3.4427 30.9843
Application of MA techniques and preparation of financial reporting reports:
Ovation System Ltd is adopting marginal and absorption techniques as per their
requirements. Here, firm perform the activities of business in the budget allotted so as to reduce
the cost charges. It helps is making the enterprise financially stable in nature it directly leads in
gaining competitive advantages against rivalry. These above discussed techniques helps in
financial reporting processes by providing significant outcomes.
D2. Interpretation:
From the above it can be summarized that 3.75 unit is measured by using LIFO method
the closing stock (Hiebl and Richter, 2018). Moreover, 3.45 is valued by effectively adopting
AVCO method in the working premises. Ovation systems Ltd top level management will be
benefited by these method as they will be able to take best decision exact cost can be determined.
Moreover, AVCO method less cost is charged so administration is focusing more on this method
as compare to LIFO method.
Ovation systems Ltd is centred more in execution of adsorption costing method in their
premises. This is because Q2: £3100 and Q1: £4300was the net profit of the organization
whereas, Q2: £4700 and Q1: £1900 is the calculated amount of marginal costing. So, absorption
method is better than marginal in the intense competitive world.
LO 3
P4) Benefits and drawbacks of numerous types of planning tools of budgetary control.
Budget: Budget is an essential component for the companies to remain successful in this
competitive era. It helps in creating some rough figures about various expenses incurred while
performing distinguishing activities of business. Organization prepare budget by examining the
the market conditions so that insufficiency of funds does not occur.
Budgetary control: It is used in the form of device which helps the companies in proper
supervision and control of a lot of costs along with general and admin activities in set period of
time. Whereas, it is the method used to compare the approximation and existent outcomes. By
doing so required modifications can be executed for upgrading the overall performance of
enterprise (Johnstone, 2018).

Kinds of tools used for planning of budgetary control:
Cash budget: This budget is the first thing made by the company as it helps in the
estimation of cash flows i.e. inflows and outflows. Firm prepare cash budget to find out the
position of the company financially. It is profitable budget for Ovation systems as well as there
are some drawbacks which are understood as follows:
Advantages Disadvantages
 By implementing this organization
decreases debts as it guides and permit
the institution to spend the monetary
amount only where it is needed.
 This render great efficiency to set up
easier communication on the grounds
of financial health of the administration
(Monden, 2019).
 Non-monetary resources are not used
due to which the organisation is unable
to record all the transactions performed
in the company.
 There is deficiency of flexibility which
leads administration not modify the
number one they have entered.
Master budget: Here, it is combination of small budget within the business concern.
Master budget directly or indirectly aid Ovation System Ltd to properly arrange all the
document so that activity can be performed in short time duration.
Advantages Disadvantages
 All the relevant information is gathered
at a single place that directly helps in
saving precious time and money.
 Administration cut down the cost by
examining all every aspect. By doing so
extra or additional amount can be
further used in growth and development
of the business.
 It is difficult to edit and to interpret not
this kind of budget as it includes various
budgets within.
 Company will not able to specify any
activity as all the activities of every
department has recorded in this budget.

Flexible budget: It modify as per the requirements and static budget. This is the simple
and easiest formation of budget although it includes some drawbacks which are explained as
follow:
Advantages Disadvantages
 According to the enterprise
requirements the number of the budget
can vary.
 It is more helpful in adverse situation.
Organization adopts this so that best
outcomes can be attained.
 The reason behind the variances is not
defined. Which results in unproductive
results (Myers, 2019).
 Negative impact on the customers and
investors is created as it stands for
unfavourable conditions.
Sales Budget: This budget wholly dedicated towards projection of sales figures whether cash
sales or credit sales. A company's sales budget outlines business's sales expectations that is
determined by managing officials,for a particular period.
Advantages Disadvantages
 A sales budget's advantages typically
include a description of each fiscal
quarter's revenue and no. of unit’s
organization sold.
 Sales Budget beneficial in allocation of
different organisational resources
among different departments taking
Sales forecast, plan and information of
sales budget as base.
 Preparation, modification, re-checking,
improvisation of sales budget is time
consuming task.
 In large organisation it is not so much
relevant due to wider range of external
factors.
Purchase Budget: A purchase budget includes volume and value of material or inventories
purchased during a particular period. Figures shown in this budget are required to ensure that
there are adequate stock in hand fulfil order requirements.
Advantages Disadvantages
 It help to control inventory level by
providing projection of quantities to be
 It is time consuming task to create

purchased. budget like this.
M3. Analysing usage of different planning tools in preparation and forecasting different budgets:
All these budgets including cash budget, flexible and master budget are used for planning
and are tools to forecast. Adoption of this budget is advantageous for administration as it helps
them to ascertain best results in the competitive market place. Each and every budget provide
authentic and reasonable information to firm in context of cash amount. By this act corrective
decision is taken in regards of cash investments in the global market. Ovation System Ltd.
prepare the cash budget which helps the top level in determining the inflows as well as outflows.
Firm by examining this budget proper steps and tactics can be framed (Qian and Schaltegger,
2018).
LO 4
P5) Application of management accounting system to resolve financial problems.
Organizations faces several problems occurs due to improper management and use of
money. To solve the issues regarding funds management accounting system is applied in a
company, that helps in measuring the cost, performance and stock level. Before applying systems
to resolve the issues firstly needs to know about the financial problems and their causes.
Financial problem: - A financial pressure is a situation where a person is not able to
afford necessities. These challenges are causing stress, and it impacts on mental health of an
individual. Financial problems effect the company's operational activity and outcome in low
effectiveness and efficiency. There are many reasons of financial issues, that are faced by
Ovation system which are as follows: -
Poor money management: - Ovation system have poor budgetary plan to manage its
money effectively and efficiently. They spending in unequal proportions on all operational
activities and it reflects on company's financial conditions. So, the company needs to develop a
proper money management system to resolve their fund shortage and prepare budget for future
expenditures with respect of each activity (Schaltegger and Burritt,2017).
High storage cost: - Ovation system is a manufacturing company and it produced audio
and video recorder. So, the company needs warehouse facility to store its products. Hereby, the
company is suffering from the high storage cost of inventories and it effects on company's funds
shortage and more expenditures.

Increase in expenses: - It can create a financial challenge for an organization, when a
company has high operational cost in relation of their operating revenue is less. When a company
spend more than its earnings then it automatically suffering from financial problems. So, the
company needs to control on their expenses and develop a systematic budgetary plan.
From the above mentioned causes a company will suffer more or may be closed down its
business in near future. So, the financial problems are needed to solve immediately by using
appropriate techniques in an adequate manner. There are several techniques for resolving the
company's monetary challenges that can be described as: -
Benchmarking: - Benchmarking is used to knowing the internal capabilities of an
organization and identifying the opportunities for improvement. For example, Ovation system
are suffering from the high storage cost of inventories. For this particular issues, the company
can use benchmarking. This method is used to identify the competitor’s strategies and for setting
up the targets of manufacturing the products of quantity demanded. Also, it helps in reducing the
high storage cost and smoothly flow of money for operational activity (Agrawal, 2018).
Key performance indicators: - To meet the objectives of an organisation a quantitative
measures are used to assess the success of an organization. It indicates the actual performance of
an individual or organizations and match with last year performance to know the deviations if
any, so that corrective actions can be implemented for further improvements. For example,
Ovation system can use KPI to solve a financial issue related to increase in expenses by
improving the performance and productivity level of employees. Expenses are occurred in
various terms such as money, time, efforts, poor performer etc.
Financial governance:- It means a company collects, manage, monitor and control the
monetary informations and data's. Ovation uses this tool to systematically arrange the collections
and to ensure that they get the end results in a better manner. The company use financial
governance as a strategic tool by making suitable policies and rules which guides manager to
make an effective decision. This will help in overcoming from the problem of poor money
management.
Difference between Ovation system and Oxalis group's.
Basis Ovation system Oxalis group's
Monetary problem Ovation is having the issue of high
storage cost because keeping raw
Oxalis group's is having the issue
related to poor money management, it

material and finished goods are
perpetually growing.
impacts on their money rotation and
financial conditions.
Tools to solve
above problem
To overcome from high storage cost
issue a company suggested to use
benchmarking as a tool to solving
the problem of finance in a
company (Hiebl, 2018).
For resolving the issue of poor
management of money a company
can adopt a financial governance tool
to manage and control its monetary
transactions in adequate manner.
Management
accounting system
For the above problem, MAS needs
to be applied. For a specific
problem related to high storage cost,
inventory management is used to
manage the stocks of company
efficiently.
MAS is also used to overcome from
the financial issues. The company
uses cost accounting system to solve
the issue and for the purpose of
budgetary control.
M4. Analysing ways by which responding to financial issues can lead to organisation's
sustainable success:
Corporation like Ovation system in current dynamic business era facing wide range of
big and minor problems. Timely responding to these different issues is essential to mitigate or
avoid potential risks. Using these tools on long term basis, such an act of corporation will
provide sustainable success and the corporation can respond to these risks and issues.
D3. Evaluation of planning tools as how these help in responding to financial problems
appropriately:
Different planning tools as discussed above are applied by corporation like Ovation
system to make respond to existing and potential financial problems. These tools not only warns
about possibles problems but also provide information which is further used by managers to
resolve these problems. Pros and cons of these techniques which are adopted for control purpose
are examined and then the most effective one is implemented. Here, comparison is done among
several firm in regards of using management accounting systems to resolve monetary issues.

CONCLUSION
Management accounting is essential and plays an essential role in assisting corporations
to take effective decision for the betterment of the employees and employer. This aspect need to
be performed effectively and efficiently so as to achieve best results in the cut throat competitive
world. Violation of management accounting leads a firm in huge loss which is a negative mark
for the company. Moreover, distinguished accounting systems are studied so that as per the
dynamic environment the best one can be adopted in the working premises. The numerous
management accounting reporting which are, budgeting report, performance report etc. are
focused so that they can be mould to attain set goals.

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