Detailed Report on Management Accounting for KEF Ltd

This report provides a comprehensive overview of management accounting principles and their application within KEF Ltd, a medium-sized manufacturing company. It begins by defining management accounting and exploring different types of systems like cost accounting, job costing, and price optimization. The report then details various reporting methods, including financial, sales, and budget reports, emphasizing their importance in business decision-making. A significant portion of the report focuses on cost calculation methods, specifically absorption costing and marginal costing, with detailed examples and interpretations. Furthermore, it analyzes the advantages and disadvantages of planning tools such as capital and flexible budgets, and discusses the integration of management accounting systems and reporting. The report also examines how management accounting systems can address financial problems and contribute to a company's success, offering valuable insights for students of business development.

MANAGEMENT
ACCOUTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
P 1 Management accounting and types of its system.............................................................3
P 2 Various methods of reporting for management accounting.............................................4
M 1 Benefits and application..................................................................................................4
D 1 Integration of management accounting system and reporting.........................................5
P 3 Calculate cost...................................................................................................................5
P 4 Advantages and disadvantages of planning tools.............................................................8
M 3 Use of different planning tools.....................................................................................10
P 5 Management accounting system for dealing with financial problems...........................10
M 4 How dealing with financial problems help company in attaining success...................11
D 3 Evaluation of planning tool in responding to financial problem leading to success.....12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is that branch of accounting which helps the company in taking
decisions relating to the management of the various activities of the business. Management
accounting is very crucial for the success of the company as it helps the company in evaluating
the different areas of concern for the management and to improve those areas (Otley, 2016). The
present study is based in the KEF Ltd company which is a medium sized manufacturing
company.
The present report will start by discussing the different types of management accounting
system along with the different type of reporting of management accounting. Further some
calculation outlining the marginal costing and absorption costing will be discussed in the report.
Next the different planning tools and their advantages and disadvantages will be highlighted. In
the end the application of different management accounting system for the solution of some
financial problems will be discussed.
MAIN BODY
P 1 Management accounting and types of its system
The management accounting is defined as the presentation of the accounting information
and financial statements in such a way that it assists the managers in taking decision relating to
the day to day operations of the company (Meaning and definition of management accounting,
2019). There are many different types of management accounting system which helps the
company in taking various types of decision. These systems are discussed in the following points
connected below-
Cost accounting- this is a system under the management accounting system which helps
KEF Ltd in recording and reporting systematically all the cost related to the manufacturing of the
goods and services. This system help company in allocating the cost to different production units
and ensuring that the cost is not overutilized.
Job costing- this is a type of system which helps the company in allocating the cost to
specific or particular job. Under this the manufacturing cost is systematically divided in different
job like the overhead, direct labour, direct material and other activities which are required to
accomplish and finish the process of manufacturing (Maas, Schaltegger and Crutzen, 2016).
Price optimisation- this is a system which help KEF Ltd in analysing the different price
level for the product and service produced and the reaction of the consumers over it. This system

helps the company in fixing the most suitable price so that the consumers are comfortable and
the company also earns profits.
P 2 Various methods of reporting for management accounting
The report helps the company in recording and displaying the different records of the
company relating to its different departments like manufacturing, sales, budgeting and many
other different areas of business (Cooper, Ezzamel and Qu, 2017). There are various kinds of
reports which are being prepared for the efficient management of the company. These reports
have been discussed in the below discussed points-
Financial reports- these are the report which comprises of the financial information
relating to all the financial transaction which takes place within the business. Thus, this report
helps KEF Ltd in analysing all the financial transaction and taking care of the money and how it
is being used in the business.
Sales report- this is a type of report which records all the transactions relating to the sales
of the company. Thus, it is very necessary for the company to record all the sales transaction to
know that how many are the cash and how much is the credit and how much money needs to be
recovered from others.
Budget report- this is the most essential report for the company and its successfulness.
This is majorly because of the reason that under this reporting system all the estimated income
and expenses are being recorded in the budget. This provides an estimation to KEF Ltd that this
much of income and expenses will be incurred and company can plan its working in accordance
with that estimation.
M 1 Benefits and application
The management accounting is applied within the business in order to plan and control
the way the company will work. This is majorly because of the reason that this helps in preparing
budgets which help the company to plan and to work in accordance to those planned budgets
only. Also, this helps the company in controlling the planned work by comparing actual work
with the planned work.
The major benefit of management accounting system is that this increases the efficiency
of the business (Bromwich and Scapens, 2016). This is majorly because of the reason that all the
work is planned in advance and every employee knows what they want to do. Thus, this also
increases the profitability of the company and its operation. Another benefit is that the company

is able to take effective and efficient decision for the growth and development of the company.
This is pertaining to the fact that the planned work helps the company in deciding in which area
to go for development (Chenhall and Moers, 2015).
D 1 Integration of management accounting system and reporting
Both the management accounting system and the management accounting reporting are
integrated together for achieving the success. If these two things not work in coordinated manner
then the company will not be able to succeed in its working. This is majorly because of the
reason that if management accounting system are not used effectively then the report will not be
prepared in effective manner. This is due to the fact that the reports are being made on the basis
of the management system and their working.
It is so pertaining to the fact that if the cost is not allocated then how the cost report will
be made. Similarly, if the budgets are not prepared then how the cost will be allocated and how
the work will be done. Thus, it is very necessary for the KEF Ltd to integrate its reporting with
various different management accounting system.
P 3 Calculate cost
Absorption costing- This method referred as the costing technique that indicates all the
cost that incurred in manufacturing the product had been allocated or assigned towards the units
that is been produced. It means that for producing the finished product, various cost is included
that cost of direct material, manufacturing overhead, direct labour and fixed production
overhead. Absorption costing helps in complying the accounting standards and makes a greater
job in tracking the profits accurately than the variable costing. The major limitation of this
method is it could skew the profitability picture of the company and is not seen as helpful in
making assessment for improving the business operations or in comparing the product lines.
Marginal costing- It means the cost of an additional unit or an output and it is the method
utilised for determining the optimum quantity of the product for an enterprise where it cost for a
least amount in producing an additional unit (Weetman, 2019). Marginal cost eliminates variance
cost per unit as fixed cost are not been charged directly to the production cost under marginal
costing and the units that have a standard cost. This costing technique helps in planning for short
period through representation of the charts and the graphs of the break even and profitability.

Particulars Cost per unit
Absorption costing Marginal costing
Direct material 15 15
Direct labour 25 25
Variable production
overhead 10 10
Fixed production
overhead 130000/20000 6.5
Total cost 56.5 50
Income statement as per absorption costing
Particulars No. of units £/unit £ £
Sales 18000 70 1260000
cost of opening
inventory 56.5 0
add: production 19000 56.5 1073500
1073500
less: closing
inventory 1000 56.5 56500 1017000
Gross profit 243000
less: under
absorption -13000
Net profit 230000
Income statement as per marginal costing
Particulars No. of units £/unit £ £
Sales 18000 70 1260000
cost of opening 0 50 0

inventory
add: production 19000 50 950000
950000
less: closing
inventory 1000 50 50000 900000
Contribution 360000
less: fixed
production cost 130000
Profit 230000
Working note:
Fixed absorbed
overheads @ 18000
units 18000*6.5 117000
Fixed production
overhead 130000
Under absorbed -13000
Interpretation- The above analysis depicts that absorption costing methods shows under
absorption of the value 13000 which means that resources are not been used efficiently and
effectively. The profit figures evaluated as 243000 as of absorption costing and 230000 from
marginal costing. It indicates that as absorption costing considers both the cost that is marginal
and absorption so it gives an accurate view of the profits in comparison to the marginal costing.
When production units are 22000 and closing inventory accounted as 2000 units
Income statement as per marginal costing
Particulars No. of units £/unit £ £
Sales 20000 70 1400000
cost of opening
inventory 0 50 0
add: production 22000 50 1100000

1100000
less: closing
inventory 2000 50 100000 -1000000
Contribution 400000
less: fixed
production cost -130000
Profit 270000
Income statement as per absorption costing
Particulars No. of units £/unit £ £
Sales 20000 70 1400000
cost of opening
inventory 0 56.5 0
add: production 22000 56.5 1243000
1243000
less: closing
inventory 2000 56.5 -113000 -1130000
Profit 270000
Interpretation- As from above results in case the production units of 22000 and the
closing inventory of 2000 units the profits attained as 270000 by employing marginal and
absorption. The profits figures are same but in marginal costing, fixed cost is not considered as
the part of a product cost.
P 4 Advantages and disadvantages of planning tools
The planning tools are the one which help the company in analysing the requirement of
planning within the company and this also help KEF Ltd in managing its work in such a way that
it yields maximum profits. There are many planning tools for the budgetary control of the
company. budgetary control is the system through which the company monitors and control the
monetary system within the company (Renz and Herman, eds., 2016). The different planning
tools used by KEF Ltd are discussed in the following points illustrated below-

Capital budget- this is a type of budget which is used in order to allocate the money in
respect of maintenance and acquisition of the fixed assets and equipment. The capital budgeting
is a process of planning for determining the fact that whether the company need to go for long
term investment in machines, new plant, products and many other equipment (Dekker, 2016).
For analysing the worth of the project many techniques are being used like payback period, net
present value, internal rate of return and many others.
 Advantages- the major advantage of this planning tool is that this help the company in
gaining knowledge that which investment option is better for the growth of the company
and which can provide for the maximum of the profits.
 Disadvantages- the drawback of using capital budgeting is that operational cost of the
company is increased as more investment is being done in the fixed assets of the
company. Also, another drawback is that preparation of the capital budget requires
specialised skills and expertise and this requires a lot of money.
Flexible budget- the flexible budget is the one which adjust in accordance with the
changes taking place in the volume of the production. This is an estimation of the income and the
expenses based on the current output for the future use. Under this budget the future work is
estimated keeping the current production as the base for the company.
 Advantages- the major advantage of this type of budget is that this budget adjust in
accordance with the changes taking place in the business environment. Another
advantage of use of this budget is that this helps in the better control of the cost and to be
updated with the current data. This is helpful because of the fact that this helps the
company in analysing the current situation and then to react in the required manner.
 Disadvantages- the major negative point of this budget is that it is very time consuming
for the company to analyse and research for the changes taking place in the market. Also,
the other disadvantage of this budget is that this is dependent of the future changes and
whose are uncertain and need to managed in effective and efficient manner.
Variance analysis- this is a tool of budgetary control because under this technique the
difference between the standard output and the actual output is made. This help the company in
setting the standards first and then work in accordance with the set standard (Granlund and
Lukka, 2017). After the completion of the work it is compared with the standard to the difference
and to take corrective actions.

 Advantages- the major advantage is that this is good tool of measuring the performance
of the work of the company. It is majorly because of the fact that if the performance is
less then the expected value then major changes can take place (van Helden and Uddin,
2016). Another advantage is that this setting up of direction provides a direction to the
company in which they need to work.
 Disadvantages- the major drawback of this is that this technique is difficult to be applied
in the companies which deals in providing services to others. This is majorly due to the
fact that under this business it is not possible to set some standards.
M 3 Use of different planning tools
The different planning tools discussed above help KEF Ltd in planning its work in
effective and efficient manner. These tools help the company in identifying some ways in which
the company can improve its working capacity. Thus, these tools are applied in different manner
and for different purposes. Like for instance, the capital budgeting is used for deciding that
whether the company need to go for some huge investment or not. In the same way, variance
analysis is applied to see that whether there is any deviation in the planned work and the actual
work or not. But this is also expensive for the company to employ all these tools as this requires
expert knowledge and for this some professionals need to be hired and they will require high
salary and fees.
P 5 Management accounting system for dealing with financial problems
The business run in environment which is very dynamic and changing hence, it is very
essential for the company to evaluate all its working and make sure that there is not much
problem being faced by the company. KEF Ltd also encounters with some financial problems
while running the business. Thus, it is very necessary for the company to manage all these
financial problems so that the company can go in the direction of growth and development. The
financial problem are the difficulties which the company faces because of some money or fund
related issues.
System KEF Ltd Dali speakers
Benchmarking- this is a
system which is being used by
the companies in order to
compare its working with that
The company uses
benchmarking in order to deal
with the financial problem.
The major problem faced by
The competitor also uses this
technique of solving the
financial problems. But Dali
speaker uses benchmarking in

of the other competitor. This is
a technique which is used in
order to compare the position
of one country with that of the
other and can compare its
problem in order to get some
solutions.
the company was the low
profits of the company. this
problem was solved by taking
benchmarking as a solution.
This is because of the reason
that this comparison will help
KEF Ltd to compare the
working with the popular
competitor and then find ways
of better performance of the
competitors.
order to analyse the fact that
what other companies are
bringing changes and how the
other companies are dealing
with the changes taking place
in the market (Nitzl, 2016).
Key performance indicator-
this is defined as the type of
measuring performance by
setting an indicator against
which the performance of
company will be assessed.
KEF Ltd uses this measure in
order to manage its financial
growth and stability. The
company has marked the key
performance indicator as the
operational cash flow. Now
for assessing the growth of the
company the company
compares its performance
against the operational cash
flow. That is the company
compares the cash flow of the
company with its past record
as well as with other
competitors in industry.
Dali speakers also use this
method for dealing with the
different problems and to find
their solutions. Thus. For this
their performance indicator is
the percentage of market
share. This is chosen as an
indicator because of the reason
that the market share decides
that how much the company is
popular within the market.
M 4 How dealing with financial problems help company in attaining success
The solution to the financial problem helps the company in attaining success to a great
extent. This is majorly because of the reason that if the company will take measures to solve the
financial problem then evidently the company will attain success. This is majorly because of the

reason that if the problem will be sought out then the company will work smoothly and this will
improve the working od the company.
D 3 Evaluation of planning tool in responding to financial problem leading to success
The planning tools also assist in responding to the financial problem as these tools help
the company in planning the way the working will take place (Shields, 2015). This is majorly
because of the fact that these planning tools will help the company in analysing the areas where
the company can improve its working and how they can develop the company to grow faster.
Hence, these planning tools will assist KEF Ltd in managing all the problems within the
company and will help the company in going in direction of success.
CONCLUSION
From the above report it can be summed up that use of management accounting is very
helpful for the company in managing its operations and working towards success. This is majorly
because of the reason that this will help the company in analysing and interpreting the financial
information and then taking decisions for the betterment of the company. The present report
discussed about the different management system like cost accounting, job costing and many
other.
Further the different report was discussed like budget report, financial report and other
was demonstrated. Next the calculation illustrating the marginal and absorption costing was done
along with different planning tools. These planning tools were like capital budget, variance
analysis and many others. in the end different tools for managing financial problems was
highlighted like benchmarking, key performance indicator and many others.