Management Accounting Report: Systems, Costing, and Budgetary Control

This report presents a comprehensive analysis of management accounting principles, focusing on their application within Unicorn Grocery. It explores various management accounting systems, including cost accounting, inventory management, price optimization, and job costing systems, highlighting their importance in data collection, analysis, and decision-making. The report delves into different reporting methods such as performance reports, variable analysis, job costing reports, inventory control reports, and budgeting. Furthermore, it explains the calculation of income statements using both marginal and absorption costing, detailing their differences and implications. The report also covers budgetary control and tools needed to solve problems within the context of management accounting, providing a thorough understanding of the subject. The content is suitable for students looking to enhance their knowledge of financial management and cost accounting, offering valuable insights into practical applications and theoretical concepts.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and essential requirements of different types of its systems....1
P2. Different methods used for management accounting reporting.......................................3
TASK 2............................................................................................................................................4
P3. Calculation of cost to make income statements of marginal and absorption costing......4
TASK 3............................................................................................................................................7
P4. Budgetary control.............................................................................................................7
P5. Tools needed to solve problems.......................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

From: MAO
TO: GM
Subject: To present a report to GM in which management accounting, its systems and various
costing techniques are reported. Reporting will also be made so that implementation can be made
appropriately.
INTRODUCTION
In the present scenario, for effectual achievement of all objectives and goals, technique
which can be used is management accounting. In this, data is initially collected, then identified
and measured and finally, it is analysed to make effective use of same. Management accounting
plays a significant role in drawing accurate conclusion and making proper interpretation. In this
report various aspects of management accounting will be discussed with reference to Unicorn
Grocery. This will help in making the best decisions as required data is provided to managers.
Here, various systems and reports that are made in organisation will be explained together with
the calculation of profit that is done by using available methods. The tools and techniques that
are used in planning and resolving issues faced will also be explained in the report.
TASK 1
P1. Management accounting and essential requirements of different types of its systems
Management accounting is the process in which complete data to be used is identified,
collected and then analysed to draw reliable conclusion. The need of information is there in all
organisations and in order to meet them, it is required that various systems shall be taken into
consideration. By the help of them, necessary data is collected that is useful for decision making.
Targets set are attained as the best judgements are made which lead to proper working in
business. Data for different aspects whether financial or static shall be included in this so that it
can be utilised for the benefit of company (Renz, 2016). The right to use this information lies
only with internal management and no external person is allowed to access this data. Under this,
all the major areas of Unicorn Grocery will be included which affect the profitability. A
description of some main systems that can be used is provided as below:
 Cost accounting system: The main factor which is to be considered in all businesses is
cost as by this only, profitability can be identified and maintained. For this reason, it is
used and various steps are carried out so that efficient working can be made possible. The
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first step is to measure the inventory by which its value is identified in next part. This will
help in cost identification that is to be recorded by managers in the next process. All this
is useful in controlling the overall cost of product, resulting into increase in yield which is
main objective of any entity.
 Inventory management system: All the work that is performed is done with help of
inventory and so it becomes very much necessary that it shall be controlled by Unicorn
Grocery. By this improvement in operations will be achieved and so it is needed that
stock shall be kept at required level. For this economic order quantity is to be calculated
so that maximum advantage can be attained. Sometimes situation arises that stock is in
short which hampers the production thereby affecting total production. This issue will be
dealt in proper way using this system (Agbejule, 2011). Also decision in respect of
supplier from whom goods shall be acquired is taken, so that one providing best quality at
least rate can be selected.
 Price optimisation system: In this system such information is obtained which is required
in process of fixation of price. This is very important as by it only the amount to be
earned is decided. So it is necessary that proper analysis of various factors shall be
carried out and then on basis of them decision shall be made. The main aspect to be
involved is demand present in market. This is because price shall be such by which
demand can be increased and as there is inverse relation so if it is to be increased then
price s to be kept at low level. While fixing, interest of business and consumers both shall
be taken into account. For this such amount should be charged which is affordable for
customers.
 Job costing system: In the business there are various jobs which are undertaken and for
that it will be needed that identification shall be made that which are most relevant and
can never be avoided. There are some such aspects which can be ignored and the cost
which is incurred in relation to them can be saved. So they will be determined and
eliminated. The cost will be calculated in aggregate and then allocation will be made to
all the jobs that are performed. By the help of this cost of each unit is ascertained that is
further used in calculation of price to be charged from users.
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P2. Different methods used for management accounting reporting
The manner in which reports are prepared is very important as then only effective
decisions are made that will be helpful in increasing the productivity and development. Some of
the major reports to be made by Unicorn Grocery are explained below:
 Performance report: The evaluation of performance is very much important as by the
use of it proper decisions will be made. The identification of this is done by the standards
which are made in this regard. All of the targets will be communicated to all the
employees and they are required to work according to them. This will work as motivation
for the as they will try to prove themselves better than others. So all of the findings of this
are to be recorded in report which is known as performance report.
 Variable analysis report: All the cost which are incurred in any business are to be
classified and for that the main categories which are specified are fixed and variable
(Shields, 2015). The cots that is variable is to be analysed as it will be affecting the
overall growth of Unicorn Grocery. So this report will be formulated in which
information in regards to all the variable factors is to be recorded and then it will be
examined that whether they are made according to the standards or not. If not then action
is taken so that improvement in it can be made.
 Job costing report: All the factors which are related to operations performed in business
are recorded in this. The cost incurred, machinery and other aspects will be controlled
with the use of it. All the jobs are undertaken in best manner as the relevant information
required for them is available. So in this it will be recorded and then can be used for
further carrying out of various functions.
 Inventory control report: The stock that is to be used in any product will be specified in
this report. The quantity, various materials and the other requirements are mentioned.
Then the stock that is to be managed will be identified and then it will be ordered on that
basis so that proper functioning will be done. In this inputs that are needed are evaluated
by comparing them to the output level. All of this will be helpful in overall controlling of
the inventory in the organisation.
 Budget: The activities are to be performed in suitable manner and for that budgets are
made in which the objectives to be achieved are specified. Also the sequence in which
work shall be done is provided and shall be followed by all. The research will be
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conducted so that information needed in making of it can be obtained. In this all past
year’s information and also the projections about coming period will be made. They all
will be used in proper planning by which development will be made. They’re also helpful
in process of evaluation as performance is measured by them.
All the systems that are present are beneficial in organisation as by them, required
information is obtained and then it is utilised for the making of decisions. By the same, proper
functioning will be made possible and this leads to development of business. In organisation it is
necessary that proper reports shall be made which can be used in future and for that data will be
needed. For this systems are used and this leads to their interrelation as both cannot be
undertaken without the help of other one.
TASK 2
P3. Calculation of cost to make income statements of marginal and absorption costing
The process by which cost of any product shall be calculated is very important and so it is
required that the method that will have to be used for this should be selected after making proper
analysis (Armstrong, 2014). The main techniques which are specified in this respect are
absorption and marginal costing. The cost which will be calculated by them is different and due
to this reasons profit that will be obtained by both is also different as cost is used in the making
of statements of income. Both are methods shall be properly understood by management so that
they can be used in effective manner and for this explanation of same is provided below:
Marginal costing: In this method only those aspects of expenses are considered which
will be fluctuating with the change in units that are produced. Such cost are known as marginal
or variable cost. Due to this they are taken on per unit basis and their effect can also be seen with
just a unit change. In this all the cost which can be allocated on quantity basis will be considered
and should be deducted from the value of sales which will be providing Unicorn Grocery with
the amount that has been earned in form of contribution (Account management (management
accounting), 2017). The performance of company can be checked with the consideration of it
and then in order to know the final income that has been earned it is needed that all the cost that
are fixed and will not be deviating shall be reduced from the calculated value. There is direct
relation which exist among the two aspect that are units and cost. It means that if the production
is increased by company then cost that will be incurred in form of variable factors is also raised.
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So the profitability is affected to great extent by this and therefore it is very important to
incorporate it in process of decision making.
Absorption costing: Under this bifurcation of cost on basis of fixed and variable is not
made as all the fixed cost will also be allocated on per unit basis and they are included along
with the cost that are changing. As they are included in respect of each unit so the amount used
in actual process and that which is shown in budget will be different and that is considered as
over or under absorption (Cokins, 2014). To eliminate the effect of it they are to adjusted from
the profits which are made and in that way profits of both methods can be reconciled. Here all
the expenses which are made for administration and production purpose are incorporated firstly
by which gross profit id calculated and to arrive at net amount selling and distribution cost is to
be deducted from it.
So this is the manner in which calculation shall be done and by the help of this it can be
said that there is some difference which is present among and them (Management Accounting,
2017). For gaining understanding in respect of it, a table is provided below which will be
showing comparison between them:
Basis Marginal costing Absorption costing
Meaning The aspects which keeps on
changing are to be used under
this.
All whether they are of any
nature will be incorporated in
determination here.
Profits measurement There are various tools but the
one to be used for this purpose
is profit volume ratio.
The factor which is different
under it is fixed expense so
those will be used for final
profit determination.
Cost determination The total cost is bifurcated
among period and product cost
in which variable and fixed
will be considered
respectively.
No division is needed as whole
amount is taken as product
cost.
Expenditure classification Expenditures which are made Here administration,
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in this are either variable or
fixed costs.
production and selling are
main heads which are used to
categorize expenses.
Product cost In this impact on cost of unit is
examined and here there is no
such case but the difference
will be there in opening and
closing balances.
The cost will be affected by
differences as in this cost
which are fixed are also
incorporated.
Income statement as per marginal costing
Amount
Sales value (35*600) 21000
less:
Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable overheads -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed cost -2000
Admin & selling cost (700+600) -1300
-3900
Total 9300
Income statement as per absorption costing:
Amount
Sales value (35*600) 21000
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Amount
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
Less: over absorbed fixed production overheads -100 -1800
Net profit 9600
In order to prepare the most appropriate financial reporting documents, there are various
accounting techniques which will be used by unicorn grocery. All of them are required to be
undertaken by all the businesses and some of them are financial statements analysis, standard
costing, financial accounting and many more. In case of unicorn grocery the profits are
calculated by using marginal and absorption costing. It has been identified that earnings in both
cases are different. After the comparison of amounts it has been ascertained that profits are more
in case of absorption than that of marginal.
TASK 3
P4. Budgetary control
The technique that is used to make the best plan is budget and by that all the activities are
conducted in manner which will yield business maximum benefits. All the identifications in
respect of incomes and expenses will be made and then working will be done in manner by
which they will be achieved (Fullerton, Kennedy and Widener, 2014). Some of the most
commonly used budgets are explained below with their advantages and disadvantages.
Cash flow budget:
This is made to identify the needs in respect of funds. By this all the sources which are
there and can be used to acquire cash will be used. The amount which is needed is identified in
advance and by this problems will not be faced. All the work will be conducted in manner
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decided and also allocation will be made in effective manner in which division is made on basis
of priority.
 Advantages: The main merit is that all the needs which can arise in near future are
determined in advance and so evaluation can be made of various sources such as loans.
By this it will also be identified that whether there are any funds which are not utilised
and then measures will be taken so that they can be used in most effective manner by
investing them in some profitable aspect by which additional earnings will be made.
 Disadvantage: The plan is made on basis of estimates and there is no surety that they
will be accurate so chances are there that wrong decisions are made and this increases the
risk of business. The preparation is done for a small period and so this is also demerit as
whole year is not included. It may happen that all the expenses are not included and some
may be left for which no accounting is done.
Static budget:
This is the budget in which all the aspects which are included will be fixed that means
that all will remain same at any level of production (Nandan, 2010). It will not be required to be
modified as there are no changes which are to be incorporated under it. The amount of sales or
any other incomes and expenses all will be stable in it.
 Advantages: The main benefit of using it is its simplicity as there are no changes to be
made and so no complications will be faced in its implementation. During performance of
variance analysis a strong insight will be presented by it in relation to cost and incomes.
The identification will be made in respect of any over expenditure being made and then it
will be controlled by management by using collected data.
 Disadvantage: There is no flexibility under this which is its demerit as if any additional
sales is made then also no allocation is made for extra resources that are required for it
(Hopper and Bui, 2016). The decision cannot be taken to allocate some additional
resources to such area which is in need and by this development of that department is
hampered.
Zero based budgeting:
The making of this involves that all the entries shall be made such as they are from
starting point. It means that all the data will be needed to include from starting and therefore lot
of research will be required as no information of past years is considered under it.
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 Advantages: The data which is entered in this is most accurate as all is collected from
reliable sources and is examined. The resources under it are allocated in most proper
manner by which efficiency will be increased (Management Accounting Research
Interest Group, 2017). The level of communication which is maintained among divisions
will be improved with the use of it.
 Disadvantage: The process which is involved under it is very time consuming as very
intensive research is to be performed for this. Also lot of funds are used which could have
been utilised for any other purpose.
On the basis of the estimates there are various objectives which are set by unicorn
grocery and they can be attained with the use of planning tools. By the help of them effective
planning will be done that is helpful in achieving its targets and also operation are carried out in
much better manner. In this forecasts will be made and the conduction is done accordingly. All
the deviations that will be existing are identified and then steps are taken to eliminate them in
best possible manner.
P5. Tools needed to solve problems
Business is carried out and in that various operations are made so there are always some
or other problems which arise and needs to be taken into consideration (Lavia López and Hiebl,
2014). The main problems which are faced will be related to production efficiency, or quality of
products that are manufactured. Also sometimes issues arise that are related to finance. There
will be issues which will be related to profit levels as they keeps on fluctuating and sometimes it
happens that the targets which are specified in respect of them are not met. Also if profits are not
made then growth of business will be affected as there will no funds with the help of which this
can be carried out. The investments shall be made in appropriate places by which required
returns can be earned but there are chances when this is not done and the main reason of it is lack
of appropriate information. The needed data can be collected by using management accounting
systems which are explained above. So in order to deal with them it is needed that all the tools
and techniques which are there shall be evaluated and then best among them shall be chosen to
be used so that proper solutions can be made. Budgets is one such method that can be undertaken
as by that a level is fixed according to which company shall perform its activities and all the
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required details in respect of it are explained above. In addition to this there are some other tools
also which can be used and they are as follows:
 Benchmarks: The standards under this will be identified by making comparison with
those entities that are successful and have established their position (Kokubu and Kitada,
2015). The difference will be identified and areas in which improvement is required will
be in accordance with the identified standards.
 Key performance indicators: In this employees are provided with certain targets which
are to be achieved by them and this way they will have to work in accordance with them
and this will increase their efficiency. Also there performance will be evaluated and if not
found satisfactory then new persons will be hired.
 Financial governance: There are many issues which are related to finance and all of
them will be taken into consideration under this. The manner in which funds shall be
taken into use will be identified and for this decisions will be made. The policies are
formulated so that they can be used and problems can be resolved.
 Budgetary targeting: This is the technique in which budgets are made and in them
certain targets are set that are to be achieved so that performance can be improved. By the
help of this the staff will be performing its work in best manner and problems of
employee output, production level and product quality will be dealt by this. Also as
products will be made in proper manner so sales will be increasing and this will be
leading to achievement of required profit levels.
Unicorn Grocery ABC Ltd.
There are various techniques that are used by it
and they include budgets and then on that basis
variance analysis is done.
Price is set at that level which will attract more
customers.
The allocation of work and resources is in
manner by which most effective results will be
obtained.
The process is undertaken by which losses will
be avoided to maximum extent.
Sustainability is achieved when the risk in business is reduced and all the operations are
carried out in a manner providing customers with highest level of satisfaction. This will only be
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possible when all the problems are dealt in an appropriate way and for this, various techniques
such as benchmarks, budgets and many more have been used by Unicorn Grocery. In order to
achieve sustainability, it is required that proper tools shall be used so that all the financial
problems that arise in Unicorn Grocery can be solved. For this, the technique used by company is
budget in which comparison is made of actual and budgeted amount and then corrective steps are
taken to overcome the issues.
CONCLUSION
From the above report, it can be concluded that there are various decisions to be
undertaken by business with the help of management accounting. The information is to be
acquired and for that, different systems are used based on the results of which reports are made.
Also, it has been assessed various problems of businesses related to finance can be solved in the
most effective manner by using management accounting effectually.
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REFERENCES
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Cokins, G., 2014. Top 7 trends in management accounting, Part 2. Strategic Finance. 95(7).
pp.41-48.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices.
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Accounting Research 31. pp.10-30.
Kokubu, K. and Kitada, H., 2015. Material flow cost accounting and existing management
perspectives. Journal of Cleaner Production. 108. pp.1279-1288.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
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enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research. 27(1). pp.81-119.
Nandan, R., 2010. Management accounting needs of SMEs and the role of professional
accountants: A renewed research agenda. Journal of applied management accounting
research. 8(1). p.65.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
Management accounting research. 31. pp.45-62.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Shields, M.D., 2015. Established management accounting knowledge. Journal of Management
Accounting Research. 27(1). pp.123-132.
Online
Account management (management accounting). 2017. [Online]. Available through:
<https://www.accountedforltd.co.uk/service/account-management-management-
accounting>. [Accessed on 26th September 2017].
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