Management Accounting Report: Cost Analysis for Marwa Limited

This report provides a comprehensive analysis of management accounting practices, focusing on Marwa Limited, a company producing scooters. It covers essential requirements for different management accounting systems like inventory management, cost accounting, price optimization, and job costing. The report delves into various management accounting reporting methods, including inventory management reports, job costing reports, and budget reports. It explores cost calculation techniques, specifically marginal and absorption costing. Furthermore, the report examines the advantages and disadvantages of different planning tools used for budgetary control, such as cash budgets and production budgets, and concludes with a comparison of organizations and their accounting methods.

Management
Accounting

Table of Contents
INTRODUCTION..................................................................................................................3
TASK 1............................................................................................................................................3
Essential requirements of different types of management accounting system.......................3
TASK 2............................................................................................................................................5
Different methods of management accounting reporting.......................................................5
TASK 3............................................................................................................................................6
Calculation of costs................................................................................................................6
TASK 4...........................................................................................................................................8
Advantages and disadvantages of various types of planning tools used for budgetary control..8
TASK 5..........................................................................................................................................10
Comparison of organizations................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting act as decision making tool for the managers of an organisation.
It help them to plan for their business, monitor performance and provide path so that they can
control their organisation (Abbasi, Vakilifard and Marouf, 2018). This accounting includes tools
such as budgeting, BEP, cost- volume-profit and variance analysis. In this report we are going to
mention about Marwa Limited which produces scooters for children. They started their
functioning from 1 January 2019. Marwa Limited uses management accounting in order get
information of their financial and other data to make internal decisions.
This report covers essential requirements of various types management accounting
systems, different methods used in management accounting reporting, merits and demerits of
different planning tools. Further this reports covers calculation of cost with the use of proper
techniques of cost analysis to prepare income statement using absorption and marginal cost.
Budgetary control tools, their advantages and disadvantage are also discussed.
TASK 1
Essential requirements of different types of management accounting system
Management Accounting helps to identify, analyse, interpret and convey informations to
managers to achieve their goals. Management accounting systems belong to internal
management systems that provides informations that are useful for managers to take decision in
relation to their operations (Brink, Hobson and Stevens, 2017).
Management Accounting refers to the presentation of the accounting information in such
a manner so that the assistance can be provided to the management for the purpose of creation of
policy and in the day to day operations of an undertaking. This will be quite helpful in ensuring
that the wide range of goals and objectives in the short-term, medium-term and long-term can be
attained in the right manner.
Marwa Limited with these systems do its operations in systematic manner and avoid
wastage of time. They follow following systems in this regard-
Inventory management system- Inventory management system provides information
regarding the stock level of organisations (Dijkman, 2019). This system help the business to
keep an eye on situation like under and over stocking. Marwa limited will get correct estimation
of their stock with this system.

Essential Requirements:
 Marwa Limited will be profitable with this system as it will provide proper estimation of
correct stock, at right place, at correct level, at right time and at right cost.
 Software's of this systems will build transparency in the working of Marwa Limited.
Cost Accounting System- Cost accounting system helps organisations to get generate
actual cost that they have incurred in manufacturing a product or services
(Rahmani and Ghashghaei, 2018). Marwa Limited with this system can know what is the
production cost of their scooters. There are a wide range of principles as well as features which
are associated with this particular accounting system and therefore this can be quite useful in
ensuring that the different types of costs of the organization can be managed properly. This will
be quite helpful in leading towards a higher-level of efficiency and effectiveness.
Essential Requirements:
 This system leads to accuracy which will help company to make less error and complete
its work on time.
 Marwa Limited can easily find out its profit margin as cost of production is easily
determine by them with this system.
Price Optimisation System- This system provides optimal cost of every transaction of
every sale (Remenarić, Kenfelja and Mijoč, 2018) (Schmidt and Günther, 2016). With help of
price optimisation system organisation gets full knowledge about their customers as they may
know how customers will react to different prices of goods and services. Marwa Limited can
generate actual cost of their scooters with this system.
Essential Requirements:
 Marwa Limited can easily analyse situations in which they are going increase price of
their product to earn profit. Situations such as price reduction modify volume of their
sales and revenues, can be easily settle out with this system. Thus, In this way it can be
said that the company has to assess the different types of prices and ensure that they are
able to ensure that the right price is set for ensuring the attainment of the overall goals
and objectives in the future.
 Company can determine amount of potential customers in order to get correct demand
level of its scooters. The managers can make sure that they are able to assess the demand
level in a proper manner and therefore this will be quite helpful in ensuring that the

company is able to use the right ways for the purpose of ensuring that the different types
of goals and objectives can be attained in the right manner.
Job Costing System- In this system accountants collect data regarding the cost of each
job (Abbasi, Vakilifard and Marouf, 2018). These data's are considered to be more trustable for
operations of businesses. Job costing collect information regarding overhead cost, cost of
material and labour cost of a specific job. Marwa Limited can easily generate cost relating to
each job because of this system.
Essential Requirements:
 Marwa Limited can find issues relating cost of jobs in order to complete work on time.
 Company can determine cost by keeping a track on overhead and cost of labour.
TASK 2
Different methods of management accounting reporting
Management accounting reports helps business to make decisions of their operations
through performance measurement and planning (Schmidt and Günther, 2016).. These reports
are regularly prepared throughout the accounting period. Decisions are properly formed as these
reports provide authentic informations. In context to Marwa Limited, they prepare these report
to make their working uncomplicated and easy to understand. They prepare these following
reports to do so-
Inventory Management Reports- These reports provide information regarding the
inventory of organisations in brief. They holds information such quantity of stock, performance
of each stock and its status. They ensures correct movement of inventory and accurate stock
accounts. Deficiency of stock creates problem for company as they don't have enough inventory
to meet demand. This deficiency could occur because of reasons such as human error, damage,
theft and wrong calculation of stock etc. Calculation of rate of inventory turnover indicates
contrasting level of stock such as low inventory turnover means company holds more stock than
its demand. In context to Marwa Limited these report help them to make out level of inventory.
Use of software's will save its time and provide accurate information relating to stock. They
modify there requirements and know the shortfall and abundance of theirs stock. For example-
The use of these particular reports can be made so that the management of the wide range of

stock items can be made which will help in deriving of the conclusions and recommendations in
a proper manner.
Job Costing Reports- These reports help accountants or managers to measure the cost of
each job . These reports carry information regarding cost of labour,field overhead, subcontractor
cost and liquidated damages (Remenarić, Kenfelja and Mijoč, 2018) (Schmidt and Günther,
2016). In these reports real costs are compared with budgeted costs in order to estimate if jobs
are as per plan or not. Marwa Limited with this report cut down its cost in order to increase its
margin of profit as costing is done to know which job is generating more earnings or failure for
it. Generation of cost of specific from comparison of budgeted cost and actual cost provides
correct figures to Marwa Limited. For example- The use of these reports can be made so that the
assessment of a wide range of job costs can be done which will be quite helpful in ensuring that
the right methods can be used to reduce the job costs.
Budget Reports- These reports mention all the information of expenditures and
revenues relating to operations of entity for particular time (Dijkman, 2019). Operating expenses
consider loan interest, purchase of raw material, salary, cost of office maintenance,
administrative expenses. On the other hand operating income refers to income from operations
and income generated from sale of products and services. These reports help Marwa Limited to
keep a track of their net profit and spendings. Company can improve their efficiency as this
budget helps them to operate their functioning to their optimal capacity. For example- The use of
these particular reports can be made so that the assessment of the different types of budgets can
be made which will be helpful in ensuring that the determination of the conclusions and
recommendations can be made effectively and efficiently.
TASK 3
Calculation of costs
Different types of techniques can be used by the organizations for the purpose of carrying
out a detailed assessment of the various types of costs (Anderson, 2017). The explanation of the
costs which can be used by them is given as follows-
Marginal costing- It is a technique through which the organizations are able to ensure
that they can thoroughly assess the overall level of profitability without facing problems and

issues. Thus in this way a company like Marwa Limited will be able to ensure that it can focus at
enhancement of its overall level of profits.
Absorption costing- It is a technique through which the overall level of costs can be
assessed within the organizations in the right manner. Through it Marwa Limited can ensure that
it is able to carry out an assessment of its overheads and ensure that the technique of segregation
can be used to segregate the different overheads according to departments. In this way the
company can make sure that it can assess the importance of segregation in the right manner
without facing problems and issues which will help the company a lot in targeting higher-level of
profits in the future.
Calculation of marginal and absorption costing is shown as under

TASK 4
Advantages and disadvantages of various types of planning tools used for budgetary control
Planning tools are those tools which can be used by the organizations so that a wide range
of plans can be made effectively and efficiently so that they can ensure that they are able to
achieve the goals and objectives in the future in the right way.
The different types of planning tools which can be used by the organizations are-
 Break-Even Point
 Standard Costing
 Marginal Costing
Budget are financial plans for future to calculate expenses and revenue. Budgeting
control can be define as a process in which planning of future budgets is done by the comparison
of real performance to find out differences. This will lead to correction in performance. Mawa
Limited uses these tools to compare its performance, to improve and to find out their mistake at
right time to avoid any delay. Company uses following budgets for its operations -
Cash Budget- Cash budget is the estimation of inflow or outflow of cash over particular
period. These budgets could be prepare on monthly, weekly, quarterly and annual basis. Marwa
Limited can assess the requirement of cash in order to continue its operations with help of this
budget.
Advantages
 This budget provides proper information about cash that organisations need to kept in
order to meet its debts. This merit of Marwa Limited helps them to repay their debt.
 Cash budget always communicate financial position of entities. Marwa Limited with this
feature can estimate its declining and rising level of cash.
Disadvantages
 This budget limits productivity as some services are neglected in this budget. Marwa
Limited with this budget will slow their manufacturing that will increase their cost and
reduce profit.
 Entities will find it difficult to build their credit profile as all the transactions requires
cash only. Marwa Limited has to save money in huge amount to make large payments
instead of going for financing which will be a drawback for them.

Production Budget- Production budget is a plan relating to all units of product that
entities require in their production over a period of time. It also consider the required level of
inventory that is required to avoid situation of stock out. Marwa Limited can maintain records of
all the items that is require by them to produce there scooters.
Advantages
 This budgets helps to plan production activities for future. Marwa Limited can easily do
so by maintaining record of number of units required by them in manufacturing scooters.
 Production budget helps in managerial decisions as requirement of raw material and
consumables depend on this budget. Marwa Limited managers by analysing these
budgets can take their present and future decisions in order to meet their goals.
Disadvantages
 These budgets are time consuming as they require lot of efforts and time in their
preparations. Marwa Limited will waste its efforts and time, if any estimations goes
wrong.
 They are totally dependent on judgements that managers make for future production. For
Marwa Limited it will be different to take these judgements as market situations and
competition are unpredictable.
Flexible Budget- These budgets are static in nature. They calculate on the basis of cost
and revenue for output at different level. These changes occur due to variation in level of
activity. Marwa Limited mangers can increase their efficiency as this budget can set standard for
there actual performance.
Advantages
 It helps in calculation of operating capacity at different level. Marwa Limited will be
beneficial from this budget as they can calculate costs, sales and profit at various levels.
 This budget helps reclassification. With this reclassification managers of the company
can determine profit areas and work accordingly.
Disadvantages
 These budgets rely on production factors. Marwa Limited can make wrong decisions as
these factors are not in the hand of management.
 It can be hard to examine variable cost. This will create problem for company as all
expenses are not same.

TASK 5
Comparison of organizations
Financial problem- Financial Problem refers to a situation in which the organizations
face a lot of problems as well as difficulties (da Silva, Llewellyn and Anderson-Gough, 2017).
Thus a company like Marwa Limited can also face financial problems. The financial problems
which are faced by it are-
 Low production levels- The production levels of Marwa Limited has been affected a lot
in the last few years because the company has not been able to produce the goods at its
optimum capacity. Thus in this way the inventory of the organization is also being
impacted as a result which is creating further impact on its inventory management.
 Higher manufacturing costs- The overall manufacturing costs of Marwa Limited have
increased a lot which is creating additional burden on the company. Therefore in this way
it can be said that the increase in the manufacturing costs of the company is creating an
overall impact on the level of operations by increasing the expenditures and lowering
down the level of profitability.
There are different types of techniques which can be used in order to identify, assess and solve
these financial problems. Some of these techniques have been explained as follows-
 Benchmarking- It is a technique through which the different types of benchmarks and
standards can be set within a particular organization (Kruis, Speklé and Widener, 2016).
Thus by making its use the managers of Marwa Limited can make sure that they are able
to solve the financial problem of Low production levels because benchmarks and
standards can be set for production so that the production can be carried out accordingly
which will help in the attainment of the desired goals and objectives.
 Variance analysis- It is a technique through which the overall variances can be assessed
in the right manner (Mancini, 2016). By making the use of this particular method the
organizations like Marwa Limited can ensure that they are able to effectively assess the
variances in the manufacturing costs by comparing the actual manufacturing costs with
the set standards. Thus the variances in these particular costs can be removed by making
the use of this particular technique which will lead towards the attainment of the overall
goals and objectives without problems and issues.

Financial Governance- It refers to the way in which the collection, management,
monitoring and controlling of the financial information can be carried out within a particular
organization. Thus it is very important from the point of view of the organizations that they are
able to ensure that they can carry out regular assessment of the overall level of performance in
this manner. Also this can be helpful for them to identify whether financial problems are being
faced so that appropriate steps can be taken to resolve these particular problems.
Comparison of organizations
Basis Tesco Sainsbury's
Financial problem Tesco is facing a financial
problem of higher-level of
overall costs which are
creating an overall impact on
the level of operations of the
organizations.
Sainsbury's is facing a
financial problem of higher
inventory costs which are a
result of the inappropriate
handling of the different stock
items in the organization.
Management accounting
system used
The use of Cost accounting
system can be done in Tesco
so that the assessment of the
costs can be made and the
techniques can be used for the
right distribution of the costs
which will help in the
facilitation of the reduction in
these costs effectively and
efficiently.
The use of Inventory
management system can be
done in Sainsbury's so that the
assessment of the different
types of stock items in the
organizations can be made and
thus the overall efficiency and
effectiveness level in the
maintenance of the stock items
can be enhanced.
Application of the
Management accounting
system
Cost accounting system can be
applied within the
organizations by ensuring that
the overall costs are managed
in the right manner by
arranging them according to
Inventory management system
can be applied within the firms
by ensuring that the stock
items are properly managed
within the organizations
thereby helping in proper stock

the departments. management.
Thus, Learning from the examples of Tesco and Sainsbury's., it can be said that the
managers of Marwa Limited can use Management Accounting Systems to solve financial
problems. For solving the problem of production the use of Inventory management system can
be made and For solving the problem of manufacturing costs the use of Job costing system can
be made.
Comparison of organizations-
Basis-
Financial problem-
Tesco- Tesco is facing a financial problem of higher-level of overall costs which are creating an
overall impact on the level of operations of the organizations.
Sainsbury's- Sainsbury's is facing a financial problem of higher inventory costs which are a
result of the inappropriate handling of the different stock items in the organization.
Management accounting system used-
Tesco- The use of Cost accounting system can be done in Tesco so that the assessment of the
costs can be made and the techniques can be used for the right distribution of the costs which
will help in the facilitation of the reduction in these costs effectively and efficiently.
Sainsbury's- The use of Inventory management system can be done in Sainsbury's so that the
assessment of the different types of stock items in the organizations can be made and thus the
overall efficiency and effectiveness level in the maintenance of the stock items can be enhanced.
Application of the Management accounting system-
Tesco- Cost accounting system can be applied within the organizations by ensuring that the
overall costs are managed in the right manner by arranging them according to the departments.
Sainsbury's- Inventory management system can be applied within the firms by ensuring that the
stock items are properly managed within the organizations thereby helping in proper stock
management.
Therefore, it becomes quite important the managers of Marwa Limited are able to ensure
that the use of the following accounting tools are made for solving financial problems-
Inventory Management System- The use of Inventory Management System can be
made in Marwa Limited because it will be quite helpful in ensuring that the identification of the

stock level and the inwards and outwards movement of goods can be done so that the appropriate
actions are taken in order to solve this problem quite effectively and efficiently.
Job Costing System- The use of Job Costing System can be made in Marwa Limited
because it will be quite helpful in identifying the inflows and outflows of job orders and thus in
this manner this will help a lot in ensuring that the identification of the excessive job costs can be
made so that appropriate actions can be taken to reduce these costs.
CONCLUSION
From the above report, it can be concluded that Management accounting refers to a
technique of ensuring that analysis and interpretation of the financial information is done to take
the right decisions. Use of management accounting systems can be helpful in managing the
financial position. Management accounting reports can help in Analysis & Interpretation.
Marginal and Absorption Costing techniques can be used for ascertaining the income level.
Planning tools for Budgetary Control can be used for creating proper plans. The use of different
types of Management accounting systems can be made so that the resolution to the financial
problems can be found out.
REFERENCES
Books and Journals
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Kruis, A. M., Speklé, R. F. and Widener, S. K., 2016. The Levers of Control Framework: An
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