Management Accounting Report: Creams Ltd. Analysis and Solutions

This report provides a comprehensive analysis of management accounting principles and practices, focusing on their application within Creams Ltd., a company specializing in ice-creams, doughnuts, and waffles. The report explores various systems of management accounting, including cost accounting, inventory management, job costing, and price optimization, detailing their essential requirements and benefits. It examines different methods for management accounting reports, such as budget reports, accounts receivable aging reports, sales reports, and performance reports, highlighting their significance in interpreting and analyzing company performance. Furthermore, the report delves into cost calculation techniques, including marginal costing and absorption costing, and evaluates the merits and demerits of planning tools. The report also compares how organizations utilize management accounting data to address financial problems and evaluates the planning tools for solving financial problems. Through this analysis, the report offers valuable insights into the effective use of management accounting for informed decision-making and sustainable business success.

Management
Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Systems of management accounting......................................................................................3
M1: Benefits of systems of management accounting..................................................................4
P2: Methods for reports of management accounting...................................................................4
M2: Application of techniques of management accounting........................................................5
D1: Critical evaluation of systems of management accounting...................................................6
TASK 2............................................................................................................................................6
P3: Cost calculation with use of techniques.................................................................................6
M2: Application of management accounting techniques...........................................................11
D2: Producing of financial reports.............................................................................................11
TASK 3..........................................................................................................................................11
P4: Merits and Demerits of planning tools................................................................................11
M3: Analysis tools’ usage..........................................................................................................13
TASK 4..........................................................................................................................................13
P5: Comparison between organizations.....................................................................................13
M4: Analysis of use of management accounting by organizations............................................15
D3: Evaluation of planning tools for solving financial problems..............................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting refers to using financial data, facts, figures and information for
analysis and interpretation of financial statements of a company by the management
(Aggelopoulos and Georgopoulos, 2017). It helps managers a lot in getting deep insights into the
business and taking the required decisions for its benefit in the long-run. If the managers use this
data efficiently and effectively then it can benefit the organization a lot in the long-run. Properly
applying its strategies and techniques can lead a firm towards sustainable success in the future
and it can easily get ahead of the competition in the market. This report is based on Creams Ltd.,
a company which specializes in selling ice-creams, doughnuts and waffles. This project will
focus on systems of management accounting, applying a range of its techniques, explaining the
tools used for planning. Additionally, detailed analysis will be done on comparison of ways in
which organizations can use its data to respond to financial problems.
TASK 1
P1: Systems of management accounting
The use of various techniques for financial data and information for getting useful
insights about the business of company is known as management accounting. Creams Ltd.’s
managers can use it so that they can easily interpret their financial information.
There are different types of systems in management accounting which are explained as
follows-
Cost accounting system- It refers to a framework which is used by the firms in order to
find out details about their costs and use different techniques for reduction of cost. Creams Ltd.
can make use of this system so that it can identify its costs, excessive overheads and try to reduce
them so that its profits can be maximized.
Essential requirements- A good cost accounting system must be simple and practical to
use. It must help in identifying and segregating the costs in a company according to its various
products. It must display the required accuracy for getting the desired results in the context of the
organization. Thus, overall it must be able to provide managers the required information relevant
to them.
Inventory management system- It is a framework which can be utilized by
organizations by applying its various approaches such as LIFO, FIFO and Weighted Average
Cost to control, manage and track the inventory level in the organization (Alfian, 2017). Creams
Ltd. can make use of this system so that proper tracking of its stock level is done.

Essential requirements- A good inventory management system should track stock level
of the organization and should manage it effectively and efficiently. Also, it should be able to
effectively review the requirements of the firm.
Job costing system- It is a highly useful management accounting system for the
manufacturing firms (Bentley, 2018). As Creams Ltd. manufactures ice-creams, doughnuts and
waffles it can use this system effectively and efficiently so that orders can be properly managed
so that mismanagement does not occurs in the operations of company.
Essential requirements- A good system must be able to segregate the orders and
manage them according to their date of completion. Also it must be able to track the progress of
orders and the cost incurred in completing them. This will help in reducing the extra costs
incurred in completing orders and maximization of profits.
Price optimization system- It is useful when the company has to select a pricing strategy
relevant to the product. Creams Ltd. can utilize it to set price according to demand levels in the
market which can help it in setting of right price so that maximum profit can be earned from the
product. It is useful in changing strategies according to dynamic situations in the market.
Essential requirements- A good price optimization system should help in dealing with
the trends in the market. Also it must be able to adjust the price according to changes in market
so that it benefits the company the most in such a scenario.
M1: Benefits of systems of management accounting
Advantages are offered by management accounting systems to Creams Ltd. Cost
accounting system helps it in finding and avoiding the extra costs. Inventory management system
helps in tracking the stock levels, Job costing system helps in managing the orders. Price
optimization system helps in setting an appropriate price according to conditions in the market.
Thus it is up to the management of the company to use these systems effectively and efficiently
so as to bring the required smoothness in the operations and functioning of the firm. All these
systems can be applied within the organizational context which will lead to smooth functioning
of the processes of the organization.
P2: Methods for reports of management accounting
Creams Ltd. can use reports of managerial accounting so as to interpret and analyze the
overall performance in the company. It is to check whether it is up to the mark or not. The
methods which it can use are as follows-
Budget Reports- They help the small businesses in setting and managing the budgets for
monitoring and controlling the performance of their business (Curry, 2020). It can be used for
comparison purposes so that performance of current year with the previous year and to compare

performance with the established standards of the industry. This helps in finding out deviations
and variations so that they can be rectified quickly for optimizing the performance of the
company in the short-run as well as the long-run. Creams Ltd. can use it to check and monitor its
performance.
Accounts Receivable Aging Reports- Accounts receivables aging reports are used by
companies to check their cash flow from their debtors (Eisenberg, 2017). Managers of Creams
Ltd. can use these reports to check the cash flow, credit policy and identify those debtors whose
debts are due since a long time. It also helps the organization in making a list of receivables
according to their due date of payment. Also, potential bad debts can be easily identified by the
management so that a provision can be created for them for the future.
Sales Reports- Sales reports can be used by managers to monitor the level of sales in the
company (Su and et.al., 2016). Management of Creams Ltd. can use them for comparison and
analysis purpose to see whether there has been an increase or decrease in sales compared to the
previous year. This helps in comparing the own sales of organization with that of the
competitors. If the sales revenue has decreased and deviations and variations are found in sales
then the reasons for the same can be identified so that quick rectifying actions are taken to
increase the revenue. Forecasting of sales for the next year can be done using them which
enhances the company to set up relevant standards for the sales department to achieve the targets
of performance.
Performance Reports- Performance reports can be used by managers to analyze the
overall performance of operations in a business enterprise (Gao, Gao and Wang, 2017). The
managers of Creams Ltd. can use these reports to check, control and monitor the performance of
different departments of the enterprise such as production, marketing, finance, HR etc. Standards
and metrics need to be used for measurement so that comparison is done effectively and
efficiently relevant to the context of the organization’s business operations and mode of
functioning. This helps in preparing an overall report on the working of an organization during a
specific time period which is mostly a year. The performance can thereby be monitored and
compared with that of the other competitors so as to see whether the firm is ahead of them or
behind them. Suitable action can then be taken on the basis of findings.
Thus, Management accounting reporting is all about preparation of various reports so that
analysis and interpretation can be performed within an organization. The reasons why they are
produced and used by businesses is that they help in raising the overall efficiency and
effectiveness of processes and also allows for making specific strategies within the context of an
organization.
M2: Application of techniques of management accounting
They can be used by management of Creams Ltd. effectively and efficiently to get the
best performance out of the employees and optimizing the processes. Also, a lot of help is

provided to the managers in analysis and decision-making. Right decisions can be taken by the
mangers of the organization if they use these techniques appropriately. This leads to their overall
effectiveness and the company can touch new heights of success in the future leaving behind its
various competitors and maximizing its profits.
D1: Critical evaluation of systems of management accounting
The systems of managerial accounting can be used effectively and efficiently by
managers of Creams Ltd. They can do so by properly integrating these systems into various
organizational processes which helps not just in monitoring the performance of employees and
workers in these processes but also enhances the improvements that need to be done for bringing
more efficiency in the overall system of enterprise. Thus they help the mangers in taking the
right decisions at the appropriate time.
TASK 2
P3: Cost calculation with use of techniques
There are different types of costs which are prevalent in the context of an organization
(Huang, 2016). The detailed explanation of these costs in relation with Creams Ltd. is provided
as follows-
Fixed costs- These are constant costs which do not change at all even after a change in
the level of output in the company. In Creams Ltd. examples of these costs are rent, fixed
manufacturing costs etc. Change in the level of production in the company does not have an
impact on them.
Semi-variable costs- These are costs in which certain element is fixed while other is
variable in nature (Seppänen, 2016). In Creams Ltd. examples of these costs are repairs, monthly
telephone bills, and indirect labor costs. They are impacted by a change in the level of production
of goods in the company.
Variable costs- These costs are the ones in which can impact the level of output (Jamal,
Tayles and Grant, 2019). In Creams Ltd. examples of these costs are office expenses, variable
manufacturing costs, electricity bill etc. Change in the level of production impacts these costs.
Techniques used for calculation of costs-
Marginal costing-
It is a technique in which calculation of break-even point is faciliated. Creams Ltd. makes
use of this technique.

Advantages-
 The effects of production and sales policy and can be effectively implemented in this
technique.
 It eliminates the large balances which are left in the overhead accounts thus resulting in
more efficiency in costing operations of the company.
Disadvantages-
 It understates various elements of business which can provide misleading results and
underestimation of financial conclusions derived using this technique of calculation of
costs.
 Fixed overhead application is dependent on actual data and not on the estimates as
provided in the marginal costing approach. Thus it may result either in under-absorption
or the over-absorption of the overheads of the company which can impact the profits.
Absorption costing-
It is an approach of calculation of costs which helps firms by determining costs (Kramer,
Maas and Van Rinsum, 2016). It is a technique which helps in absorption of various
overheads of the organization. It also accounts for overheads which is something that the
marginal costing technique does not take into consideration.
Advantages-
 It is simple to use and inexpensive to apply to the operations and functions of the
company.
 There is no need to separate the fixed and variable costs in this technique as it is required
in marginal costing. This leads to accuracy in calculations and final results which can be
sued for analysis and interpretation of performance.
Disadvantages-
 Fixed costs are period costs and whether related with manufacturing or selling or
administration produce no future benefits and thus must not be included in the cost of the
product or inventory.

 Apportionment of overhead costs in absorption costing technique is done using arbitrary
methods and thus this sometimes produces inaccurate results.

M2: Application of management accounting techniques
The management accounting techniques of marginal and absorption costing can be used
effectively and efficiently by the managers of Creams Ltd. so that results can be obtained by
their application. The use of these techniques not only helps in finding out profits but also helps
in finding out ways to reduce the extra costs being incurred so that profits can be maximized and
goals and objectives of company can be realized. Thus they are analytical and interpretative in
nature which enhances the abilities and competencies of managers in finding out rational
solutions to the problems incurred.
D2: Producing of financial reports
Financial reports can be prepared on the basis of analysis and interpretation of data
provided in the financial statements and other accounts of the company. Managers of Creams
Ltd. can use these reports for checking the accuracy of calculations. Also these reports are
important in the context of business to draw conclusions and recommendations on the basis of
insights and information provided by them. This helps in development of competencies in a firm
which is always ready to improve in a dynamic business environment which will ensure that it
attains sustainable success in the future.
TASK 3
P4: Merits and Demerits of planning tools
Different types of planning tools can be used by the management of the organizations to
plan, cooperate and coordinate effectively for the future (Machete, F. and et.al., 2016). Various
goals and objectives can be set by the companies for the future which they need to achieve for
sustainable growth. Creams Ltd. uses the following tools explained as follows-
Cash budget-
It is used by organizations in order to forecast their cash revenues and expenditures
during a particular period of time (Ng, 2018). It can be used by managers of Creams Ltd. to
manage their cash operations.
Advantages-
 Cash budget can be used to limit the spending of cash on non-essential items in the
organization. This helps in preventing overspending.
 Cash budget helps in properly maintaing the cash and other cash equivalents thus
resulting in maintaining of liquidity position of the firm.
Disadvantages-

 Cash budget leads to rigidity in cash operations of the company which can reduce its
financial flexibility.
 If prepared inaccurately a cash budget can be harmful for the prospects of the company
both in the short-run and the long-run because of the wrong analysis and interpretation.
Operating budget-
Operating budget refers to an estimation of operating revenues and expenses of a firm
over a certain time period (O'Leary, 2017). Creams Ltd. can use it to raise its operational
efficiency and effectiveness which will lead to increase in its profits.
Advantages-
 Operating budget helps firms a lot in planning for their operational needs both for the
short-term as well as the long-term.
 Operating budget helps the organizations in building flexibility in their operations by
setting aside a certain amount for operational expenses.
Disadvantages-
 Framing of an operational budget can lead to certain complications and problems in the
firm.
 Accuracy of information is a challenge as if wrong information is provided it will give
incorrect conclusions and recommendations. Applying these incorrect conclusions and
recommendations can lead to a decrease in the profits of the company.
Master budget-
Master budget is an overall and comprehensive budget covering all the details regarding
the operations and functioning of a company (Master budget, 2019). Managers of Creams
Ltd. can use it to determine the overall surplus or deficit. It also helps in forecasting and
analysis and interpretation.
Advantages-