Management Accounting Report: Connect Catering Case Study Analysis

This report delves into the core principles of management accounting, exploring its role in decision-making, performance management, and strategic planning. It examines various management accounting systems, including cost accounting and inventory management, and their essential requirements. The report analyzes different methods used for management accounting reporting, such as inventory management reports and budget reports. Furthermore, it includes a detailed cost analysis, preparing income statements using marginal and absorption costing techniques. The report also evaluates the advantages and disadvantages of planning tools used for budgetary control. Finally, it assesses how organizations adapt their management accounting systems to address financial challenges, using Connect Catering as a case study to illustrate these concepts.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
P.1. Explain management accounting and give the essential requirements of different types of
management accounting system? ...............................................................................................3
P.2. Explain different methods used for management accounting reporting?............................4
P.3. Calculate cost using appropriate techniques of cost analysis to prepare an income
statement using marginal & absorption costing?........................................................................5
P.4. Explain the advantage and disadvantage of different types of planning tools used for
Budgetary control?......................................................................................................................9
P.5. Compare how organisations are adapting management accounting system to respond to
financial problems?...................................................................................................................10
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a type of profession which involves partnering in different
activities in management like decision making, performance management, devising planning,
and tends to control assist management in formulation & implementation of various organisation
strategy. The company which is selected in this project is connect catering. Connect is family
owned & operated company which was founded by John herring I the year 1989. Connect
employ around 500 staff members who are well trained and highly motivated as well as having
great experience in delivering excellent services related to catering. In it each dish is made by
using raw ingredient and tends to create balanced nutritious meals which are so delicious & tasty.
There are various topics which are included in this project are definition of management
accounting and explain different type of management accounting system along with their
essential requirements. Different methods used for management accounting reporting. Calculate
cost with the help of appropriate techniques to prepare an income statement by using absorption
and marginal costing, the report also include topic related to advantage & disadvantage of
planning tools that are used for budgetary control. To respond financial issues, compare how
company use management accounting system.
MAIN BODY
P.1. Explain management accounting and give the essential requirements of different types of
management accounting system?
Management Accounting: It is the process of providing financial information as well as
financial resources to the top management so that it become possible for them to do effective
decision making which help organisation to achieve goals and targets. In this various financial
reports such as vouchers, invoices, bank statements, balance sheet, P&L , cash flow statement
etc. are shared by finance department with management team so that they also understand the
actual financial position of the company and on the basis of that planning for investment is done.
The another name of management accounting is cost accounting but it is totally different from
financial accounting.

Definition of systems of Management Accounting: These are internal based
confidential report which supports management team or to managers to perform effective
decision making.
Different examples of various type of management accounting system.
 Cost accounting system- As this system is adopt by organisation to make estimation
regarding their product value with regards to analysis of profitability, cost control, for
valuation of inventory etc. Accurate estimation for cost to product is so important to
company mostly when it is need to ascertain profit. With the help of this system semi
finished product cost, raw material cost as well as cost of finished product can easily be
estimated. These respective costing help smart managers or top management to prepare
financial statements or Budget. The essential requirement of this system in connect
catering is to ascertain the cost as well as to do allocation in appropriate and effective
manner.
Advantages
1. It helps to eliminate abnormal losses as well as normal losses, inefficiencies, waste etc. It
also help managers or cost accountant to identify the reason of profit or loss.
2. It also supports to ascertain cost and do cost control to that the ratio of profit margin is
tends to increase which leads to business growth and survival.
Disadvantages
1. As cost data are not highly useful; because in this data of past are recorded and it is not
necessary that same cost is incurred to manufacture in the upcoming years so it is
difficult to calculate cost for future.
2. On full utilisation capacity it is to be ascertain , the cost is not accurate if capacity utilises
by company is partly.
 Inventory management- It is a system which is totally based to computer as with the
help of it inventory, sales, deliveries and orders can be track easily. Many company in
food and hospitality industry adopt this system to solve the problem of over or under
stocking in stores. For inventory management purpose connect catering use HIFO method
to clear stock. It also add value to the company to maintain stock as per requirement. The
need of this system in connect catering is that it helps to avoid problems of obsolence. If
inventory is over than it tends to create difficulty to manage and to place such extra stock.

It leads to increase expenses related to carrying cost which indirectly makes negative
impact on profitability of connect catering so their requirement is must in business to
eliminate unnecessary expenses
Advantages
1. It helps the purchase department to do planning and perform forcasting regarding the
need of inventory in the next month. It helps to avoid the problem of under stocking as
well as over stocking.
2. It also help to save the time also. Because if sufficient stock are available than customers
not to wait for the product.
Disadvantages
1. It is tends to develop threat of obsolence and also it is attracts heavy carrying and
ordering cost which tends to increase the expenses of the company.
2. It is time consuming because it takes lots of time to control and manage stock properly.
 Prise optimisation- It is the practice of using data from consumers as well as from
market so that markets can easily find effective price point for services or product which
will tends to maximise profitability and sales. Its is the price where organisation best
meet their goals, whether it means to increase customer growth or profit margin. This
technique is required in connect catering to determine how customer respond to different
prices of food items and services. As it is require to add value to company and also to
analyse that whether customers expectations satisfy or not. The organisation connect
catering use this system because it help executives to set most suitable prices for their
product & services to serve the purpose of selling the product to customers. It also help to
identify that cost which is fixed for services or items are capable to satisfy clients
expectations or not. Due to this reason it is essentially needed in any type of organisation
Advantages
1. Immediate financial benefits are easily get with the help of using this system in the
organisation.
2. Price optimisation system if used in the organisation than it help executives of company
to make decisions quickly which indirectly help to save time.

Disadvantages
1. Usability and complexity is the major drawback of this system.
2. Crawling and overlapping of prices with competitors offerings are also great
disadvantage.
P.2. Explain different methods used for management accounting reporting?
Management Accounting reporting: It is a process where various reports are generate to
management accounting that includes performance related information. To generate these type of
information various methods used by connect catering company so they can achieve easily true
information.
Few examples of management accounting reporting are explain in below mention bullet
points as these are as follows-
 Inventory management report- the main reason behind preparation of this report is to
maintain inventory record by connect catering. It is important as well as beneficial for
organisation to time to time check inventory status whether it exist in warehouse or
delivered to customer.
 Performance report- It is valuable tool to business because it provides an overview ,
how the business is perform. In this report business operation performance is to be
recorded. Connect catering managers prepare this report so that employees performance
can easily be evaluated and according to that rewards are given by employer to their
employees for their efforts which they put achieve target effectively and efficiently.
Many smart strategies are formulate by company with support of this performance report.
price optimisation system use by connect catering to fix reasonable prices for the dishes they
serve so that large number of people try their food and they capture large market.
 Accounts receivable reports- It is an aging report which shows balance of unpaid
invoice along with mentioning time period for it tends to belong and have been
outstanding. To identify average receivables age and to identify losses from clients ,
connect catering prepare such report regularly. As it tends to allow them to collect money
in exchange of bills.

 Budget report-Connect catering manager use this report to perform comparison actual
performance with standard ones. This budget report helps organisation to determine
whether it is possible for them to meet the projections which were made by them
previously.
As the company connect catering use performance report so that they can easily analyse the
performance of employees by doing comparison between actual to standard one. And the if any
deviation is there then the reason behind it can easily be find out. Thus to serve the purpose
various smart strategies are prepare by company.
P.3. Calculate cost using appropriate techniques of cost analysis to prepare an income statement
using marginal & absorption costing?
Fixed cost: Cost which does not affect in relation to volume of production. example rent,
depreciation, advertising, insurance etc.
Variable cost: It is such type of cost which make favourable impact as due to increase in
the product volume cost of product can also tends to be increase and vice versa. For ex direct
material, direct labour.
Semi variable cost: It is a combination of both fixed as well as variable cost. It tends to
remain constant up to certain level and after that varies. Telephone charges are the example of
such type of cost.
Marginal costing: In this total cost is tends to be effected if one additional unit is tends to
be manufactured. The formula of marginal cost is change in cost divided by change in quantity
Absorption Costing: It refers to a method of costing to account for all the costs of
manufacturing. to absorb the costs incurred on a product, management adopt this method. The
costs include indirect costs as well as direct cost . materials, labour which is used in production
are part of direct cost.

Connect Catering Services
Table 1.1 Accounting figures for cakes
Cakes April May
Units Produced 2500 3000
Units Sold 2000 2000
Opening Stock Nil 500
Closing Stock 500 1000
Selling Price per Unit £8 £8
Variable Manufacturing cost per unit £4 £4
Fixed Non ManufacturingNon-Manufacturing
Cost
£4000 £4000
Fixed Manufacturing Overhead £15,000 £15,000
Connect Catering Servicesare looking to expand their markets to the retail sector and are looking to
sell a range of vegetarian/vegan/non-vegetarian home-made pizzas to superstores. They have the
following cost information.
Direct material costs per Pizza: £3.50
Direct labour costs per Pizza: £1.50
Direct overhead costs per Pizza: £0.50
Other Expenses:
Manager’s Salary: £5,000
Rent: £5,000
Insurance: £500
Advertising: £1,000
Utilities: £500
Initially, they are not too sure of the market and hence want to only sell 9’ Pizza at £9.50 per Pizza.

SOLUTION-