Management Accounting Report: Cost Analysis, Planning and Adaptation

This report provides a comprehensive overview of management accounting, encompassing its principles, methods, and practical applications. It begins with an explanation of management accounting and its essential requirements, followed by an exploration of different reporting methods. The report then delves into cost analysis techniques, including marginal and absorption costing, used to prepare income statements. Budgetary control and its planning tools are discussed, along with their advantages and disadvantages. Finally, the report examines how organizations adapt management accounting systems to address financial problems, providing a well-rounded understanding of the subject matter. The report includes practical examples and calculations to illustrate key concepts.

Management
Accounting

Table of Contents
.........................................................................................................................................................3
Introduction......................................................................................................................................3
Task1................................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems................................................................................................3
P2 Explain different methods used for management accounting reporting................................5
Task2................................................................................................................................................6
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................6
Task3..............................................................................................................................................10
P4 Explain the advantages and disadvantages of different type of planning tool used in
budgetary control......................................................................................................................10
Task4..............................................................................................................................................12
P5 Compare how organizations are adapting management.....................................................12
accounting systems to respond to financial problems..............................................................12
Conclusion.....................................................................................................................................14
REFERENCES..............................................................................................................................15

Introduction
Management accounting can be referred to as a collaborative process that includes
measuring, analyzing, interpretting as well as communicating information to the managers.It is
mainly concerned with accounting all the information that are done within the operations (Bui
and De Villiers, 2017.). They include a series of information in context of cost of products as
well as serivces purchased by the company are doing their business. This information is mainly
gained from the company's budget and undertake variance analysis.
Amazon, is one of the top multi national company that it's head office in Seattle. It is
engaged in e-commerce services in U.K as well as throughout the world. Along with this, it has
concentrated to cloud computing, digital sttreaming as well as Artificial Intelligence. This prject
covers diverse aspect of management accounting that includes detail understanding of it,
different method used in this, technique utilized in management accounting, detail understanding
of planning tools used . Along with this,it also includes a comparision analysis of how the
accounting is appropriate in providing financial problems.
Task1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems
Management accounting is a valuable tool that enables financial managers to make
decisions. It is utilizes by all the managers in making effective decisions (Chenhall and Moers,
2015). This is one of the effective tool used by number of companies in order fulfil their goals. It
is must for the company to understand the essential requirements that can be stated below:
Principles of Manangement Accounting
 Influence: Clear communication flow is vital for every Organizations. It is important for
the company do follow this in order to have a clear informatin regarding management

accounting. This strengthen the process of decision making and yield vital results. This
sound communication will minimize the number of issues that arises in Amazon and
further integrates diverse thought process. This is further fruitful for as the action taken
by one departmenrt impacts other departments and can easily be changed in the timely
manner.
 Relevant: It is comman phenomenen, that information is useful for one and all. It is just
that different information is required due to diverse requirements of diverse individuals as
well business in order to realize their aims (Cleary, 2015.). Management accounting is
fruitful in meeting diverse requirements in order to evakuate different methods in order to
take one of the most favourable decisions. This enables to get a easy access to different
requirements of requirement of each of their shareholders in order to get the most
relevant information in order to fulfil their purpose of existance.
 Value: Value is important for each and every Organization. Managemet accouting
enables the company to link the company's processes to it's different models. This is
beneficial for the company to well informated about the changes occuring in the external
environment.This enables the company to assess information and derive the best value in
order to enrich the journey's of their customers and make them feel highly valued.
 Creditablity: Creditablity is vital part of any Organization. It can be referred to as proper
investigation in order to make their decision making effective to meeting their objectives
(Collis and Hussey, 2017). This further aids in engaging the decision making that
maximizes the welfare of the share holder in the long term as it improves trust as well as
the realiblity. The Experienced managers that are engaged in management accounting
are known to be ethical, aware as well as aware of the company's principles as well as
inter personnal commitments. This is favourable for the company in improving
creditablity as well as reputation and in turn stregthen the various processes of the
company.
It is even vital for the company to understand different roles of managemet accounting.
Some of it's important role can be described in detail below:
 Planning: Management accounting plays a vital role in planning effeciently by providing
the necessary as well as the most accurate informations. The financial information is

provided through different statements that includes sales budgets, cost-price-volume
analysis and capital budgets.
 Increases Effeciency: The accounting enhances the effeciency to drastic level in doing
business operations. It does this by budgeting, ratio analysis, variance analysis and many
other critical analysis.
 Enhances Labour efficiency: The management accounting even is beneficial for the
labour efficiency (Drury, 2018). It undertake this, through standard costing by creating a
relation between bonus and productivity.
 Achievement in Management effeciency: The accounting is benefecial for increasing the
effeciency as well as effectiveness. This is done, as the managers are provided with
correct and the most authentic informations.
P2 Explain different methods used for management accounting reporting
Types of Management Accounting Reports:
Managment accounting mainly focussed of information gained through the aid of
financial accounting. There are different type of report s that is helpful for the managementin
planning, regulating as well as evaluating financial performance. These information are
generated with the aid of continuasly in generating accounting the requirement. Some of the
report can be mentioned below for more detail
Budget Reports: These reports are mainly critical for measuring the performance of the
company. While in some large Organizations, the different budget reports are generated
department wise(Kostyukova and et. al., 2018.). It is must for the company to detail reports for
present their schemes. The estimate of this budget is mainly made on the base of their previous
experiences. In order to make their budget valuable it is must for considering the unforseen
circumstances that may arise in the future. This can further guide the managers to offer various
employees incentives, cut cost as well as negotiate the terms with their suppliers and vendors.
Accouting Recievable Aging Reports: As Most of the firm realies of extending credit it is must
for them to prepare accounting recievable aging reports. This is useful for the company in order
to break down the balances into specified period and identify defaulters and address issues in
completing the collection process of the company. If there are large number of defaulters then
the company needs to strengthen their credit policy in order to maintain it's liquadity in order to
meet to enhance it's financial performance.

Cost Manegerial Accounting Reports: All the cost incurred are recording in this report. This
cost mainly includes cost of raw materials, overhead, labour or any other cost that are taken in
order to compute the total cost. The cost reports is responsible for providing the summary of this
informations. This enables the finance managers to realise their cost in comparing to the selling
prices. Profit margins is determined for this report as accurate facts are provided. Some more
elements are included as a part of cost that includes inventory waste, hourly labour cost and
overhead cost.
Performance Reports: These reports are created with the aim for reviewing the performance
each and every employee and in turn the performance of the entire company. Since, the company
is large so departmental report of each department are generated (Leotta, Rizza and Ruggeri,
2017). These reports enables the managers to make critical decisions about the future of the
Organizations. Employees are benefited for this as receives rewards highly based their
performance. Under performer are either penelized or some potential employees are supported in
order to show their true potentials.
Other Management accouting Reports: All the Other reports aren't categegorized under specific
heads and is includes under the head as Other Management accounting reports. These reports are
either generated internally or through more authentic or professionals. The best actions is mainly
depandant upon an individual as well as Organization's capablities to undertake a specific task.
This is further highly depandant on the creditablity as well as authenticity of the information
produced.
Task2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
It is important for the company to undertake the right method in order to
generating more profitablity than the previous year. The differest system are there to compute
cost and they are treated differentiately as per their behaviour. This is highly depandant on
information required by the management of Amanzon in order to derive it's cost and profitablity
analysis. In order to calculate marginal as well as absorption costing it is critical for the
understand the distinction between the two: This can be detailed below:

Marginal Costing: Marginal cost is the cost that is used for producing additional output. It is
beneficial for short term decision making. It is classified as fixed or semi-variable. It doesn't
consider the fixed period cost like rent (Makrygiannakis and Jack, 2016). It is mainly
concentrated on variable product cost that includes direct material, direct labour as well as direct
overhead. Thus, the costing enables the manager to derive the contribution per unit to determine
profitablity.
Absorption Costing: The costing has be understand by it's name itself and absorps cost among
it's cost units.(Malina, ed., 2017.) The cost mainly includes direct material, direct and production
cost. Through, this costing the more number of units are produced, the more cheaper will be the
cost.

2 a
1. Identify which costs are fixed and which costs are variable.
Fixed costs:
Activity Amount
Manager’s Salary 5000
Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000
£12000

Variable cost:
Activity Amount
Direct material costs per Pizza 3.50
Direct labor costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£5.50
3. What would be the Margin of Safety if the organization managed to sell 2500 Pizzas?
Margin of safety= Sales units-BEP in Units
= 2500-3000
= -500 Units
4. If the manager’s salary is increased to £6,000, how will this affect the BEP in units and in
sales value?

If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New BEP (In units): 13000/4
3250 Units
New BEP (In revenues): 13000/42.10%
= £30878
2 b Preparation of graph:
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed Cost 12000
BEP point 28503

Task3
P4 Explain the advantages and disadvantages of different type of planning tool used in budgetary
control.
Budgetary control, is mainly used for taking approprite controling measures in order to
compute cost. This is done by preparing number of budgets in order to ensure proper co-
ordination among various department (Manyaeva, Piskunov and Fomin, 2016.). This will enable
the company to compare their actual performance with that of set standards. Thereby, indulging
in constant improvement and maximizing the profitablity. Some of the main planning tools can
be mentioned below for it's better understanding:
 Cash Budget: This budget can simply be referred to as forcast of reciepts and payment.
This enables to compare the actual cash with that of budgeted cash.
Advantages: Cash budget enables the company to settle debt as and when occurred. This is
further beneficial for the company for being pro-active and setting aside cash for emergency
situations. The budget helps in identifying the issue occur in order to address the issues in order
to enhance it for better results.
Disadvantages: One of the main disadvantages of this document is that, the company needs to
create and maintain a number of documents in order to protect their valuable and hard earned
cash. Another limitation of cash is a the society is moving towards cashless society. This
includes payment through debit card, credit card, paytm, phonepe, etc.
 Sales Budget: The sales budget consist of the information of the sales with respect to
particular year. It is calculated by budgetted unit sales and it's selling price.
Advantages: It is a vital planning tool that acts as a guide as it provides target in order to set
expection in order to perform as per capality required. As, the employees are aware of the
maximum limit they can incur in order to achieve the desired results.
Disadvantages: This is very complex process as it requires a lot and time in order prepare the
fullinformation of the sales incurred in a particular year. This budget is mainly based on
assumption and predictions made by the management and it is quite unpredictable.

 Capital Expenditure Budget: This type of budget concentrate it's efforts on the tangible
assets that includes new plant, land and machinery, etc. This assets can be primarily be
acquirred by borrowing significant amount of debt.
Advatages: This enables the company to have a detailed understanding of all the different type
of risk involved in investing in a particular asset and compares it's the expect returned it can
generate (.Saukkonen, Laine and Suomala, 2018). This can be done by the management of the
company to evaluate the different project
they are offered and choose the best project which consist on the minimum risk that maximized
the return.
Disadvantages: These type of decisions are are long term and cannot be reverse once taken.
Most the decision make are mere;y based on assumptions as the future is quite un predicable.
 Operational Budget: These budget can primarily be referred to as budget that consist of
income and expenses that are done a daily basis. It is mainly divided into two types that is
revenue budget that states that the company wishes to generate. Expense budget is it's
another type and it states the expenses they have to incur in order to fulfil their defined
purpose.
Advantages: One of the main advatage of operational budget is that, it is beneficial for
managing the current expenses. It isn't possible for the management to reduce these expenses as
it is mandatory in order to do daily activities. These expenses inclues Fixed overhead costs that
consist of rent and salary of their staffs.
Disadvantages: One of the main demerit of the operational budget is that as the financial
information keeps changing from month to month. If the budget isn't flexible enough to update
their figured then it might lead to inaccurate results.
Task4
P5 Compare how organizations are adapting management
accounting systems to respond to financial problems.
In these modern times, business has evolved itself with the changing technology.
Information is considered one of the most critical tool to measure financial performances (Tan,
2019). The various financial problems that arises in the business is identified due to performance
indicators identfied by management accounting. This has enabled the management to utilize

various techniques in order to get standard for both financial as well as non-financial indicators.
It is important for Amazon, to consider a list of financial indicators in order to measure
performance that is vital for their long term success. Some of indicators can be detailed below:
Liquidity ratio: It statement the actual cash the company has with them. This is must for the
management to have a more cash in hand and strengthen their short term position (Möller,
Schäffer, and Verbeeten, 2020.). It is further divided into current and quick assets. Current ratio
states the abilites of firm to pay their current liablities and should have access of asset for being
in a favourable position. While quick ratio excluded inventory and determine cash they have in
their hand.
Solvency ratio: This ratio is considered while calculating long term positions. The ratio mainly
utilized for calculating this is working capital ratio and indicating the solvency position in order
to do it's daily operations. One more ratio utilized for this, is debt to equity ratio that indication
the amount the debt in comparing to the equity. The lower the ratio, the more better it is for the
company.
Profitablity ratio: The ratio is not that important in these modern times. Still, it is a necessary
requisite for the Organization to enhance their profitabliity as it is must for them to sustain their
position in long term (Oboh and Ajibolade, 2017). Some of the main ratio used for by many
Organizations includes return of equity, net proft ratio, operating profit and return on assets. As,
the company is involved in e-commerce business it is vital for the company gross profit margin
in order to assess the current health of the person. This ratio enables the management to regularly
monitor their performance in order to undertake corrective action in order to constantly improve
their profit margins.
Revenue ratio: This ratio enables the firm to identify the amount of sales remains for the
shareholder after all the cost as well as expenses have been realized (Quattrone, 2016). This ratio
is calculated by utilizing the formula net profit to net sales. The greater the ratio, the greater will
be profitabliity to the firm. For calculating this sales and more important sales growth is one of
the important indicator considered.
In addition to the financial indicators described above, it is important for the management
of the company to consider non- financial indicators as it has a direct impact of the company's
finances. Some of the main non- financial indicators can be stated below in detail:

Human resource: It is must for the H.R department to undertake appropriate measures to manage
their employees. This is because, employees are an assets for the company and provides a
valuable contribution in order to enhance their performance in order to realize the objectives
defined by Amazon.
Product and Service Quality: In today's modern time, this is one of the vital aspects looked by
customers. As, the company highly focusses on service aspect so they should that their enhances
the satisfaction of most of their customers (Pavlatos and Kostakis, 2015.). This is important, as
this elements has direct impact on their sustainablity aspects and determines their long term
surivival.
Brand awareness: It is vital for all the Organization to be aware of the brand position. This is
done, in order to spread the awareness of their brand among large number of people. This is vital
for the management for their future development in order enhance loyalty and trust of their
valuable customers.
Conclusion
This can be concluded from the above mentioned report, that it is most for the
management of Amazon, have a thorough understanding of Management accounting in order to
incorporate it for improving the performance of their business. For understanding it, the
management must understanding it's core principles and it's role that has been detailed above. It
addition to this, the management must know the detailed comparisions of marginal and
absorbtion costing in order undertake a thorough understanding of practical described above. The
company also needs to understand and incorporate the most important planning tool that is most
beneficial for them in order to address the various financial problem to enhance it's profitablity in
long term.

REFERENCES
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