Management Accounting: Unit Cost, Variance and Budgeting Analysis

This comprehensive report delves into various aspects of management accounting, analyzing unit costs through marginal and absorption costing methods, and assessing their impact on profit calculations. It examines variance analysis, including material price and usage, labor rate and efficiency variances, and break-even point (BEP) analysis to evaluate a company's financial performance. The report further explores management accounting planning tools, such as financial planning, budgetary control, and variance analysis, alongside their advantages and disadvantages. It highlights the importance of responsibility centers and their role in budgetary control. The report then discusses the adaptation of management accounting systems, emphasizing their contribution to strategic decision-making and competitive advantage. The case study of Dairy Crest Limited is used throughout to illustrate these concepts, providing insights into how these tools can be used for forecasting, budgeting, and overall financial management. The report also includes an assignment submission form and a table of contents for clarity.

Running Head: MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
Name of the Student
Name of the University
Author Note

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Table of Contents
Task 2.........................................................................................................................................2
Task 3.........................................................................................................................................4
Reference..................................................................................................................................12

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Task 2
2.0 Analysis of the Unit Costs
Marginal cost is the cost that are added with the help of producing one additional unit
of the product or the services. It helps in determining the point at which the organization will
be able for achieving economies of scale. Moreover, absorption costs helps in indicating that
all the manufacturing costs is being assigned to the units produced. It is the managerial
accounting method, which accounts for fixed and variable overhead costs for producing the
particular products. The unit cost that is calculated by the marginal cost method is 144 and by
the absorption costs is £154. Moreover, the actual costs that is calculated is £155.11.
It means that if the company considers marginal costing, then the unit costs is £144
and in case if the company considers absorption costing method, then the unit costs is that is
higher that is £154. Hence, it is advisable for using absorption costing because under this,
after considering fixed and variable cost, the standard unit costs is £154 as the actual cost is
£155.11 (Banerjee 2014).
Analysis of the Profits
The profit that is calculated by using the marginal costing method of Dairy Crest
Limited is £18 and the profit that is calculated from the absorption costing is £24.800. Hence,
absorption method should be considered for the calculation of the profit and loss account, it is
because it considers both the fixed as well as variable costs overhead as compare with that of
marginal cost, where only variable costs are considered. Moreover, absorption method is used
always for the preparation of the financial accounts as this method is accepted by the Inland
Revenue and under this stocks are not undervalued.

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The difference between the two methods is £6000 that is because of the increase in
the stock’s value. Hence, absorption method should be considered because it is giving more
profit as compare to marginal costs (Banerjee 2014).
2.1 Application of the Management Accounting Techniques: Variances and BEP
Analysis of the Variance
The material price variance calculated is 18,000. The material usage variance is
129,600. Moreover, the labor rate variance is 24,750 and lastly, the efficiency variance is
126,000. Hence, the material price variance is favorable that is good, however, it be because
of uses of labor that are unskilled, increases in the material usage because of the depreciation
of the plant and equipment. Hence, it needs to be checked the reasons of actual favorableness.
Further, the material usage variance is favorable, however, favorable material usage may be
because of purchasing of the materials of the lower quality that of the standard set. Hence, the
actual reasons of the favorableness of materials usage needs to be checked. Moreover, the
labor rate variance is adverse that means that the rate of variances is high for the production
that is the issue and it needs to be checked for the reasons of variances. Lastly, the efficiency
variance is favorable that means that the efficiency of the labor that is utilized during the
period is favorable (Kaplan and Atkinson 2015).
Analysis of BEP
The Break-even quantity in quantity terms is 2858 units. Moreover, Break-even point
in terms of value is 571,428. The actual unit produced is 4800 units that is more than the
break-even units that is favorable for the company. Moreover, the break-even point in value
is 571,428 and the actual revenue of the company is 960,000 that is higher than the break-
even point. Hence, the company is producing the units and earning the revenue that are
higher than the break-even point (Lakmal 2014).

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Task 3
3.0 Management Accounting Planning Tools
Following are the important Management accounting planning tools that are used by the
organization:
 Financial Planning
 Financial Statements Analysis
 Cost Accounting
 Fund Flow Analysis
 Cash Flow Analysis
 Standard Costing
 Marginal Costing
 Budgetary Control
 Revaluation Accounting
 Decision Making Accounting
 Management Information System
 Statistical Techniques
 Management Reporting
 Historical Cost Accounting
 Ratio Analysis
Budgetary Control
Budget is defined as the estimating the expenses and revenue over the specified time-
period for future that are compiled as well as re-evaluated on the periodic basis. Moreover,
management control is the system under which actual income and the spending are compared
with planned spending and income. Under this, the managers sets out the financial as well as

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performance goals with that of the budgets and comparing the actual results and then
adjusting the performance as and when it is needed. There are different types of budgets such
as capital budget, operational budget, financial budget and so on (Otley 2016).
Advantages of the budgets as the tool of budgetary control
 Budget that are prepared by the business organization helps in projecting the annual
expenses as well as it helps in knowing the costs as when they occur. Budget helps in
forecasting the annual bottom line by the help of more than one scenario of revenue.
 Budgeting helps in projecting the manufacturing as well as overhead costs for setting
out the prices such as rent, wages, marketing, utility, debt services and the other costs
for learning about the cost for per unit for making the products or for delivering the
services. The prices are set for making the profit (Pasachoff 2015).
 The next advantage of the budgets is the feature of flexibility. It is because throughout
the year, the budget helps in tracking down the performance of the business and it
allows for making the necessary changes for reducing the cost and taking the
advantages of the growth opportunities.
 It helps in promoting the centralized control by the decentralized task. It assists in
smooth running of the business organization it is because things are planned and
provided in advance (Pasachoff 2015).
Disadvantages of the budgets as a tool for budgetary control
 Incorporation of the huge expenditure may not be afforded by the small businesses
concern. The budgets are generally organized for the upcoming period of time that are
not defined.

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 The future are uncertain and it cannot be predicted in advance. Therefore, any
changes in the circumstances will affect budgets. Hence, the risks of the future is
minimized by using the system of budgetary control.
 The success of the budget control depends upon the top management’s support.
Hence, if there is lack of the support of the top management, the budget will fail
(Otley 2016).
Advantages of the variance analysis as a tool for budgetary control
 It is having competitive advantages for helping the organization for proactively
achieving the business targets and it identifies and mitigates if there is any potential
risks that builds eventually the trust in the team members.
 It identifies if there is any changes required in the business strategy by making
comparison between budgets with that of the actual results.
 Variance analysis helps in providing the insights regarding how well the organization
is managed.
 It helps the finance managers for gathering the insights for understanding the reasons
of the controllable as well as uncontrollable variances. Policies would be implemented
for mitigating such risks.
 It helps in creating the shareholders’ value by enhancing proper internal control
mechanism with the help of favorable variances (Lidia 2014).
Disadvantages of the Variance Analysis as a tool of budgetary control
 Under the variance analysis, there is the issue of timing delay. The feedback required
by the management is faster and therefore the measurement are generated on the spot.
 If in case there is no detailed analysis of each and every factor considered in budget
then in that case budgeting would be done with the wrong figures by deviating from

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the actual numbers. Therefore, variance would make no sense (Mohamed, Kerosi and
Tirimba 2016).
Advantages of the Responsibility Centres (responsibility accounting) as the budgetary
tool
 It helps in assigning some form of responsibility to each and every organizational
individual and they should be accountable for the work they are responsible for.
 Fixing the responsibility helps in improving the performance. It is because the person
who are charged with the responsibility knows that their performance would be
reported to the mangers and the top management.
 Under this, the full information about the revenues and cost are collected. It is helpful
in planning the future cost as well as revenues, preparation of the budgets and fixation
of the standards.
 The responsibility accounting is considered not only the devise of control but it is also
helpful in making the decision. The collected information under this system helps the
management for planning the future actions. Therefore, the system of responsibility
accounting enables the management for taking important decisions (Sponem and
Lambert 2016).
Disadvantages of the Responsibility Centres (responsibility accounting) as the tool of
budgetary control
 For the successful responsibility accounting, the prerequisites are the sound structure
of organizations in which the divisions are identified as the responsibility centre,
proper delegating of the responsibility and work as well as proper system of the
reporting.

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 The traditional pattern of the expenses classification has to be subjected for analyzing
further that becomes difficult.
 For introduction of this system, the managers requires the additional classification
specifically when the responsibility report is different from that of the routine reports
(Klychova, Faskhutdinova and Sadrieva 2014).
The management accounting planning tools that can be used by the Dairy Crest for
the forecasting as well as preparation of the budgets is that they should prepare the budget
that depicts the estimation of the expenses and the revenues over the future specified period
of time that is re-valuated and complied on the periodic basis. The system of the management
control of the company should enable for the comparison of the planned income as well as
spending for seeing that whether the plans are followed and if there is the need for changing
the plans. Moreover, they management accounting planning tools of Dairy Crest should
provide enough flexibility for altering any changes as well as providing the accurate and
reliable information that is useful for the managers.
3.1 Adaptation of the Management Accounting Systems
Different planning tools helps the management for identification of the financial
problems by the help of the techniques and tools of the management accounting. The
information that are taken from the planning tools helps in the strategic directions as well as
taking the financial decisions, which contributes to the success of the company in context of
finance. These are the tools that help in implementing the control and taking the investments
decisions accordingly (Stead and Stead 2014). The analysis as well as interpretations of the
financial data helps in assisting the external reporting that in turn ensures organizations’
sustainable growth. However, organization has the significant impact on their issues of
sustainability by the planning tools execution (Jarzabkowski and Kaplan 2015). Management

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accounting is helpful for contributing at the different levels of the planning as well as
strategic decisions that are explained below:
 Planning and Control: This is the most important component of the management
accounting. Dairy Crest for ensuring all the operations according to the plans, need
for putting the plans in the place of setting the directions for the company as well as
control system (Maas, Schaltegger and Crutzen 2016).
 Implementations of Plan: Various information such as budgets, performance repots
as well as product cost on the regular basis are used by the managers by the use the
methods of management accounting. It is done on the continuous basis for
implementing the plans that are prepared in the budgeting process (Klettner, Clarke
and Boersma 2014). Therefore, this helps the Dairy Crest’s management for
allocating the resources in accordance with the various departments’ requirements as
well as divisions’ requirements that includes each particular process (Grant 2016).
 Competitive Edge: The focus of the well managed company is on their objectives as
well as their strategies for the creation of the competitive advantage of the company.
Therefore, Diary Crest strategies by using the techniques of the management
accounting as well focused for getting competitive advantage in market, in addition to
the focus on the brand image as well as low cost (Epstein 2018).
4.0 Evaluation of Uses of Management Accounting Planning Tools
In today era, the organizations are faced with the various challenges, therefore it become
necessary for them for adapting to strategies, preparing the business models as well as they
practices for responding to the environmental as well as social challenges with the creation of
the financial success as well as value for the shareholders (Lavia López and Hiebl 2014).
There are many organizations that do not have valuable insights and they do the analysis that

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fails for taking the advantages of the skill set of management accounting. This includes by
making business insights for the sustainability as well as it includes doing analysis as well as
reporting on the social and environmental impacts on the performances of the business
(Armstrong 2014).
4.1 Management Accounting and Sustainable Success
There are number of ways by which management accounts and its planning tools will guide
the organizations towards the sustainable success of the business that are as follows:
 Identifying the social as well as environmental trends, this will have the impact on the
ability of the company for creating the value over time.
 Linking of the challenges of the sustainable business to the strategy of the company,
performance outlook, business model and license for operating.
 Explaining the impact of the issues of the sustainability in the terms of robust business
that includes when and how it would affect the organizational business.
 Developing the key performance indicators, that supports the sustainable and strategic
objectives.
 Applying the tools and techniques of the management accounting such as lifecycle
costing, scenario planning of the availability of the natural resources as well as carbon
foot-printing that helps for integrating the sustainability matters into the processes of
decisions making (Bennett and James 2017).
 Producing the report, which includes the data on the impacts of the sustainability for
informing the decisions regarding pricing and budgeting, strategic planning and
investment appraisals.
 Developing the reporting strategy, which integrates the issues of the sustainability for
ensuring the disclosure of the financial as well as non-financial information. One of

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the examples of this is International Integrated Reporting Council created the
International Integrated Reporting Framework (Hall 2016).
4.2 Management Accounting Planning Tools Uses
The various tools and techniques of the management accounting helps the companies for
retrieving and obtaining the information that are very useful and is required by the respective
managers of the organizations in order to carry out the functions of the business. Dairy Crest
has the need for applying as well as implementing the strategies as well as techniques of the
management for the survival and growth in the manufacturing sector. This helps in providing
data-driven input to the managers for undertaking the decisions as well as helping in the
improvement of the quality of the decision making. Moreover, organizations are also assisted
by the absorption and marginal costing for the preparation of the financial reports that are
based on the set of preferences of the company. The applications of the tools and systems of
the different management accounting help the management with the setting of the important
strategies and plans of business than can be able for concentrating on the long-term
sustainability of the organizations with ensuring success as well as sustainability. It also helps
the business organizations for preparing the financial reports that are based on reliable as well
as accurate data that helps in ensuring the evaluation as well as appraisal of the performances
of the business organization in respect of the financial aspects and the strategies.

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