Management Accounting Report: Bristol Marine Construction

This report provides a detailed analysis of management accounting principles and their practical application within Bristol Marine Construction & Engineering. It explores the significance of management accounting systems, including inventory management, cost accounting, and price optimization, highlighting their role in financial analysis, decision-making, and budgetary control. The report differentiates between management and financial accounting, outlining the essential requirements of various accounting systems and their benefits. It examines different management accounting reporting methods, such as budgetary reports, inventory cost reports, and cost managerial reports, and their integration into the industry processes. Furthermore, the report delves into costing methods like marginal costing and absorption costing, illustrating their application through calculations. Overall, the report emphasizes how effective management accounting systems contribute to profit maximization and informed business strategies for organizations like Bristol Marine.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
ACTIVITY.......................................................................................................................................1
Part (A).........................................................................................................................................1
Part (B).........................................................................................................................................5
ANNEX (A).................................................................................................................................5
Q2.................................................................................................................................................5
ANNEX (B) ................................................................................................................................6
Q1.................................................................................................................................................6
ACTIVITY 2....................................................................................................................................9
PART (A).....................................................................................................................................9
ANNEX C..................................................................................................................................10
PART (B)...................................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCE.................................................................................................................................14

INTRODUCTION
Accounting is mathematical calculation of the different accounts that is used to define the
profit in an organisation through running business activities. Management is the coordination of
activities that help to achieve goals which is defined by the organisation. It includes planning,
organising, staffing and controlling the business activities in order to run a business speedily
(Abdelmoneim Mohamed and Jones, 2014). To understand the importance of management
accounting Bristol Marine Construction & Engineering company has been chosen that provides
number of services containing structural, civil and mechanical engineering. It was established in
1994 to provide the construction services. This report discusses about management account and
its system, planning tools and how it helps to control in budgetary control and management
accounting system that helps to solve the financial problems by maintaining the accounts and
accept the management techniques.
ACTIVITY
Part (A)
Management accounting system and its essential requirement
Management accounting is the internal work of any organisation that plays a vital role in
each enterprise. It used to get important information which relates to business activities and
make it profitable. The manager of the company prepares different types of report that gives full
information and give ideas what need to do in order to run a business effectively. Basically,
management accounting helps to analysing, monitoring and understanding the financial data
which is used to take most appropriate decision in business organisation. Moreover, accounting
system does not require any specific audit to get the profits from industry. The Marine
Construction & Engineering company uses accounting system to manage properly that helps to
complete the civil and construction projects (Armitage, Webb and Glynn, 2016). The difference
between management accounting and financial accounting is defined below-
Financial Accounting Management Accounting
This accounts are prepared with a specific
format that is used to compare with other
organisation.
No specific format is used for management
accounting system. It prepares with the help of
past information.

It helps in making investment decision and in
credit rating that increases organisation's value.
It helps to make planning, recording and
controlling the activities in order to take
decision.
It focuses on history that helps to make
effective business decision.
This focuses on future and make management
report on the basis of relevant information.
It is used by the external users like as
shareholders, creditors and bank.
It is used by the internal users like employees
and managers.
Essentials requirements of different accounting system are defined as below:
Inventory management system: This is an accounting system which is used to manage
the inventory properly. This is used mostly in manufacturing and construction company that
helps to maintain the goods in a proper criteria. It gives proper record of raw material and
finished goods that save money and time. Every organisation used this management accounting
system to keep efficient record of inventory and sale it by using different method such as LIFO,
FIFO and average. Marine Construction & Engineering company use this system to keep records
of raw material and finished goods that helps to check the quantity of goods and place the next
order of raw material.
Cost accounting system: As the name given this system states cost of different products
and services which is provided by the enterprises. The main aim of this system is get the actual
profits by selling products and services. It helps to evaluate the which product will give profit
and which one are not. Marine Construction & Engineering company apply this system to know
the actual cost and profits of the industry. Additionally, manager of this company can check the
profitability of each projects and maintain profits by reducing the cost of enterprise.
Price optimisation system: This method is used to define how customers responds to
different prices for its goods and services by using different channel. It describes the prices
which helps to meet with the objectives of the company such as profit maximisation. Moreover,
it helps to provide guidance in order to assigning prices which should be suitable for both
employer and customers. Herein, Marine Construction & Engineering company used prices
optimisation system that helps to set the reasonable prices of civil projects and it uses well all the
prices that helps to maintain profit in the enterprises. In other words, this system is used to

setting the prices and give satisfaction to customer and industry. In the absence of this system an
organisation can not get actual needs of raw material that can reduce profits of the organisation
(Leitner, 2013).
Different method that is used for management accounting reporting
The management accounting reports is the conclusion of the performance of the
organisation that states interest of internal as well as external management. This accounting
reports are prepared with the help of different accounting methods that helps to define the
profitability situation of the organisation. This reports are mostly used for planning, regulating,
measuring the performance and making correct decision which should be fruitful for industry
and customers. This report are being generated throughout the bookkeeping and accounting
period as per requirement that helps to give clean and clear information about business activities.
Marine Construction & Engineering company follows different types of management accounting
reports such as-
Budgetary reports: This report helps small size of business to analysis the business
performance in order to control over the cost of the organisation. In Marine Construction &
Engineering company managers prepares budget reports to analysis the business's and
department's performance by controlling the cost. This includes estimated budget for current
period which is usually depend on actual expenses with the help of past years. The manager of
Marine construction also use this report to give incentives and bonus to staff after completing the
given project.
Inventory cost reports: This is most demanded report which is prepared by the manager
of the organisation. It is used to maintain inventory physically and manufacture products that
provides suitable cost of the products and services. This reports contains items like as hourly
labour cost, inventory cost and per unit over head cost. The manager of Marine Construction &
Engineering company develop this report to check the cost of inventory and make profitable
decision in enterprise. Moreover, the manager can evaluate the efficiency of maintaining the
inventory system (Maas, Schaltegger and Crutzen, 2016).
Cost managerial reports: This report is prepared by all companies to know the cost of
organisation and increase the profit margin. In wider term, cost managerial reports includes the
cost of raw material, labour cost and overhead that helps to check the profitability by maintaining
the cost. The manager of Marine Construction & Engineering can use this report to analysis the

cost of civil and other projects which is under taken by the organisation. If manager finds that
organisation is spending more expenses in business activity then it can control the cost in order
to maximize the profits.
Job cost reports: It is used to define cost of specific project which is financed by the
industry. This report are mostly matched with budgeted of revenues that helps to evaluate the
profit margin. Moreover, it helps to define higher earning area of business so manager can focus
and make efforts rather than wasting of time on jobs. The manager of Marine Construction &
Engineering company used this report and allocate the cost for specific projects in order to
maintain profits. It help to find out the expenses during the project is in process and save the time
and money that leads to maximise the profits (Mahesha and Akash, 2013).
Benefits of accounting system and application in context to enterprises process
It has been analysed that management accounting system are ball park of any
organisation that helps to get the information about financial data and make effective decision in
order to maximize the profits. Therefore, it depends on nature of the industry that decides how to
reduce cost and increase profits by applying management accounting system. Marine
Construction & Engineering company is using management accounting system and earn profit
such as-
Benefits by application of price optimisation system: It is useful to optimise the prices
of the product and services that define how much investment is needed to increase profits by
overcoming the prices. By application of this system in Marine Construction & Engineering
company manager can evaluate the correct prices of the projects and provides satisfaction to
customer by utilizing the prices.
Benefits by application of inventory management system: This management system
useful to keep tracking of inventory and supply according to demand to goods and services.
Moreover it is helpful to check the quantity of raw material and finished goods that helps to
maintain stock properly. The manager of Marine Construction & Engineering company apply
this system to check the quantity of raw material and finished goods that helps to track the
inventory and place new order of raw material after reducing the stock level.
Benefits by application of cost accounting system: It is useful to calculate the cost of
manufacturing and get estimation of current year profit. In Marine Construction & Engineering
company contractors works by applying of cost accounting system that helps to compute the cost

of each civil engineering projects. Moreover, by application of this accounting system an
industry can evaluate the efficiency of each projects.
Management accounting system and reporting and their integration in the industry processes
The management accounting system and reports are interrelated within the industrial
processes such as inventory management system are helpful to track the inventory which
provides information through inventory reports that is used to keep records of inventory and
price optimisation system helpful to know the prices through budgetary reports or job reports that
is used to set the prices of the product and services. Moreover, cost accounting system helps to
calculate the overall cost of organisation and business activities through cost accounting reports
that gives information about incurred cost in an enterprise (McLellan 2014). All these accounting
systems are connected with the management accounting reports because needed information
comes from accounting reports which is prepared by the accountant of companies. In the absence
of these reports company can not get exact results and profit margin of enterprise. Herein, the
manager of Marine Construction & Engineering company used management accounting system
with the helps of accounting reports which is prepared by the accountant and defines overall cost
of the organisation. Hence, both management accounting system and accounting report are
linked with each other within organisational processes.
Part (B)
ANNEX (A)
Q2.
Marginal costing method: This is an accounting system which involves variable and
fixed cost that is calculated in units and period to find out the contribution per unit and in values.
Variable cost refers such cost that can change after changing the output where as fixed cost
remain constant in order to calculate profits. Any organisation can use this method to get the
accurate profits through defining variable and fixed cost (McVay, Kennedy and Fullerton, R.,
2016).
Absorption costing method: This is also an accounting technique which is used to build
up a full cost of product by including direct cost and proportion of overhead costs that defines
profits of the organisation. This techniques is mostly used in manufacturing industry that helps to
define cost of the organisation by maintaining profits.

Calculation of profit by using Marginal costing method
Particulars Amount Amount
Sales 427500 427500
(-) Variable cost
Direct labour (15* 5000) 75000
Direct labour (18* 5000) 90000
Variable production (9* 5000) 45000
Variable 10% of sale value 42750 252750
(-) Direct labour (15* 500) 7500
Direct material (18* 500) 9000
Variable production (9* 500) 4500 -21000
Contribution 195750 19750
(-) Fixed expenses (180000/4) -45000
PROFIT OF THE YEAR 150750 150750
Calculation of profit by using Absorption costing method
Particulars AMOUNT
Sales (4500*95) 427500 427500
Variable cost (15+18+9*5000) 252750
Variable cost (15+18+9*500) -21000 231750
COGS 276750
Gross profit at normal 150750

Under/over absorption 6819
Gross profit at actual 157569
(-)fixed exp -45000
Net profit 112569
ANNEX (B)
Q1.
(a)
(b) By using ABC approach

Interpretation
From above discussed numerical it has been analysed that product X and product Y
creates different level of cost by using absorption costing method. Product X incurred cost of
£72,000, on the other side product Y incurred cost of £192,000. In ABC approach, the machine
per hour rate in product X is £24,000 and in product Y is £16000. A part from this, overhead are
also different in activity based costing system. The X product is creating the cost of £8249 and Y
product is creating cost of £181,255.

ACTIVITY 2
PART (A)
Planning tools and its advantages and disadvantages used in budgetary control
Budget: Budget in business refers to the financial planning for business function for a
particular interval of time period. It includes planned sales volumes and revenues, resource
quantities, costs and expenses, assets, liabilities and cash flows etc. which are essential for
Marine Construction & Engineering company to run its business operations in more effective
and efficient manner. Budget process also includes several other activities such as forecasting,
monitoring, controlling and evaluating the financial goals so that the budget can develop in
proper manner for satisfying the business requirements.
Budgetary control: It is the process for managers of Marine Construction & Engineering
company to control the cost and operations to properly utilize the budget. In this method, the
managers of Marine Construction & Engineering company provide effective utilization of the
capital resources within the organization. Capitals are the most important asset for any
organization, therefore the management should consider this in budgetary control.
The Marine Construction & Engineering company used different types of budget such as-
Zero base budget: This budget involves new budget which does not includes any past
year year information. This is mostly used in new start up organisation to set the budget on the
basis of actual expenses. It defines a method where all the expenses are calculated for new period
and has no basis to prepare this budget. Moreover it involves changing the expenses occurred in
operational activity. The manager of Marine Construction & Engineering company can use this
budget to set the new project by defining actual expenses. The manager need to identify, explain
and monitor the revenues that each cost will generate for the enterprise (Nørreklit, 2014).
Merits: It helps to provide accurate cost of the organisation by defining cash flow
statement and computing cost. Moreover, it helps to allocate the resources in Marine
Construction & Engineering company according to department which is utilized properly in
order to make profits. It helps to identify the the opportunities and more cost effective ways that
is used to remove the unproductive activities.
Demerits: This is time consuming exercise that takes too much time to prepare the zero
base budget. Additionally, it requires high qualified manpower in large number who can prepare
zero base budget at low cost.

Cash Budget: It is a plan or estimation of cash receipts or expenses during a specific
period of time which is used by Marine Construction & Engineering company to get receipts and
expenditures by including collected income, expenses paid, payment of debts etc.
Merits
Avoid unnecessary expenses- Through formation of good cash budget, management of
Marine construction and Engineering company can avoid unessential payments or debts. In
addition, it also helps the managers to maintain cash reserves for emergency situations
(Spraakman and et.al 2015).
Demerits
It limits spending power- There are various situations in which management of Marine
construction and Engineering company wants to spend funds but due to estimated budget they
can't spend any kind of funds in any activity.
Master Budget – This is a combination of all budget which is formed by Marine
Construction & Engineering company in various departments. In other words, this kind of budget
is called head of all budgets.
Merits: Main advantage of Master budget is that it supports the managers of Marine
construction and Engineering company in identifying problems so that plans would be made
accordingly (Tuckerand Parker, 2015).
Demerits: Apart from that, the main disadvantage of master budget is that it can't be
understand easily due to which it is very difficult for update.
Analysis the use of different planning tools and application for building and forecasting the
budget
Planning tools are useful in every industry that is used to prepare and forecasting the
budget in order to give guidance what need to do and when need to do to maximize the profits in
an organisation. Planning tools are the techniques to reduce the cost and increase the profitability
in future period. By application of above mentioned planning tools like zero base budget, cash
budget, and master budget organisation can get the estimation of budget and maximise the profits
by controlling the excess cost. In the absence of such planning tools an organisation can not
control over the budget and expenses which is incurring with in the organisation. The manager of