Management Accounting Report: Techniques and Systems for IG Group

This report offers a detailed examination of management accounting practices within the context of the IG Group, a financial accountancy firm. It begins by explaining the core concepts of management accounting, its systems, and the essential needs of various systems such as cost accounting, inventory management, job costing, and price optimization. The report then explores different reporting techniques, including budget reports, accounts receivable reports, cost management reports, and performance reports, evaluating their benefits and uses. A significant portion of the report is dedicated to preparing an income statement using both marginal and absorption costing methods, illustrating their application. Furthermore, it evaluates the benefits and limitations of various budgetary tools and planning tools. The report concludes by addressing how organizations like the IG Group adapt management accounting systems to respond to financial problems, providing a comprehensive overview of financial management strategies.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1. Explaining the concept of management accounting and the essential needs of various
systems of the management accounting......................................................................................1
P2. Explaining the different techniques that could be used as reporting under management
accounting...................................................................................................................................2
M1. Evaluating the benefits and the uses of the management accounting systems in an IG
Group..........................................................................................................................................3
LO2..................................................................................................................................................4
P3. Preparing the income statement with application of marginal and absorption costing
method.........................................................................................................................................4
LO3..................................................................................................................................................7
P4. Evaluating the benefits and the limitation of different budgetary tools................................7
M2.Explaining the uses and the application of the planning tools...........................................10
LO4................................................................................................................................................11
P5 Organisation adapting management accounting systems to respond to financial problems.
...................................................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting refers to the practice of planning, directing, organising and
controlling the management functions within an IG Group. The present study is based on IG
group, a financial accountancy firm that provides the consultancy services to different IG
Groups. Furthermore, the report provides deep insights regarding the systems of the management
accounting and its applications. Moreover, it includes various techniques that can be used for
resolving the financial problems and also the different planning tools that can be used by the
firm.
LO1.
P1. Explaining the concept of management accounting and the essential needs of various systems
of the management accounting
Management accounting refers to the application of the appropriate methods and the
concepts in order to process historical and the estimated economic data of an enterprise for
helping the management in developing the plans for achieving the reasonable objectives. It also
ensures in making of the rational decisions towards reaching the goal effectively and efficiently
(Horton and de Araujo Wanderley, 2018). It is also known as the managerial or as cost
accounting, is referred as the process that is used for analysing the cost involved in the business
and the operations for preparing the financial report internally which in turn helps the managers
in making suitable decisions. Management accounting and financial accounting are the major
branch of the accounting and are different to a larger extent as MA deals with the formulation of
management reports while financial accounting relates to the framing of the financial statements.
Management accounting is optional on the part of the IG Group whereas financial accounting is
a compulsion for the company to adopt. There is no requirement for auditing the reports under
MA but it is mandatory for the enterprise to get auditing of its final reports from the statutory
auditor.
There are various systems under the management accounting which are important and plays a
crucial role in the smooth functioning of the operations of an entity is as follows-
Cost accounting system- It is called as the information system for the management in
terms of the determining the cost as it establishes the budget, actual cost and the standard cost. It
is the set of the procedures that are used for refining or converting the raw data into the usable
information in respect of making management decisions, for ascertaining the cost of the products
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and the services and assessing the profitability. This system plays an essential role in the IG
Group as it helps in making the analysis of the cost behaviour patterns of different items of the
expenditure within an IG Group (Messner, 2016). It enables an enterprise in estimating the future
cost with the reasonable accuracies.
Inventory management system- It refers to the system of management accounting that
tracks the goods throughout the supply chain or in the overall portion within which the business
operates. This system plays a significant role in managing the order as it helps in integrating and
tracking the orders from the different marketplaces (Quattrone, 2016). It enables the mangers in
creating the appropriate purchase order from their suppliers and also helps in managing the
inventory in the smart way against the competitors of the company.
Job costing system- It is the system that includes the processing of accumulating the
information relating to the cost attached with the particular production or the services. The
information provided by this system is essential for submitting the information of the cost to the
customers under the contract where the cost could be reimbursed. Such information is useful for
determining accuracy in the estimating system of the company that could help in quoting or
fixing the prices which allows for the reasonable profit.
Price optimization system- It is the system of the management accounting that
mathematically analyse the response of the customer towards different price level of the IG
Group's product and the services through the various channels (Sinaga and et.al., 2019). This
helps an entity in determining or fixing the best possible prices so that larger profits could be
generated and this in turn results in the achievement of the objective of a business that is profit
maximization.
P2. Explaining the different techniques that could be used as reporting under management
accounting
Management accounting reports is been used by the IG Group for the purpose of
planning, decision making, regulating and in measuring the performance. Such reports are been
continuously been generated in order to keep the appropriate records regarding the internal
working of an enterprise. Most of the critical decisions are based on the accuracy of such reports.
Therefore, preparation of these reports requires the highly skilled people or the experts so that
useful information could be gathered by the company (Malina, ed., 2018). Different reports that
are been framed by the managers are as follows-
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Budget report- It is report that includes the estimations that are made with respect to the
cost, production, sales and he income etc. This report is very critical to the business as it helps in
measuring the performance of the company by making the budget estimates on the basis of the
past experiences and provides for the information that caters for the unforeseen circumstances
which may arise (Latan and et.al., 2018). Budget report list down all the earning sources and the
expenditure incurred.
Accounts receivable reports- This report includes the details regarding the remaining balances
that the company has to collect. It is counted as the crucial report because it allows the managers
in identifying defaulter and in finding out the issues in the collection process of the IG Group. If
in the case there are several defaulters then an entity might require to make complete
transformation in order to tighten the credit credit policies because cash flow is considered as
critical for the operation of the business.
Cost managerial reports- This report relates to computing the cost involved in producing
the article such as material cost, labour and the overhead cost (Hald and Thrane, 2016). It offers
the managers with cost related information and the capacity in realizing prices of the items
against its selling prices. Through the use of the cost accounting reports, profit margins can also
be estimated and reviewed as it provides for the clear picture relating to all the cost that has been
involved in the process of production and in procuring the article. It facilitates an exact
understanding in relation all the expenses, that are important in optimum use of the resources
among the departments.
Performance reports- It refers to the management accounting report that depicts the
overall performance of an IG Group. It is created for reviewing performance of an employee as
well as the company as a whole. Managers make use of this report for making strategic decisions
relating to the future of the company. Performance report helps in rewarding the outstanding
performers and in improving the performance of the under-performers (Nishimura, 2019). It
plays a vital role for keeping the accurate measure regarding their strategy in order to achieve the
mission in an efficient manner. It also helps the managers in keeping a complete track on the
employees that they are performing in accordance with the standards set.
Other reports- It includes other major reports like project reports, information report,
competitors analysis and the other similar reports that are significant for the IG Group. Such
reports are been generated internally or through the professionals. The suitable action course
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depends on the capabilities in handling to the reporting requirements of firm. Ideal choice could
differ from person to person but the professional services is having the experience and the skills
in carrying out the task in a better way. For reaching out to major of the decisions, managers of
the IG Group must be having the access to the authentic and the credible reports of management
accounting.
M1. Evaluating the benefits and the uses of the management accounting systems in an IG Group
Systems Benefits or uses
Inventory management system It acts as the software that helps the IG Group
in tracking the goods and in maintaining the
proper record of the inventory. It is useful in
managing the orders and handling of the
inventory.
Cost accounting system It is the most useful tool as it helps in
ascertaining the cost incurred in manufacturing
the goods and enables the IG Group in keeping
the control over the irrelevant costs.
Price Optimisation system This system counted as most useful and
relevant because it provides the details
regarding the response of the customers
towards the product at different prices so that
best prices could be set up.
Job Costing System It assists the IG Group in accumulating the cost
incurred in the each job and the process so that
accurate estimations could be made relating to
the cost and the profitability.
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LO2
P3. Preparing the income statement with application of marginal and absorption costing method
Marginal costing- It refers to the costing technique under which marginal cost that is the
variable cost is been charged to the cost units, whereas fixed cost for specific period is been
completely write off against contribution (Usenko and et.al., 2018). It implies that the additional
cost is involved for producing an additional output unit which could be reckoned by assigning
total of the variable cost towards a single unit.
Absorption Costing- It is an accounting method which is used for valuing inventory. It
involve all kinds of the cost that is been incurred in producing the product that is both fixed and
the variable cost. It provides for a much better comprehensive and the accurate review of the
costing that is involved in producing the inventory as compared to the marginal costing
technique.
Marginal costing Method
Per unit cost
DM 8
DL 5
Variable overheads 3
Marginal per unit cost 16
Sales price per unit 50
-Marginal per unit cost -16
-variable SP -2.50
Per unit contribution 31.50
May
Operating sales (300*50) 15000
Cost of goods sold:
Inventory at beggining 0
Material (500*8) 4000
Labour (500*5) 2500
Variable overheads (500*3) 1500
8000
-Closing inventory (200*16)
-
3200.00
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-4800
10200
-Variable cost -750
Contribution 9450
-FC -10000
(Net Loss) -550
June
Operating revenue (500*50) 25000
Cost of goods sold:
Inventory at beginning (200*16) 3200
Material (380*8) 3040
Labour (380*5) 1900
Variable overhead (380*3) 1140
9280
-inventory at ending (80*16) -1280
-8000
17000
-Variable cost -1250
Contribution 15750
-FC -10000
Net profit 5750
Absorption Costing Method
Cost per unit
Direst Material 8
Direst Labour 5
Variable Overhead 3
Fixed overhead 10
Total absorption per unit cost 26
May
Revenue (300*50) 15000
Cost of goods sales:
Inventory at beginning 0
Material (500*8) 4000
Labour (500*5) 2500
Fixed overhead 10000
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Variable o/h (500*3) 1500
18000
-Inventory at ending (200*26) -5200
-12800
Gross Profit 2200
-Variable cost -750
Net profit 1450
June
Revenue (500*50) 25000
Cost of goods sales:
Inventory at beginning (200*26) 5200
Material (380*8) 3040
Labour (380*5) 1900
Fixed overhead 10000
Variable o/h (380*3) 1140
21280
-Closing inventory (80*26) -2080
-19200
Gross Profit/Loss 5800
-Variable cost -1250
Net profit 4550
Budgeted Cost at 1 unit Budgeted cost at 1000 units Actu
Material ( in kg) Per unit cost Total cost Material ( in kg)
Per unit
cost
Total
cost
Material ( in
kg)
2 10 20 2000 10 20000 22
Date Particulars Amount
01/05/19
Inventory at beginning of 40 units
$3 each 120
12/05/19 Purchased 20 units @ $3.60 72
12/05/19 Balance as on 12 may (60 units) 192
15/05/19 Sold 36 units -120
15/05/19 Balance as on 15 may(24 units) 72
20/05/19 Purchased 20 units @ 3.75 each 75
20/05/19 Balance as on 20 may (44 units) 147
23/05/19 Sold 10 units -37.5
23/05/19 Balance as on 23 may (34 units) 109.5
27/05/19 Sold 25 units -82.5
27/05/19 Balance as on 27 may (9 units) 27
30/05/19 Sold 5 units -15
30/05/19 Balance as on 30 may (4 units) 12
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Interpretation- From the above interpretation it has been interpreted that in the month of
May marginal costing method is showing the net loss amounting to 550 while absorption costing
reflecting the net profit resulted as 1450. On the other hand, In the month of June, net profit
gained by applying marginal costing equated to 5750 while through absorption costing, net profit
of 4550 is been gained. This means that absorption costing provides a better and accurate view of
the profits rather than the marginal costing because it takes into account both variable and fixed
cost whereas marginal costing involves only variable cost.
LO3
P4. Evaluating the benefits and the limitation of different budgetary tools
Zero based budget- It refers to the preparation of the budget from the grounds or scratch
and involves the re-evaluation of each line item from the statement of cash flow with
justification of each and every expenditure which is been incurred by department within IG
Group (Mills, 2018). Under this budget all expenses are been in respect of new period are
computed based on the actual expenses and not on basis of differential in which only the changes
incurred under the operational activity are taken into account.
Advantages: It is the budgeting tool that is useful at the time when IG Group desires to
assess the activities of its business from the zero bases. Zero based budgets provides for the
allocation of the resources efficiently within the entire department because it doesn’t considers
historical figures but accounts for the actual numbers (Zero Based Budgeting ( ZBB ) –
Overview & Advantages, 2018). This budget enables the enterprise in determining the new
schemes and using effective tools for optimum use of the resources and eliminating irrelevant
activities within the IG Group. It helps the organization in achieving its objective of profit
maximization as it facilitates orientation for attaining economies of scale in the operation of
business. This budgeting technique helps in responding towards the changes within the company
as with the changes in the technology, the assumptions and the expenses in the processes also
changes.
Disadvantages : The nature of this planning tool is subjective as it provides for the
qualitative benefits which couldn’t be measured in terms of numbers. This budget is detrimental
towards long run goals and runs on the basis of the cost benefit analysis for a specific period. It
includes more expenses and large number of the decision packages are been prepared which in
turn results in time consuming task.
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Activity based budget- It refers to the planning tool that allocated the resources on the
basis of the relationship in between the activities and the cost that facilitates more details in
relation to the overheads than normal budgeting (Curry, 2019). It provides for refining the cost
and emphasizing on the number of activities that are been occurred in the IG Group.
Advantages : It is the budgetary tool that involves each and every step within the activity
which in turn results in elimination of the unnecessary activities and determining the relevant
activities. This planning tool enables in reviewing the business of the entire organization as one
business unit, not as department wise. The budget under this method is been prepared after
detailed analysis which helps in removing all kinds of the bottlenecks if any present in the
activity of the business. Activity based budget allows for balancing the operational requirements
and highlights the inefficient and imbalance sources for making improvements .
Disadvantages : For implementing this budget technique an organization needs highly
skilled and trained employees. This result in huge cost involvement for providing raining to the
employees. It emphasizes on the short term objectives and not considers the long term goals of
business. The budgeting process under this technique consumes ample of the resources and
requires to involve top executives in order to conduct the numerous analyses. Activity based
budget involves duplication as it is not counted as the control budget which in turn do not replace
line item of budget.
Rolling budget- This budgetary tool referred as the revised or consistently updated budget
in order to add the budget for the new period (Chenhall and Moers, 2015). It includes
incremental extension from the existing model of the budget. This budget facilitates the
extension for the future accounting periods.
Advantages : Rolling budget facilitates flexibility in context of incorporating the changes
from past years into the coming periods. This helps the enterprise in getting more updated
information. It enables the organization in being responsive towards the uncertain changes and
allows for adjusting the changes that could be occurred in the future. It provides for continuous
revision of the budget. Rolling budget assist the firm in controlling and planning accurately
which in turn reduces uncertainty in the long run.
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Disadvantages : This budget method is not suitable in case the conditions are not been
continuously changing as it results in wastage of the resources as well as the time. Rolling
budget accounts for the formulation of entirely new budget on a frequent basis and needs robust
information with highly professional personnel for extracting the information. Creation of rolling
budget involves lot of time and in order forecast the expenses and the revenues of the business,
budget needs to be prepared every month.
M2.Explaining the uses and the application of the planning tools
Planning tools Uses and application
Zero based budgeting It is the most useful tool as it provides for re-
examination and the re-evaluation of all the
items and also provides for the justification of
each and every expense that is incurred by the
IG Group. This tool is applied where the new
product or the business is to be begun.
Activity based budget This budgetary tool is counted as useful
because it takes into account the changes and
the cost involved in each activity so that
relevant anticipations could be made (Alamri,
2019). It is been applied in the business where
there are several activities running within the
work environment of IG Group.
Rolling budget This tool provides for continuous revision of
the budget for each new period so that
flexibility could be ascertained and facilitates
for assessing the changes that had been
occurred in the operations of the business.
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