Management Accounting Report: Financial Reporting and Decision Making

This report delves into the core principles of management accounting, emphasizing its role in decision-making, planning, and control within organizations. It distinguishes between management and financial accounting, highlighting the importance of management accounting as a decision-making tool. The report explores various management accounting systems, including inventory management and job costing, along with different types of managerial reports such as accounts receivable and cash flow reports, and their significance in improving organizational performance. It provides a detailed analysis of absorption and marginal costing methods for income statement preparation, as well as the advantages and disadvantages of different budgeting approaches and their impact on financial strategies. Furthermore, the report examines how management accounting systems can be applied to address and overcome financial issues, providing a comprehensive overview of the subject matter.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P1 Concept of management accounting and its essential requirement.......................................1
P2 Different types of managerial reports and its importance......................................................3
M1...............................................................................................................................................5
D1................................................................................................................................................5
TASK 2............................................................................................................................................5
P3 Application of absorption and marginal costing method for preparation of income
statement.....................................................................................................................................5
M2...............................................................................................................................................8
D2................................................................................................................................................8
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of different kind of budgets and their importance..............8
M3.............................................................................................................................................10
D3..............................................................................................................................................11
TASK 4..........................................................................................................................................11
P5 Application of management accounting system to overcome from financial issues...........11
M4.............................................................................................................................................12
CONCLUSION..............................................................................................................................12

INTRODUCTION
Management accounting is important profession which contributes in decision making,
planning, monitoring, controlling of organisational functions. It is considered as process of
preparing reports and accounts which provides timely and reliable information to the managers
for operation of day to day functions. In comparison to financial accounting, management
accounting is broad concept which includes the provisions of costing also which helps to bring
coordination among the different departmental functions. It helps the management to attain
flexibility in their structure and build effective strategies which helps in achievement of
organisational objectives. Tech(UK)Ltd. Produces special charger for retailers (Arroyo, 2012).
In the present report explain about, difference between management and financial
accounting, importance of management accounting as decision making tool, different
management accounting systems, different types of managerial accounting reports and its
importance and use of absorption and marginal costing method for preparation of income
statement. Also, advantages and disadvantages of different kind of budgets, budget preparation
process, importance of budget and application of management accounting systems to respond
financial issues.
TASK 1
P1 Concept of management accounting and its essential requirement
Distinguish between management and financial accounting
Management Accounting Financial Accounting
Includes preparation of reports and accounts
for the benefit of internal parties to improve
their decision-making and effectively manage
day to day operations.
Includes the preparation of annual accounts of
organisation for the use of external
stakeholders to improve their decision making
regarding make investments
The information gathered from such reports
used for preparation of future strategies
The information collected from these accounts
used to for measurement of past performance
Such reports are based on specific areas These reports are based on the performance of
entire organisation
Helps in measurement of operation and Only helps in measurement of financial data

financial performance
Management Accounting: Every organisation whether small or large in nature requires
to adopt management accounting system for appraisal of the performance of each and every
department. It is the process of measuring, evaluating, interpreting the information with the help
of various tool to accomplish their goals. The different managerial and costing techniques
support the manager of Tech(UK)Ltd. To plan, control, monitor and enhance the performance of
overall organisation. The different kind of accounts which are prepared through use of this
system includes job costing, inventory management, price optimisation, cost accounting etc. It
assist the different departments in determination of their issues and improves their performance.
Importance of management accounting information as decision-making tool
There are large number of benefits are associated with application of the management
accounting systems within the organisation. It provides different type of management accounting
information which helps the manager of Tech(UK)Ltd. To use it as decision-making tools
regarding different aspects which defined below:
 Measurement of performance: One of the basic function which is performed with the
help of these systems is to measure the actual performance of employees through
comparing with standards (Boyns and Edwards, 2013). It provides the opportunity is to
identify the issues and deviations in performance and apply appropriate techniques to
overcome from them.
 Assessment of risk: One of the major importance of management accounting system
that it helps in assessing the future risk factors and mitigate them through application of
the effective management approaches.
 Allocation of resources: The different kind of reports and accounts based of different
reports helps the manager to identify the requirement of resources by each and every
department. This will contributes in effective allocation of given resources to attain
maximum output from its optimum utilisation. It helps in achievement of organisational
objectives and further contributes the effort regarding maintenance of long term
sustainability in their operations.
 Financial statement presentation: The provisions of management accounting helps in
collection of different information and data which represents the financial position of

organisation. Such different information and data regarding costs and finance helps in
preparation of precise financial reports which contributes in key decision-making.
 Decision making: There is huge importance of management accounting systems in
improvement of the decision making power of internal parties to get higher results. For
ex., application of inventory management system helps to control stock in effective
manner.
 Make or buy: Application of cost accounting system provides the opportunity to make
decisions regarding manufacturing or outsourcing which is the most beneficial for
organisation. It helps to improve profitability.
 Keep or sale: Use of different management accounting system contributes in
identification of such assets or technology of organisation which obsolete and increase
their expenses. So, it helps to take the decision regarding keep and sale of them.
Different types of management accounting systems
Inventory management system: One of the important system which provides the
function regarding supervision and management of stock and assets of organisation. The main
aim behind the implementation of this system within the organisation is effective flow stock
within the organisation for its optimum utilisation. In this regard, three different tools are used
which are known as FIFO, LIFO, AVCO. The role of three different tools are mentioned below:
 FIFO: This method is known as first in first out method where the inventory is tracked
on the basis of provisions of this tool. It helps in effective valuation of the closing
inventory at the end of the period.
 LIFO: This method is known as last in first out method. It helps is value the valuation of
closing inventory
 AVCO: It refers to as the average cost which helps to assess the inventory value in more
precise form which enhance decision-making.
Job costing: The system is useful for manufacturing organisation which produces
multiple products. This helps in allocation of cost to to each and every product. It provides the
opportunity to track the actual expenses which are incurred on production of product. Here, the
costs are apportioned on the basis of Direct material, Fixed and variable overheads (Arroyo,
2012).

Cost accounting systems: The provisions of this system helps the management of
organisation regarding estimation of the cost of product for the purpose of evaluation of
organisational profitability, inventory and cost control. Under this basic cost accounting systems
includes job order and process costing. It can be further classified as actual, standard and normal.
 Actual costing: It is the process of recording of product cost as actual cost of material,
labour, overhead.
 Standard costing: It is considered as predetermined cost which in incurred in production
of good or service. This cost is used as target.
 Normal costing: This method is used to value of manufactured products as per their
actual material, labour and manufacturing overhead cost on the basis of predetermined
manufacturing overhead rate.
P2 Different types of managerial reports and its importance
Report: It is a document which contains the information regarding important aspect
which is further used by the management for future planning and accomplishment of goals. In
organisational context, the different kind of reports includes budgeting, accounts receivable, job
cost, performance etc.
Different kind of managerial reports
The different kind of reports which are formulate by the management of Tech(UK)Ltd
for enhancing the decision-making power of internal parties are defined below:
 Accounts receivable report: This report contains the information regarding the amount
which is due from debtors (Herzig and et. al. 2012). For effective management of their
debtors need to have segmentation of invoices on the basis of time period how long they
have been owned. It helps in assessing the issues which are present in their collection
process. It enhances their decision-making about analysis of existing credit policy and
makes changes to make it more better. It provides the opportunity regarding reduction in
the amount of their old debts and maintaining liquidity which helps in effective
performance of their day to day functions.
 Budgeting reports: This report provides the plan and standards which are used in
evaluation of the performance of organisation through comparison with actual
performance of different departments. It helps in determination of the issues which are

associated with their functions and helps in controlling of costs. On the basis of such
comparison, incentive report is prepared by the management for every different
employee which contributes in improvement of their passion towards their work.
 Job cost report: One of the important report which helps the management of
Tech(UK)Ltd. Is to assess the cost, expenses and profitability which is attached with the
production of each product. Such analysis helps in identification of the most earning
aspect of project which enhance decision making regarding more efforts are need to
provide on such aspects. It also helps in determination of the areas of waste on which
need to be taken care more and make the project more profitable.
 Cash flow report: It is one of the important document which helps in effective
management of can within the organisation. It provides the information regarding inflow
and outflow of cash during specified period of time. It helps to maintain the liquidity
within the organisation.
 Sales report: This report provides the information regarding the amount of sales which
is required to attain from providence of their business functions. It is used for the
guidance of employees to provides their functions according to such requirements.
 Production report: This report provides the information regarding amount of good
which are required to produce for satisfaction of the different requirements of customers.
This report assist the production department is to achieve their targets.
Importance of management accounting reports
 Reduction of loss: Different kind of reports contains different information from which
issues are analysed for reduction of their future losses. For ex., Accounts receivable
report helps in identification of the amount of outstanding debts. Correction in policies
helps in maintenance of liquidity within the organisation.
 Increased financial returns: Use of job costing reports helps in identification of the
most profitable aspect of project. It helps the management to put more efforts of those
areas to improve their earnings. Subsequently, different reports provides the opportunity
to improve the understanding between different departments to improve their
performance.
 Formulation of budgets: Different kind of reports provides various information through
which budgets are prepared for guidance of employees. These budgets are work as

standards which provides the opportunity to improve overall performance and accomplish
targets.
 Improvement of understanding: There is huge importance of these different kind of
reports behind the improvement of the understand between different department
activities. It helps to attain their support in achievement of common objective.
M1
Advantages of management accounting system:
Cost accounting system
 This system helps in measurement of the efficiency in processes and contributes in
making of improvements (Otley and Emmanuel, 2013).
 Helps in effective planning
Job costing system
 It helps to assess the quality of work
 Prevention from duplication of efforts
D1
Type of reporting Integration with organisational process
Accounts receivable report Use of these reports in organisation for the
purpose of timely collection of their
outstanding amount.
Job cost report Integration of these reports with organisational
process helps in achievement of cost objectives
and fixing up of their pricing strategies
TASK 2
P3 Application of absorption and marginal costing method for preparation of income statement
Cost: It refers to the amount spend on the production of products. The amount which is
incurred upon resources is included in total cost of product. For ex., material, labour, time, risk
etc.

Marginal costing: This method is used to ascertain the change in cost due to production
of one extra unit. Here, only variable cost is considered while calculating the cost.
Absorption costing: This method consider both fixed and variable cost. This is the
reason it is known as full costing method (Parker, 2012).
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the begining
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
Net loss -2875

Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: under this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000

Total £5000 (under absorbed)
Net profit using absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
M2
It is the duty upon the management that plan their future operations. It provides chance to
assess their estimated cost and expenses. In the regard, management of organisation is need to
adopt effective tools which improves their profitability. Conservatism techniques helps to
manage the risk and extra cost and materiality technique helps to management of their resources
in more effective manner.
D2
It is analysed from the above income statement that Tech(UK)Ltd. Ascertained loss.
From Absorption costing method, amount of loss is 375 and from marginal costing method,
amount of loss is 2875 (Vasile and Man, 2012).