Financial Analysis of Management Accounting Report and Techniques

This report provides a comprehensive overview of management accounting, encompassing various aspects such as cost accounting systems, price optimization, job costing, and inventory management. It delves into different types of accounting reports, including performance reports, budget reports, and accounts receivable aging reports, and explores the purpose of these reports in aiding organizational decision-making. The report further examines appropriate cost analysis techniques for preparing income statements, emphasizing the importance of relevant and accurate information. Additionally, it discusses the advantages and disadvantages of planning tools used for budgetary control and analyzes how organizations adapt management accounting systems to address financial challenges, drawing comparisons between different companies. The report concludes by highlighting measures to overcome financial issues, providing a well-rounded perspective on the significance and application of management accounting principles.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and its different types of system...................................................1
P2. Explain different method of management accounting reporting.........................................3
TASK 2............................................................................................................................................4
P3 .Appropriate techniques of cost analysis to prepare an income statement.................................4
TASK 3............................................................................................................................................6
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.........................................................................................................................................6
TASK 4............................................................................................................................................8
P5. Organisations are adapting management accounting systems to respond to financial
problems......................................................................................................................................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is also termed as an managerial accounting. In this form of
accounting system there are different types of accounts and reports that are required by managers
to conduct their daily basis operations along with making short term decisions. In simple terms,
this system is mainly related with proper monitoring, interpreting and analysing financial data in
well effective manner to frame internal decisions in best effective manner (Adler, 2013).
Management accounting include information in the form of non-financial and financial form.
This acts as an key essential element in an organisation with the help of which financial
transactions can be conducted in well effective manner. In this project formative discussions has
been made on, concept of management accounting along with its benefits. In addition with this
various form of managerial reports in addition with accounting techniques and advantages and
disadvantages are included in this report. Furthermore, to justify different techniques used by
organisations to deal with financial issues, a comparison is made between Capricorn Wealth
Management Brightstar and Financial Limited Company of UK. Lastly, different measures with
the help of which financial issues can be overcome are also included in this report.
TASK 1
P1. Management accounting and its different types of system
Management Accounting:
Management accounting term include combination of two elements management and
accounting. It is mainly a type of accounting system which is mainly linked with business
organisation internal part. With the help of this, managerial decisions can be effectively framed
in best effective manner along with this managerial reports can be made that will directly help in
framing plans and policies. Organisations are not bound to make managerial reports, it is all on
their will to frame that or not. Moreover, this accounting system have their own importance in an
organisation internal framework. Mentioned below there are different types of accounting sytsem
which is described below in descriptive manner.
Cost Accounting System:
This system is one of the crucial element in management accounting structure as this
effectively helps in evaluating cost of products that include, variable and fixed cost etc. in order
to effectively conduct business operations it is essential for an organisation to have proper
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estimation of their products and services cost as this will further aid in analysing and evaluating
products and loss ratio of a product and a service. Organisations by taking advantage of this
accounting system can effectively able to check and evaluate different type of cost related to
financial products and services. It further helps organisation to have proper check on their profit
and loss balance along with financial services and products this will benefit them to focus on
those products and services that will prove more beneficial for organisation.
Cost Accounting System must be practical, simple, tailor-made and capable of meeting
the necessitate of organisations in making more effective plans. The data or information to be
followed by the Cost Accounting System must be accurate or relevant; otherwise it may distort
the result of the system. Along with this, the system of costing must not sacrifice the utility by
presenting meticulous as well as unnecessary details. In this, Management of an organisation
must have a faith or belief in the Costing System and must also give a helping hand for its
improvement and success.
Price Optimisation System:
Price optimisation system acts as an key essential framework with the help of which
organisation can easily able to determine price of services and products which will prove suitable
for organisation as well as for organisation. This will further aid in evaluating consumers review
on different pricing level. Main aim or price optimisation system is to offer factors with the help
of which price can can be set in well effective manner. With the help of this form of accounting
system, companies can effectively set their price at numerous level which further aid in
providing benefits for company along with consumers. In order to set price, Mathematical
calculation is most essential and important which will help an organisation in managing its
transaction in systematic manner. Calculation introduces as an important act of calculating,
which is applying maths as well as logic to figure out a problem.
Job Costing System:
This system in tend towards, proper calculation of overall cost that occurs while offering
services and products in addition with after assignment of cost to every individual unit relating to
product and service. Job costing system effectively helps in those organisations that provide
different types of products and services (Ward, 2012). In order to offer numerous form of
products and services it become essential for organisations to effectively estimate every
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individual unit cost. For this, company can effectively take advantage of job costing system in
order to effectively evaluate and analyse cost of various services and products.
Inventory Management System:
This system is one of the most effective and crucial system in management accounting
system. As with the help of this organisation can able to track status of their products and
services. This further benefits of using evaluate and measure their products and services
availability. Inventory management system proves to be beneficial in supply chain management.
With the help of this management system, companies can track availability of their products and
services and measure status. For instance, in order to effectively track, mortgage loan's
clarification then by taking advantage of this method company can able to effectively check
status of service. There are different system of inventory management such as EOQ, ROP, JIT
etc. All these are essential and effective systems which will help an organisation to manage
inventory and achieve better outcomes within given time duration. In organsations, EOQ is most
effective and essential method which will support an enterprise to analyse how much to buy and
when to buy.
For Example:
Mentioned below there are Six roles of management accounting
Accounting: In this role of management accounting, responsibilities relating to
calculation of profit and loss, financial transactions and expenses are done as to handle
bookkeeping responsibilities.
3

Planning: This role holds great importance in management accounting, as in this
formation of long and short terms actions and plans are undertaken as per according to budget
and available resources.
Control: In order to ensure effective outcomes it is essential for organisations to monitor,
measure, evaluate correct actual outcomes as to make sure that actions are as per accordance to
original plan.
Cost accounting: In management accounting, it is essential to effectively evaluate cost
related factor in each and every aspect as to conduct operations in well defined manner.
Financial management: This is one of the most effective role in which management
accountant is responsible to effectively prepare and evaluate financial statements, budgets,
preparation of reports and commentaries.
Auditing: In this accounting department manager is required to review and audit
financial statements in order to effectively take advantage of financial statement and further
increase profitability.
Decision making: In management accounting, decisions related to discounting a product,
make- or-buy, pricing of product, optimum product mix is taken within short-term decision.
While in within long term decisions related to project financing, capital budgeting, investment
appraisals are considered.
P2. Explain different method of management accounting reporting.
Numerous form of accounting reports acts as an essential element in an business along
with this management accounting report proves to be beneficial in an organisation. Accounting
reports is a crucial element that perform key essential role within internal management of an
organisation day to day business functions. As it effectively aid managers to take decisions in
best effective manner along with framing strategies as according to actual need. In this report,
both the form of monetary and non monetary informations are included that are undertaken by
various organisations are –
Performance Reports:
Performance report is a well effective measure with the help of which performance can
be effectively evaluate. In relation with management accounting, performance report tend
towards effective evaluation of organisation and employees. It further helps in reducing
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complexity related to deciding employees eligibility for rewards. With the help of this report,
organisation can easily able to evaluate organisation and employees performance.
Budget Report:
Budget report is one of the most important report in management accounting with the
help of which organisation can effectively able to compare their estimated performance against
actual performance. Along with this, it further benefits in framing strategies and policies with the
help of which organisation can able to effectively estimate about their expenses and income for a
specific period of time and can fulfil this in order to achieve their objectives. With the help of
budget report, organisations can make perfect comparison in between their budget goals and
actual financial performance. This further helps in framing strategies in best effective manner
within proper budget.
Accounts Receivable ageing report:
In this report, informations related to credit transactions are included. Account receivable
ageing report proves to be beneficial for those organisations who mainly indulge in credit basis
transactions. With the help this organisation can effectively able to manage their financial
transactions and key regular measure on their due amount in market. In addition with this, it also
cover credit transaction data on which transaction was made, it helps in resolving credit
calculation complexity. With the help of account receivable ageing report, companies can easily
analyse total collection that has been made by customer. It helps in bringing transparency within
credit collection.
Cost managerial accounting report:
Cost managerial accounting report effectively helps an organisation to check estimation
of their profit and loss against numerous form of activities in a particular formative framework.
This further helps in making proper calculation of all related expenses before and after the
selling was made in order to compare total expenses that has been earned from selling. In this, if
expenses emerged to be more as compared to selling then it tend towards loss for an
organisation but if selling money termed to be more than expenses them it is profit.
Organisations can take advantage of this report in order to properly evaluate profit and loss as to
frame plans and policies in well effective manner.
Purpose of management accounting reports.
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Management accounting reports serve the purpose to organisations as to effectively make
decisions as per according to plan. Major purpose of management accounting report is to
decrease ambiguity and assist organisation to formulate decision-making process in best
effective manner.
TASK 2
P3 .Appropriate techniques of cost analysis to prepare an income statement
Information must be relevant, accurate and current which will help an organisation in its
success and growth. Accurate information will also support an enterprise to attain long term
goals and objectives within given time duration.
In context to selected firm these method are used to prepare statements for three year that is
discussed below:
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Income statement for Year 1
Using Marginal Costing Approach
ITEM
Number of
units £ P.U.
AMOUNT
£ AMOUNT £
SALES 37,000 £70.00 £25,90,000.00
MARGINAL COST OF SALES .. .. .. ..
OPENING STOCK
ADD: VARIABLE PRODUCTION
COST: .. .. .. ..
Direct Material 40,100 £12.00
£4,81,200.0
0
Direct Labour 40,100 £16.00
£6,41,600.0
0
Variable Expenses 40,100 £20.00
£8,02,000.0
0
Total Variable Cost A 40,100 £48.00
£19,24,800.
00
Less: Closing stock - end of year 1.
B. [Opening stock units+units
produced - units sold] 3100 £48.00
£1,48,800.0
0
Marginal Cost of SALES A-B
£17,76,000.
00
Fixed indirect production cost £64,000.00
Gross Profit: sales - MCOS -
FIXED PRODUCTION COST £7,50,000.00
Selling and Distribution Overheads £10,000.00
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Admin Overheads £15,000.00
Profit Before Interest & Tax
(PBIT) £7,25,000.00
Interest Expenses £1,000.00
Probit Before Tax [PBIT-interest] £7,24,000.00
Tax @19% £1,37,560.00
Net Profit: profit before tax - tax £5,86,440.00
Income statement for Year 2
Using Marginal Costing Approach
ITEM
Number of
units £ P.U.
AMOUNT
£ AMOUNT £
SALES 41,000 £70.00 £28,70,000.00
MARGINAL COST OF SALES .. .. .. ..
OPENING STOCK 3,100 £48.00
£1,48,800.0
0
ADD: VARIABLE PRODUCTION
COST: .. .. .. ..
Direct Material 48,100 £12.00
£5,77,200.0
0
Direct Labour 48,100 £16.00
£7,69,600.0
0
Variable Expenses 48,100 £20.00
£9,62,000.0
0
Total Variable Cost A
£24,57,600.
00
8

Less: Closing stock - end of year 2.
B. [Opening stock units+units
produced - units sold] 10,200 £48.00
£4,89,600.0
0
Marginal Cost of SALES A-B
£19,68,000.
00
Fixed indirect production cost £64,000.00
Gross Profit: sales - MCOS -
FIXED PRODUCTION COST £8,38,000.00
Selling and Distribution Overheads £10,500.00
Admin Overheads £15,000.00
Profit Before Interest & Tax
(PBIT) £8,12,500.00
Interest Expenses £1,250.00
Probit Before Tax [PBIT-interest] £8,11,250.00
Tax @19% £1,54,138.00
Net Profit : profit before tax - tax £6,57,112.00
Income statement for Year 3
Using Marginal Costing Approach
ITEM
Number of
units £ P.U.
AMOUNT
£ AMOUNT £
SALES 61,000 £70.00 £42,70,000.00
MARGINAL COST OF SALES .. .. .. ..
OPENING STOCK 10,200 £48.00
£4,89,600.0
0
ADD: VARIABLE PRODUCTION
COST: .. .. .. ..
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Direct Material 51,100 £12.00
£6,13,200.0
0
Direct Labour 51,100 £16.00
£8,17,600.0
0
Variable Expenses 51,100 £20.00
£10,22,000.
00
Total Variable Cost A
£29,42,400.
00
Less: Closing stock - end of year 2.
B. [Opening stock units+units
produced - units sold] 300 £48.00 £14,400.00
Marginal Cost of SALES A-B
£29,28,000.
00
Fixed indirect production cost £64,000.00
Gross Profit: sales - MCOS -
FIXED PRODUCTION COST £12,78,000.00
Selling and Distribution Overheads £11,000.00
Admin Overheads £15,000.00
Profit Before Interest & Tax
(PBIT) £12,52,000.00
Interest Expenses £1,500.00
Probit Before Tax [PBIT-interest] £12,50,500.00
Tax @19% £2,37,595.00
Net Profit : profit before tax - tax £10,12,905.00
Working note:
Closing stock calculation
48,100+3,100-41,000=10,200
51100+10200-61000=300
Absorption Method:
Income statement for Year : 1
10

Using Absorption Costing Approach
ITEM
Numbe
r of
units £ P.U. AMOUNT £ AMOUNT £
SALES 37,000 70 £25,90,000.00
MARGINAL COST OF SALES ,…….. ………. ………..
OPENING STOCK 0 £-
ADD: VARIABLE
PRODUCTION COST:
………
… ……… ………..
Direct Material 40100 12 £4,81,200.00
Direct Labour 40100 16 £6,41,600.00
Variable Expenses 40100 20 £8,02,000.00
Fixed indirect production cost £64,000.00
Total Production Cost A £19,88,800.00
Less: Closing stock - end of year 1.
B. [Opening stock units+units
produced - units sold] use formula
to calculate amount 3100 £1,53,748.00
Cost of SALES : A-B: £18,35,052.00
Gross Profit: Sales - Cost of Sales
: £7,54,948.00
Selling and Distribution Overheads £10,000.00
Admin Overheads £15,000.00
Profit from operations Before
Interest & Tax (PBIT) £7,29,948.00
Interest Expenses £1,000.00
Probit Before Tax [PBIT- £7,28,948.00
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interest]
Corporation Tax @ 19% £1,38,500.00
Net Profit £5,90,448.00
Income statement for Year : 2
Using Absorption Costing Approach
ITEM
Number
of units £ P.U. AMOUNT £ AMOUNT £
SALES 41,000 £70.00 £28,70,000.00
MARGINAL COST OF SALES ,…….. ………. ………..
OPENING STOCK 3100 £1,53,748.00
ADD: VARIABLE
PRODUCTION COST: ………… …....... ………..
Direct Material 48100 £12.00 £5,77,200.00
Direct Labour 48100 £16.00 £7,69,600.00
Variable Expenses 48100 £20.00 £9,62,000.00
Fixed indirect production cost £64,000.00
Total Production Cost A £25,26,548.00
Less: Closing stock - end of year
2. B. [Opening stock units+units
produced - units sold] use
formula to calculate amount 10200 £5,03,172.00
Cost of SALES : A-B: £20,23,376.00
Gross Profit: Sales - Cost of
Sales : £8,46,624.00
Selling and Distribution
Overheads £10,500.00
Admin Overheads £15,000.00
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Profit from operations Before
Interest & Tax (PBIT) £8,21,124.00
Interest Expenses £1,250.00
Probit Before Tax [PBIT-
interest] £8,19,874.00
Corporation Tax @ 19% £1,55,776.00
Net Profit £6,64,098.00
Income statement for Year : 3
Using Absorption Costing Approach
ITEM
Numbe
r of
units £ P.U. AMOUNT £ AMOUNT £
SALES 61,000 £70.00 £42,70,000.00
MARGINAL COST OF SALES ,…….. ………. ………..
OPENING STOCK 10200 £5,03,172.00
ADD: VARIABLE
PRODUCTION COST:
………
… ……… ………..
Direct Material 51100 £12.00 £6,13,200.00
Direct Labour 51100 £16.00 £8,17,600.00
Variable Expenses 51100 £20.00 £10,22,000.00
Fixed indirect production cost £64,000.00
Total Production Cost A £30,19,972.00
Less: Closing stock - end of year 2.
B. [Opening stock units+units
produced - units sold] use formula
to calculate amount 300 £14,776.00
Cost of SALES : A-B: £30,05,196.00
Gross Profit: Sales - Cost of Sales
: £12,64,804.00
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Selling and Distribution Overheads £11,000.00
Admin Overheads £15,000.00
Profit from operations Before
Interest & Tax (PBIT) £12,38,804.00
Interest Expenses £1,500.00
Probit Before Tax [PBIT-
interest] £12,37,304.00
Corporation Tax @ 19% £2,35,088.00
Net Profit £10,02,216.00
Working note:
Closing stock calculation
1924800+64000/40100*3100=153748
2526548-153748/48100*10200=503172
3019972-503172/51100*300=14776
From the above prepared income statements for three consecutive year by using marginal
and absorption costing it has been analysed that there is a vast difference in the amount of net
profit from these method. The reason behind the difference in profit among these method is
treatment of fixed cost such as in marginal costing all fixed cost whether related to production or
not is regarded as period cost, on the other side in absorption costing all production cost is
consider as absorption costing.
There are mainly two method to prepare net profit so that net profit can be calculated.
The actual difference between these two method is as follows:
Marginal costing Absorption costing
It is method that mainly includes variable cost
in context to the manufacture product cost and
the consider fixed cost as the period cost of the
product.
The nature of overheads under marginal
method includes fixed and variable cost.
This is a method that includes both fixed and
variable cost in respect to the goods produced
by company.
In context to absorption method the nature of
overheads are not same as they are depended
upon production, distribution and selling
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expenses.
Basically business uses marginal costing method within operation because manager
consider this method to be the best way in order to analyse the cost data which enables them to
understand the overall impact of profit changes due to the changes in volume of production. It
also help company to control cost, eliminate variance cost of per unit, define the way to
accurately recover the overhead and support in short term planning so that there can be
maximum results for company.
Financial reporting and statements support business growth and success.
In business world, it has been evaluated that management are required to prepare
financial report and annual statements for number of purpose that enable to attain the desired
results and gain success in competitive world. Management of respective company use to prepare
all essential financial statements such as cash flow statements, income statements and balance
sheet that help them in getting financial transparency because the smallest number in balance
sheet might have huge impact on the business. It support in evaluating the tax liability, improve
payment cycles and mitigate errors so that better decision are made.
Management Accounting Role:
 It develops groundwork for assessing change requirements in existing strategies and
formulating actions plans.
 It assess the need for changing short-term objectives by analysing current scenarios and
circumstances. It fixes responsibilities of each personnel within entity to attain targeted productiveness
in current operations.
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.
Budgetary control is a formative technique with the help of which organisations can
effectively able to formulate their future financial performance in order to effectively facilitate
smooth and effective growth. With the help of this tool manager can able to monitor and control
their financial operations in best effective manner. This will further help organisations to
consider different aspects in relation with financial and non-financial as to effectively control
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and coordinate financial activities in defined manner. Mentioned below there are some
advantages and disadvantages given with the help of which organisation can measure their
budget control in a well defined manner:
Contingency Planning:
With the help of this, organisation can able to manage those factors which are related to
risk. Along with this it also helps in framing strategies and plans in order to effectively overcome
issues in a workplace. With the help of Contingency planning organisations can able to
effectively frame best effective strategies in order to increase efficiency of their activities:
Advantages:
 With help of this organisation can effectively able to decrease the risk chances with the
help of effective plans.
Disadvantages:
 In contingency planning there is a requirement of huge cost along with long duration of
time.
Flexible budget:
In business scenario, a type of budget that make easy for company to make modification
according to the the level of activities is known as flexible budget (Flexible Budgets, 2019). It
acts as an most important tool with the help of which organisations can effectively able to make
formative required changes in their budget at the time of their occurrence. Flexible budget are
mainly undertaken by organisation as to control their budget. With the help of this they can
effectively able to estimate revenues and expenses as per according to current output. This
further benefits in evaluating those area of organisation that seems to be successful and
unsuccessful. Flexible Wealth Budget are framed by organisations mainly for those operations
that are in variable nature. This further helps in making changes in best effective manner.
Advantages:
 With the help of flexible budget, business entities can effectively coordinate their
numerous activities.
 In addition with this, these budget offer best effective accurate results as it mainly cover
wide range of organisational activities.
Disadvantages:
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 Sometime framing of budget in a flexible manner can be hard of organisations as it
include numerous form of variables.
 Due to uncertainty, managers of companies can find difficulty understanding in a perfect
frame work of time.
Forecasting tools:
Forecasting tool benefits an organisation to evaluate past and budget budget of a
company. With the help of this they can effectively able to anticipate future prospective
outcomes in well defined manner. Companies with the help of forecasting tool can able to
effectively estimate their future requirements by evaluating rations, financial statements with the
help of historical data and past information.
Advantages: There are some advantages that are linked with forecasting tool:
 With the help of this, entreprises can effectively able to satisfy their customers by
offering them assumptions that are mainly based on budgetary reports.
 Forecasting tool effectively aid an organisation to effectively frame future strategies by
taking financial information into effective consideration.
Disadvantages: Mentioned below there are different types of disadvantages that are linked with
this forecasting tool:
 Sometimes managers of organisations can find difficulty in framing plans and policies in
context with future in best effective manner.
 Informations that are gathered by organisation managers may not prove to be as per
suitable for framing strategies and policies as per accordance.
Variance Analysis:
This is mainly related with analysing the gaps and deviation among the estimated and
actual financial performance of company during a period. Some of the major advantages and
disadvantages are discussed below:
Advantages
 This budget of analysis support manager of selected firm in making elaborated, effective
and forward looking budgetary decision.
 It is useful while controlling mechanism within organisation.
Disadvantages
 This analysis is based on financial outcome which were released much later.
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 In case if budgeting are not proper then it may be loosely done which is bound to deviate
from the actual numbers.
Pricing strategies
There are number of pricing strategies that help in getting the best suitable price for
product. In respective company Penetration pricing is applies that is discussed below:
Penetration pricing
Advantages
 It can be beneficial to company by lowering the per unit cost of product by expanding
production.
 With the help of this strategy company is able to block competition form market.
Disadvantages
 It forces company to sell large volume at lower prices.
 The major disadvantage is that it hinder the performance of company to gain huge market
share.
TASK 4
P5. Organisations are adapting management accounting systems to respond to financial problems
Financial Problems:
These are the financial crises which any company, organisation or firm faces when
supply of cash liquidity does not match with the basic demands of operation and production
department. The inadequacy of funds or financial crises directly affect the profitability in the
market share. The financial problem is elaborated as the difficulty in giving the bills. There are
major financial problem which are mentioned below:
Problem of cash flow: When there is insufficient amount of cash flow in the
management. The problem arises when company, firm or organisation faces inadequate supply
of funds, which directly give impact on the operation and production department. This result in
lowering the profit which in turn increase the debt ratio. Mostly the funds are paid to the
stakeholders, shareholders, government bodies through taxes.
 Risk management: Risk is popularly known as uncertainty. The committee members
have to do possible forecasting for exposure of dangers, which could affect the operation
of a business. The management should have a proper plan, design and blue print of
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financial allocation in the organisations for sustaining in the competitive market. The risk
factors is grouped with all the problems that might hamper the profitability of the
company.
 Money management: The aim of finance department in the organisation is procuring
and allocation of funds in a systematic manner, in order to balance the other resources in
the company or organisation. The money management is also known as tool, which every
manager uses to satisfy the factor of production for instance, labour cost, human resource
cost, raw material cost and many more while performing an operations to achieve the
short term and long term goals of any organisation.
 Working capital: The working capital is accounting terminology which shows the
difference between the current asset and current liabilities of a company. In regards with
maintaining the operations effectively, the finance department has to manage the cash
appropriately. The working capital problem result in not fulfilling the short term debt of
firm.
Financial governance: This is the approach used for managing and handling the
liquidity in an appropriate and systematic manners in any firm or industry. The role of financial
managers is to allocate the funds accurately.
Management accounting approach: This method, is used for calculating solution for
effective flow of cash in day to day operations for achieving the organisations goals. This
technique, help the company to overcome the financial crises. There are majorly two approach
which is used and are described below:
 KPI: It is the terminology used for examine the company performance (Van der Meer-
Kooistra and Vosselman, 2012). This technique is used to improve the overall
performance and increasing profit of the organisation through repeated evaluation of
operations.
 Benchmarking: This tool is used for comparing performance from the competitor in the
for sustain in the market. The correlation of performances on the same basis result in
analysing the position of company (Ward, 2012).
 Variance analysis: It deals with identifying the causes of variation within income and
expenses that lead to arise financial issues within a firm (Tucker and Schaltegger, 2016).
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This would help in developing the better budgeting activity, so that chance of such issues
in future can be reduced.
To understand how different approaches of management accounting, a comparison is made
between two financial companies of UK that are - Capricorn Wealth management Limited and
Brightstar Financial Limited.
Basis of Difference Capricorn Wealth Management Brightstar Financial Limited
Problem The company is majorly facing the
less revenue when matched with
cost incurred in expenses. This
problem arises due to poor financial
management and decision-making
The problem face by the
company is inadequate supply of
product for the actual operation
in the work environment.
Approach The company should use the KPI
measurement for analysis the
company performance for gaining
competitive advantages. Also set the
strategies for maintaining the
working capital for operations.
This organisation uses
benchmark approach while
comparing the overall
performance and raise the
current position in the market.
Management
accounting system
In respective firm the problem is
major so management uses cost
accounting system which makes
enable to record each and every
transaction of business in proper
manner and determine the excess
utilisation of cost. It also support to
remove the unprofitable activities
from business.
With the proper implementation
of inventory management
system manager are able to
maintain proper record of raw
material store in ware houses
and whenever it is required for
production. This help in proper
flow of finished good on
demand of customer helping to
increase profit.
Four Phases of Management accounting :
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Until 1950 : Till 1950s, concept of management accounting is only limited to focus on cost
determination as well as financial control. Therefore, this phase is also known as cost
accounting.
1950-1969 : Within this period focus of management accounting from cost determination has
shifted towards managerial accounting to provide information for management.
1971-1989 : This phase includes the concept of cost management where concerns has shifted
now on reducing wastages, inventory management, target costing, product life-cycle
management and more.
1990 onwards : Here, the entire process of management accounting is totally concerned on
creation of customer value, balance scorecard, strategy and more.
CONCLUSION
From the above report, it has been concluded that management accounting plays an
important role in an organization to achieve its objectives. It includes various types of systems
such as cost accounting system, price optimisation system, job costing system and inventory
management system. The benefits of such systems are clearly evaluated. The performance report,
budget report, accounts receivable ageing report, cost managerial accounting reports are some
reports which the selected organisation uses for management of the accounting. Such
organization applies absorption and marginal techniques for cost analysis to prepare its income
statement. Corporations can use various planning tools such as contingency planning, flexible
budgets and forecasting tools in management accounting and there advantages as well as
disadvantages are clearly described. Various approaches such as KPI and benchmarking is been
used by the organization to resolve their financial problems in order to achieve sustainable
success.
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Online
Flexible Budgets. 2019. [Online] Available through: <https://crushthecpaexam.com/accounting-
glossary/what-is-a-flexible-budget/>
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