Management Accounting Systems and Reporting for BAM Construction

This report analyzes the management accounting practices of BAM Construction Limited, a civil engineering company. It explores various management accounting systems, including price optimization, job costing, inventory management, and cost accounting, and their application within the company. The report also examines different types of management accounting reports, such as inventory reports, cost accounting reports, performance reports, and accounts receivable aging reports, highlighting their importance in decision-making. Furthermore, it presents profit statements under both marginal and absorption costing principles, providing a comprehensive understanding of financial reporting methods. The report emphasizes the integration of management accounting systems and reporting with the company's processes, demonstrating how these tools support effective financial management and strategic planning.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
ACTIVITY 1....................................................................................................................................3
PART (A)....................................................................................................................................3
PART(B).....................................................................................................................................7
ACTIVITY 2..................................................................................................................................12
PART (A)..................................................................................................................................12
PART(B)...................................................................................................................................14
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
The management accounting is as significance as financial accounting. It can be defined
as a different part of accounting in that internal reports are prepared for internal stakeholders
(Cooper, 2017). These reports can be prepared only by this accounting because it consists
monetary and non monetary information. In today's context mostly organisations are
implementing this accounting because of its increasing importance. With the use of it, managers
of companies can evaluate the actual financial performance that helps in preparing competitive
strategies and plans as well as in major decision making. For better understanding of it, BAM
construction limited company is selected which is basically a civil engineering company. It is
located in London and deals in small, large construction projects. The project report contains two
activities in which, first activity describes about management accounting systems and reports as
well as income statement is produced as per given information. Further, in second activity
planning tools and role of MA systems to solve the monetary issues is included. Along with
solution of given practical parts is mentioned.
ACTIVITY 1
PART (A)
Management accounting and essential requirement of different accounting method.
Types of management accounting systems:
 Price optimisation system- This is a part of management accounting which is related to
sales department of companies. It is so because this provides a detailed information
regarding to the customer's reaction on various prices (Jacobs, 2012). With the help of it
companies can set the prices of their products and services on which customers can be
satisfy. Like in the aspect of above BAM construction limited company, they operate in
wide range of construction projects and they determine the expected price of their civil
engineering projects with the help of it. This helps them a lot because as per their
customer's reaction on various prices they set the estimated price. Hence, it is essential
for companies to draw an effective pricing pattern which can benefit to companies as well
as can satisfy the customers.

 Job costing system- It is a type of accounting system of management accounting that is
linked to the finance department of companies (Guthrie, Parker, 2014). In this, various
cost such as labour cost, material cost etc. are estimated and calculated. With the help of
it, companies can assess the total cost of their various kind of jobs allocated to multiple
operations. Such as in the context of above BAM construction limited company, there are
a wide range of labour cost, material cost etc. All these costs are being managed with the
help of this accounting system. So overall, it is essential to companies for proper
management of cost in the various operations.
 Inventory management system-In this type of management accounting, a detailed track
record of various kind of inventories such as work in progress stock, raw material,
finished commodities etc. is included. Along with under it, the information related to how
much quantity of material is consumed and how much is remaining. On the basis of it,
companies' production department takes crucial decisions. Herein, the context of above
selected, BAM construction limited company their contractors use this accounting that
helps them in effective allocation of raw material in construction projects. It is essentially
required in organisations for two purposes which are keeping track record of materials as
well as for taking important decision in relation to production and purchasing.
 Cost accounting system- It can be defined as an accounting system that is linked with the
finance department of companies (Mussnig, 2013). In other words, this accounting
system forecast and calculate actual amount of cost that occur in multiple operations. The
primary objective of this accounting system is to keep the total cost of various activities
under control as much as possible. With the effective implementation of this accounting
system, companies can evaluate about how much cost will be occurred in production of
one unit and on the basis of it they try to keep below forecasted amount. Such as in the
BAM construction limited company, their finance department is using this accounting
system to track the difference between actual and estimated cost. Thus, this accounting
system is essentially required by companies to keep the cost below budgeted cost.
Various kind of management accounting reporting.
The management accounting reports are kind of written document that are prepared on
the basis of an organisation's financial and non financial transactions for a particular time period

(Harrison and Lock, 2017). These reports are being used by managers of companies as they take
important decisions on the basis it. Additionally, these reports are presented only to the internal
aspects of companies not to the external parties. In the aspect of above BAM construction limited
company, their management accountant produces different types of reports to help their
managers and some of them are mentioned below:
 Inventory reports- These are kind of reports that consists information regarding to
quantitative aspects of various kind of stock including raw material, work in progress and
finished goods (Evans, Burritt and Guthrie, 2013). This type of report is very important
for production department because with the help of it, they manage entire production
process. The importance of this report is not limited till the production department but
also it is useful for minimising the cost of storing the materials in warehouses. Such as in
the BAM construction limited company, their accountant is preparing this report which
includes information related of raw material like cement, iron, concrete etc. for
compilation of any civil project.
 Cost accounting report- It has been defined as a type of report which is linked with
finance department. This is so because in it, information related to the cost of each
activity is included. Its importance can not be ignored by companies because in the
absence of it they will not be able to forecast total cost as well as actual occurred cost.
Such as in the above BAM construction limited company, their management accountant
produce this report which helps them in evaluating the cost of various civil engineering
projects. As well as on the basis of it, they make estimation of their projects.
 Performance report- It is a type of report that is prepared on the basis of aspect of
performance of various aspects such as estimated financial goal and actual performance
(Schaltegger and Zvezdov, 2015). As well as this is aligned with the evaluation of actual
position of company in front of stakeholders. Such as in the aspect of above BAM
construction limited company, they are preparing this report for managing the financial
performance of their various kind of civil engineering projects. Along with this report is
almost necessary for them to prepare just because they are engaged in dealing large
construction projects. With the help of it, they assess the growth of their projects. Apart
from it, this report is not limited till the financial performance of projects but also it
evaluates performance of employees separately.

 Account receivable ageing report- This may be defined as a kind of report which is
prepared by accountant to help the finance department so that it can be evaluated that
how much amount is due and overdue by debtors. With the help of this report, companies
can make their financial plan for future activities because on the basis of it they can
assess total expected fund which is required to collect from debtors. In the context of
above BAM construction limited company, they are preparing this report with an
objective to analyse their debtors. One of the key feature of this report is that in it
companies can identify those debtors who do not make payment even after the expected
date. It overall helps in computing the total payable interest amount by debtors.
Advantage of management accounting systems and their application in context of
companies.
Each type of management accounting has some importance in the aspect of companies. It
depends on organisations that how they use these accounting systems to get benefit. Such as in
the aspect of above BAM construction limited company, they have implemented multi-pal types
of accounting systems whose benefits are described below:
 Importance of cost accounting system- This accounting system has its importance for
finance department of any type of organisation (Soltes, 2014). It is so because by this
companies can allocate their funds in a better way so that expenditures can be eliminated.
Like in the BAM construction limited company, it is benefiting them in management of
cost of their various construction projects.
 Importance of price optimisation system- It has its importance in the context of sales
department of any kind of company. This is so because firstly it gather customer's
opinion on price segments and after that determines prices of products & services. Like in
the chosen company, they estimate the price of their construction projects with help of it.
 Importance of inventory management system- This part of management accounting is
beneficial for companies because it is linked with production department. With the help
of it organisations can assess the need of material for further. In the BAM construction
limited company, they manage their inventories such as iron, cement, concrete, bricks,
stones etc. with the help of it.

 Importance of job costing system- This is useful for companies because it helps in
assessing the cost of job which is aligned in various activities. Such as in the BAM
construction limited company, they trace the cost of various job like labour, supervisors
in any construction project.
Integration of management accounting systems and reporting with process of companies.
The integration of both management accounting system and reporting is linked to the
process of companies (Sisaye and Birnberg, 2012). It is so because each type of MAS and
reporting has link with the various department of organisations. Such as in the above BAM
construction limited company, different types of MA like cost accounting system is aligned to
finance department for proper allocation of funds. As well as price optimisation system is linked
to the sales department and inventory management system with production department. It stats
that systems of MA is aligned with the organisational process. While the management
accounting reports, like cost accounting reports have interrelation with evaluation of financial
position as well as other reports also aligned with other activities of above company. So MAS
and MA reports are integrated within company's process.
PART(B)
ANNEX(A)
Question 2.
(A) Profit statements under marginal costing principles:
Marginal costing- It is a type of costing system that is relates to producing the income statements
by taking fixed cost as periodic expenses (Sedevich Fons, 2012). While variable cost as cost of
product.
1) 1st quarter (contribution & profit/loss)
Income statement by marginal costing method:
PARTICULAR
AMOUNT
(in £)
SALES REVENUE 427500 427500
LESS: VARIABLE COST

DIRECT LABOUR (15x5000) 75000
DIRECT MATERIAL (18x5000) 90000
VARIABLE PRODUCTION COST
( 9x5000) 45000
VARIABLE 10% OF SALES
REVENUE 42750 252750
LESS: DIRECT LABOUR (15x500) 7500
DIRECT MATRIAL ( 18x500) 9000
VARIABLE PROD (9x500) 4500 -21000
CONTRIBUTION 195750 195750
LESS: FIXED EXPENSES
(180000/4) -45000
PROFIT FOR THE YEAR 150750 150750
(B) Profit statements under absorption costing principles:
Absorption costing- This is a kind of costing system in which fixed and variable costs are taken
as cost of per unit during preparation of income statements (Rankin, Stanton, McGowan,
Ferlauto and Tilling, 2012).
1) 1st quarter gross profit and net profit/ loss:
Income statement by absorption costing method(1st quarter)
PARTICULAR
AMOUNT
(in £)
SALES (4500x95) 427500 427500
COST OF GOOD SOLD -231750
GROSS PROFIT AT NORMAL 195750
UNDER/OVR ABSORPTION 6800
GROSS PROFIT AT ACTUAL 202550
LESS- FIXED EXPENDITURE -45000
NET PROFIT 157550

2) 2nd quarter gross profit and net profit/ loss:
Income statement by absorption costing method(2nd quarter)
PARTICULAR
AMOUNT
(in £)
SALE (3000x95) 285000
COST OF GOOD SOLD -180250
GROSS PROFIT AT
NORMAL 104750
Under ABSORPTION -5476
GROSS PROFIT AT
ACTUAL 99274
LESS- FIXED
EXPENDITURE -45000
NET PROFIT 54274
Working Note:

ANNEX(B)
Question 1.
(a) Conventional absorption costing using a labour hour absorption rate:
(a) Labour hour: -
Product X = £6000x1 = £6000
Product Y = £8000x2 = £16000
Labour hour = £2,64,000
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1x12 = 2x12
= 12 = 24
Total Overheads = £6000x12 = £8000x24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X: £6000x4 = £24,000
Product Y: £8000x2 = £16,000
Cost driven rate: -

Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15x2983 = 44,745
Order = 12x417 = 5004
Machine cost = 24000x1.375 = 33,000
Total 82749
Y
Set up = 45x2983 = 134,235
Order = 60x417 = 25,020
Machine cost = 16000x1.375 = 22,000
Total 181,255
Management accounting techniques to produce financial reports
The techniques of management accounting help in preparation of financial statements.
Such as in the aspect of above annex(a), income statements are prepared as per absorption and
marginal costing. As well as in annex (b) activity based approach and absorption hour rate is
applied to compute given problems. It shows that management accounting techniques are
important to prepare various kind of financial reports.
Interpretation of produced financial statements.
On the basis of above financial statements, it can be analysed that in annex(a) income
statements are prepared by both the absorption and marginal costing techniques. As per the
marginal costing method, net profit is of £150750 according to marginal costing method. While
according to the absorption costing method, net profit is of £157550 for first quarter. Along with
in second quarter, net profit is of £54274. On the other hand, in annex(b), labour hour for
product X and Y is of £264000 and rate is of £12 per hour. Total overheads are of £72000 and
192000 for product X and Y. Additionally, under activity based approach, total cost for product
X is of £82749 and for product Y is of £181255.

ACTIVITY 2
PART (A)
Benefits and drawbacks of planning tools.
The budgetary control is a kind of technique which manages the financial progress of
companies as per setting different kind of budgets. In general, budgetary control consists a wide
range of planning tools such as cash budget, capital, static, variable budget etc. Herein, below
some planning tools of budgetary control are mentioned that are as follows:
 Capital budget- It is a kind of budget which provide guidance to companies for making
long term investment as well as assess the effectiveness of huge capitalized projects.
Such as the BAM construction company deals in large construction projects and for them
this budget is very crucial. This is so because as per it, they evaluate the effectiveness of
large capital invested projects. As well as they take decisions about investment in large
projects according to this budget.
Advantage- It is beneficial for companies in understanding the different kind of risks
which involves in any project. Due to this organisations can make profitable decisions.
Disadvantage- This budget makes an estimation of future risks of investments but
sometimes estimation can be wrong. It is so because future is uncertain and any change in
economic condition can make estimation totally wrong.
 Operating budget- It can be defined as a type of budget that contains completed
information regarding to the estimated revenues and expenses of different operations
(Rieckhof, Bergmann and Guenther, 2015). This budget is prepared by companies for a
particular time segment. In the context of above selected civil engineering company,
BAM construction limited they allocate their financial resources in different construction
projects as per the projection done by this budget.
Advantage- This budget is helpful for proper management of current expenditures and
income. Along with it is important for creating financial reserves from profits which
exceeds the budgeted limit.
Disadvantage- This budget's drawback is that it takes too much time in preparation. As
well as it is not so effective in allocations of expenditure.
 Cash budget- This is a budget which includes information related to the activities which
have their link with cash generating and outing (Storey, 2014). With the help of this