Management Accounting Report: Financial Analysis of Tech Ltd

This report provides a comprehensive analysis of management accounting principles, focusing on a case study of Tech Ltd, a company producing special chargers for mobile telephones. The report begins by differentiating between management and financial accounting, emphasizing the role of management accounting in decision-making for department managers. It explores various management accounting systems, including cost accounting, inventory management, and job costing, along with their advantages and disadvantages. The report presents financial information, discussing different types of managerial accounting reports and their importance. It delves into preparing income statements using marginal and absorption costing methods and includes a reconciliation statement. Furthermore, the report examines budgeting, presenting different types of budgets, their preparation processes, and their significance for planning and control. Finally, it compares the effectiveness of management accounting approaches undertaken by Tech Ltd against those of other organizations, offering a conclusion based on the analysis.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................4
TASK 1......................................................................................................................................4
a. Explaining management accounting and its systems.........................................................4
1. Difference between management and financial accounting...............................................4
2. Stating the importance of management accounting as a decision making tool for
department managers.............................................................................................................5
3. and M1 Cost accounting system........................................................................................6
4 and M1 Inventory management system..............................................................................7
5 and M1 Job costing system.................................................................................................7
b. Presenting financial information........................................................................................8
1 and d1 Presenting different types of managerial accounting report....................................8
2 and d1 Stating why information presented in managerial reports must be understandable9
TASK 2....................................................................................................................................10
Question and D2 Preparing income statement for Tech Ltd as per marginal and absorption
costing system......................................................................................................................10
M2 Reconciliation statement................................................................................................13
TASK 3....................................................................................................................................13
A and M3 Presenting different kinds of budget along with their advantages and
disadvantages.......................................................................................................................13
b. Presenting budget preparation process.............................................................................15
c. Stating the importance of budget as a tool for planning and control...............................16
TASK 4....................................................................................................................................16
Question, M4 and D3 Comparing the effectiveness of management accounting approaches
undertaken by Tech Ltd in against to the other organization..............................................16
CONCLUSION........................................................................................................................18
REFERENCES.........................................................................................................................19

INTRODUCTION
Management accounting is the most importance part of finance which in turn provides
manager with valuable information for decision making. It lays high level of emphasis on
recording information about business operations and functions. In the recent times, each
business unit makes focus on employing management accounting tools as it enables manager
to make appropriate decisions within the suitable time period. Through maintaining financial
records pertaining to the operations manager can analyze business cost and thereby would
become able to prepare internal financial reports for decision making. This report is based on
the case situation of Tech Ltd which is involved in producing special charger for mobile
telephone. In this, report will present the manner in which aspects of management accounting
differ from the financial aspects. Besides this, it will provide deeper insight about
management accounting systems and reporting. Further, in this, how marginal and
absorption costing method helps in evaluating cost as well as profit margin will be assessed.
It also depicts how tools of management accounting can be used by the business for planning
purpose and responding monetary problems.
TASK 1
a. Explaining management accounting and its systems
1. Difference between management and financial accounting
Management accounting serves relevant as well as material information and thereby
assists management in formulating policies, planning, forecasting & controlling day to day
business operations (Macintosh and Quattrone, 2010).
Financial accounting system is highly concerned with the preparation of monetary
statements such as income, cash flow and balance sheet. All such statements assist both
internal and external stakeholders in decision making.
Both management and financial accounting systems aid in the decision making aspect
but they vary in the following manner:

Basis of difference Financial accounting Management accounting
Motive The main objective of FA is to
disclose financial performance
and position of the business at
the end of accounting year.
Goal of managerial accounting
is to assists manager in devising
plan by giving input for
decision making,
Audience or stakeholders Information produces by FA
helps both internal and external
beneficiaries in decision
making.
Unlike FA, managerial reports
only assist internal parties such
as manager and employees in
taking business decisions.
Requirement On the basis of legal aspects,
business unit is required to
prepare accounts and share
them with the investors.
In MA, there is the absence of
legal requirement pertaining to
account preparation (Otley,
2016).
Emphasis In this, focus is placed on the
evaluation of historical or past
figures.
Under MA, current information
is used by the managers for
making appropriate forecast or
prediction about the future
aspects.
Rules Companies follow rules and
guidelines such as GAAP &
IFRS while preparing statement
under FA (Management
accounting v/s financial
accounting, 2018).
Managerial reports are used for
purpose so there is no need to
follow specific rules.
Format Specific format is followed by
the listed companies for the
preparation of accounts.
No specific format exists in MA
Duration of reporting Annually and semi-annually As per the requirement
managerial reports are prepared
such as daily, weekly, monthly
etc.

2. Stating the importance of management accounting as a decision making tool for
department managers
Management accounting tools are highly significant in the context of Tech Ltd which
in turn assists manager in taking appropriate business decisions. For managing funds and
business activities manager has to take several decisions each day. In this regard, by using
calculations generated through management accounting tools manager of Tech Ltd can
improve decision making to a great extent. Significance of management accounting as a
decision making tool can be understood in the following manner.
 Manager of Tech Ltd can do relevant cost analysis by taking into account managerial
accounting information. It furnishes valuable information to the company and helps in
determining products that need to be produced (Reome and Sinclair, 2017). Along
with this, management accounting information provides assistance to the company in
assessing profitable areas and thereby helps in making marketing efforts in the right
direction.
 MA helps company in making forecast about income as well as expenses and thereby
helps in developing competent financial plan for the near future. Budgeting is highly
needed within the business unit for the purpose of making optimal use of financial
resources. Hence, using MA information manager of Tech Ltd can take decision
about future cash inflow and outflows.
 Along with this, MA assists company in taking decision pertaining to make or buy.
Usually, with the motive to save cost or reducing expense level company conducts
evaluation whether they should manufacture product in-house or buy from outside.
Hence, referring the outcome of such evaluation Tech Ltd can suitable decision.
3. and M1 Cost accounting system
This management accounting enables manager of Tech Ltd in making estimation
regarding the cost of product or services. It helps in ascertaining expenses incurred for
producing or generating specific output level. Using this system, manager of the company
can track the level of material in terms of raw and finished goods (Simons, 2013). It lays
emphasis on measuring and recording cost individually that is associated with the production.
Hence, by doing evaluation of input with output or actual results company can measure
financial performance. This area of MA mainly includes standard costing system which in
turn helps in assessing deviations. Moreover, such system of MA focuses on finding
deficiencies through comparing actual performance with the predetermined figures. Thus,

considering deficiencies and associated causes Tech Ltd can formulate suitable strategies and
policy framework.
For example: Standard costing
Particulars Actual figures Standard
figure
Deviation
(Actual –
Standard)
Causes Corrective
measures
Material cost
variance
2000 1800 (200) Due to the
incline in
cost of raw
material
negative
results are
occurred.
For exerting
effectual
control on the
cost of
material firm
needs to
approach
supplier or
distributor
who offers
raw material
at lower /
reasonable
prices.
Labour
efficiency
variance
1500 1700 (200) Due to the
lack of
having
enough
skills
labours of
Tech Ltd
failed to
attain
standards.
For making
improvements
in the labour
efficiency
variance Tech
ltd should
focus on
conducting
training &
development
session.

Advantages
 By undertaking the system of cost accounting Tech Ltd can eliminate waste, losses
and inefficiencies to the significant level.
 In this, focus is placed on the identification of reasons behind profit or loss.
 Assists management team in taking make or buy decision (Advantages and
disadvantages of cost accounting, 2018).
 Cost accounting system facilitates cost control and thereby helps in improving profit
margin
Disadvantages
 In this, only past records are available, whereas management is taking decision about
the future aspects.
 For the installation of cost accounting system firm has to maintain several costing
records. This in turn imposes high expenses and thereby impacts margin.
4 and M1 Inventory management system
Stock management is vital within the organization for ensuring smooth functioning of
the business activities and operations. Production and sales related activities are highly
influenced from the aspects pertaining to the availability of raw and finished goods. In
addition to this, ineffective stock management enhances holding & ordering cost level and
thereby overall expenses (Ward, 2012). Hence, under management accounting, several tools
are available such as EOQ, Just in time etc which Tech Ltd can use for inventory
management. Moreover, economic order quantity method clearly presents the time when
order for inventory needs to be placed. Along with this, there are several other methods such
as LIFO, FIFO & AVCO etc which can be used by Tech Ltd for recording and management
of inventory. IFRS emphasizes on the adoption of LIFO method which in turn helps in
reducing tax liabilities or obligations over the time frame. On the contrary to this, FIFO
method does not provide suitable value of stock under inflationary conditions. Thus, using
LIFO method manager of Tech Ltd can ensure proper inventory management. Apart from
this, under batch costing homogenous products are undertaken for the determination of cost
per unit.
Advantages
 Facilitates effective functioning of the operations

 Reduction in cost level in terms of holding and ordering
 Enhancement of profit margin
 Avoid situation pertaining to the shortage of stock
Disadvantages
 Inventory management software impose high cost
 Requires in-depth knowledge and understanding
5 and M1 Job costing system
Tech Ltd can manage its internal operations and functions by taking into account job
costing system. This system focuses on the accumulation of cost associated with the specific
products or services. In the case of having contract with the customers, using such system,
manager of the business unit can provide information to the customers about the areas where
cost reimbursed. Job costing system also allows firm to get reasonable profit margin by
quoting a suitable price. Hence, using such system manager of firm can take suitable pricing
decisions and thereby becomes able to get desired level of profit margin.
Further, job costing includes several other tools or methods which can be used for
price determination namely process, batch, contract and service. Under such costing separate
numbers are allotted and records maintained separately.
Contract costing may be served as the main part of job system which in turn highly
applicable on long term deals. Under such method, separate numbers are allotted to each
contract and records are maintained separately in relation to the same.
For example:

In addition to this, process costing is used when manufactured units vary from one
another to the significant level.
Service costing method is suitable for the companies which involve in the sector such
as hospitality, care homes etc.
For example: In the context of hotel unit, which falls under the category of service
sector, per unit cost can be determined in the following manner:
Total number of meals: 5000

Total expenses: £67000
Cost in relation to per meal served: 67000 / 5000
= £13.4
Advantages
 It enables manager to ascertain cost at any stage of job completion. Hence,
considering such information suitable steps can be undertaken by the manager for cost
control.
 Under job costing, management team can make estimation about cost by taking into
account past records.
 Job costing tool helps in doing trend analysis and thereby provides assistance in
making prediction about the near future (Advantages and disadvantages of job
costing, 2018).
 It does not include aspects in relation to under and over recovery of overhead.
Disadvantages
 Job costing method demands for close supervision because in this there is no job
standardization
 It is time consuming process and requires more clerical work
 Along with this, in job costing there is no possibility in relation to controlling cost
because large number of small jobs is executed at a time in job costing.
b. Presenting financial information
1 and d1 Presenting different types of managerial accounting report
Managerial accounting reports contain information about day to day business
activities and functions. In the context of business unit, managerial accounting reports are
highly significant which provides assistance to the owners and managers in monitoring
performance. There are several types of managerial reports which Tech Ltd can prepare for
getting information about decision making such as:
Budget report: By preparing and using job cost report manager of Tech Ltd can
analyze company’s performance. This report helps owner in analyzing departmental
performance and controlling cost level. In this, manager records deviation and reasons behind

the occurrence of same by comparing actual financial figures with the budgeted aspects.
Hence, by taking into account such report owner of Tech Ltd can make appropriate
estimation about future expenses and thereby would become able to prepare competent
financial plan (Kaplan and Atkinson, 2015). Further, manager of Tech Ltd can also use
budget report for providing incentives to the employees.
Accounts receivable ageing: For the purpose of cash flow management, accounts
receivable ageing report is highly suitable. Receivable reports furnish information to the
company about the balances of customers by how long they have been owed. Through
undertaking such report owner of Tech Ltd can assess issues associated with the collection
process. For instance: If business unit finds that most of the customers are not in position to
pay due amount on time then focus needs to be placed on tightening policies.
Job cost report: It presents cost or expenses that are associated with specific projects.
For evaluating job profitability usually expenses are matched with revenue. Using this report,
firm can assess high earning areas of business unit and thereby become able to allocate
resources in an effectual way. In other words, job costing report helps in making efforts in the
right direction rather than wasting time in low profit margin areas. Hence, job cost report
offers opportunity to Tech Ltd in improving the areas of waste before cost escalation.
Inventory and manufacturing: Tech Ltd can make its manufacturing process more
efficient by taking into account in stock report. Moreover, this report serves information
about inventory wastage, per unit overhead cost etc. Hence, getting information about such
aspects manager can take suitable decision for improvement purpose (Wijaya and et.al.,
2015). Along with this, such report also gives indication whether company needs to take
suitable measure for controlling holding and ordering cost or not.
Hence, by taking into account all the above depicted aspects it can be presented that
managerial reports are highly prominent and aid in significant decision making.
2 and d1 Stating why information presented in managerial reports must be understandable
In the current times, company prepares managerial accounting reports more
frequently with an objective to take quality and appropriate decision which makes
contribution in the attainment of goals. In accordance with the aspects of managerial
accounting reporting, information must be reliable, comparable and need to be presented in a