Higher Nationals Management Accounting Report: Concepts and Techniques

This report delves into the core concepts and techniques of management accounting, focusing on cost analysis, budgeting, and financial reporting. It explores various types of management accounting systems, including cost accounting, inventory management, job costing, and price optimizing systems. The report examines different management accounting reporting methods such as budget reports, job cost reports, and performance reports. It further provides practical calculations of costs using marginal and absorption costing to prepare income statements. The report also discusses planning tools for budgetary control, and compares how organizations adapt management accounting systems to address financial challenges. The assignment is designed to enhance understanding of management accounting principles and their application in real-world scenarios, providing a comprehensive overview of the subject matter.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems................................................................................................3
P2 Explain different methods used for management accounting reporting................................5
TASK 2............................................................................................................................................7
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................7
1 Preparation of income statements:...........................................................................................7
TASK 3..........................................................................................................................................10
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control......................................................................................................................10
TASK 4..........................................................................................................................................12
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is an accounting branch that refers to the implementation of
professional understanding, skills, tools and techniques and concepts for preparation of
accounting info. in a manner that facilitates formulation of plans and policies by the
management, having control on the operations, utilization of resources efficiently and optimally
and safeguarding them, taking appropriate decisions and satisfying all stakeholders. It presents
the analysis of business activities with the internal management and helps in increasing
efficiency. As per Institute of Cost Management Accounting (ICMA), London Management
accounting is the preparation of accounting information by applying the professional knowledge
and skills in such a manner that helps the management committee in policy formulation and
operational planning and controlling (Booth, 2018). According to American Accounting
Association, management accounting is the method and concept required for an effective
planning process that helps in choosing between various business action alternatives and
evaluating, interpreting and controlling them.
This report is prepared in context to Connect Catering services. It is a Catering business
unit having its headquarters in Oxfordshire, United Kingdom. It is an experienced and
knowledge and ensures what they deliver is what they promise. It was founded in the year 1989,
by John Herring and his two daughters. This report consists of few topics discussed in detailed as
what is management accounting and its different types, different reports used in management
accounting, calculation of cost using various methods, advantages and disadvantages of
budgetary tools and comparison between two organisations in terms of the approach they use for
solving their financial problems.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
It is the process of developing organizational goals and objectives by quantifying,
inspecting, interpreting and communicating guidance to the managers is referred as management
accounting. It is also called as managerial accounting. It facilitates decision making for the
managers by providing then the financial resources and information (Brescia, 2019). It aids the
management in effectively and efficiently performing their operations and to monitor and control

the functions. It involves timely preparation and providing of the financial statements of the
company to its stakeholders. These reports are generally prepared for the internal stakeholders of
the firm, external stakeholders are not much concerned to such reports. Management accounting
reports usually include details like availability of cash, sales revenue generation, current status of
accounts receivable and payable and other similar reports.
The origin of management accounting is from the financial accounting, also there is a
vast difference between the two. Managerial accounting is more beneficial, thus is used widely
(Deegan, 2016)(Harper and Dunn, 2018)(Jiambalvo, 2019). Few of the differences between the
management and financial accounting are listed below:
Basis Managerial Accounting Financial Accounting
Content It is related to both type of
information i.e. Financial and
Non Financial.
It is only concerned with the
information having financial
information in it.
Uses and Purposes It is majorly used by the
internal stakeholders of the
organisation for decision
making process.
It provides information which
are necessary for all the
stakeholders of the company
that facilitates decision making
related to their interests.
Rules, Regulations and Laws It does not involve compliance
of any type of law as these are
prepared only for the use by the
internal management
committee of the company.
Various rules and regulations
are to be followed by the
organisation's accountant while
preparing these type of financial
accounts.
Auditing It is the tool used for evaluating
company's performance,
finding deviations and taking
corrective measures for
overcoming such deviations
(Krutova, 2016). It does not
include any type of external
It involves the interference of
external parties and independent
audits like corporate audits,
revenue audits , etc... These are
done for complying with the
rules and regulations associated

interference or independent
audits.
with the company.
The different management accounting systems are as below:
Cost Accounting System- It is the process of recording, analyzing and reporting all the
costs like Variable, Fixed and Semi Variable that are incurred in the course of business. It assists
the management in identifying the areas that needs improvement and taking steps for correcting
the lack points. It is also known as product costing system or costing system. This framework
facilitates the enterprise in evaluating the cost of product, its profitability analysis and inventory
valuation (Lombardi, 2016). The objective behind this cost is to improve the net profit margin of
the company's products.
Inventory Management System- It is the systematic approach of ordering, storing and
managing the inventory of raw material, finished goods and other components in an
organization. It controls the quantity of the product for sales and managing company's stock and
inventory. It ensures availability of right stock, in right quantity, at the right time and at right
place, also purchased at a right cost. It reduces the risk of inventory gluts and shortage for
organization's having a complex supply chain and manufacturing process. It aims at reducing
cost and overstocking for minimizing losses and maintaining liquidity.
Job Costing System- It is the process of accumulating information related to the cost
associated to a particular job or production process. It is also called as job order costing. It forms
a specific order cost that is associated to the work done on the special requirement of the client.
It complies of Specific product quantity, appliances, and other related expenses incurred in the
production process of a particular product. Its aim is to calculate and ascertain the profits or
losses made on a particular job or product.
Price Optimizing System- It is the mathematical process for determination the prices of
a product. It helps in predicting the change in the price or volume and finding the desired price or
the maximum amount a customer is willing to pay for buying the company's product and services
(Luft, 2016). It facilitates the organization for using the prices as a powerful profit lever.

P2 Explain different methods used for management accounting reporting.
Accounting reports plays a vital part in giving the complete picture of the company's
performance in comparison to the industry trends. An extensive accounting report are prepared
after a particular interval of time that provides a aggregate view of business finances. These
reports includes financial information from the recorded accounting transaction providing
information about operational costs, profitability of a product or the sales revenue earned. These
reports help the managers in taking the appropriate decisions and guide the direction towards the
path for achieving the organizational goals and objectives. The information contained in this
report should be accurate, complete and reliable (Mio, ed., 2016). Few of the reports prepared by
the managers used for management accounting reporting are listed as:
Budget Report- It is the most fundamental type of report and assists the business owners
in acknowledging and controlling the cost across the organization. It is important for measuring
the performance of the firm. A budget is usually prepared on the basis of past experiences and
guides the manager for offering the employees better incentives, cost cutting negotiation terms
with suppliers and vendors. A budget provides an estimate of the organization's earnings and
expenditures and prepares the business for catering to the unforeseen circumstances that may
happen due to the dynamic nature of environment.
Job Cost Report- It provides a basic view of the total cost incurred on a particular
project or task and compares it with the expected revenue yield for that project. It helps in
evaluating the profitability of the specific task or project and optimizing its operational process
to make it more profitable. It facilitated in the identification of the highest earning business areas
and giving less focus on the businesses earning low returns. It also assists in investigating the
expenses done on a project so as to avoid wastage and have a control over it for making the
project profitable.
Inventory and Manufacturing Budget- This report is the summary of the quantity of
inventory held by a business unit at a given period. It helps in centralization of data related to the
inventory cost, variety of overheads involved in the production process and cost of labor
associated with the optimally assembling of raw material and converting them into the finished
goods (Moilanen, 2016). It aims at making the the production process more efficient and
generally includes items like labor cost or overhead cost incurred per unit, inventory wastage
cost and other similar costs.

Order Information Report- It helps the management committee in evaluating the
business trend as to their effectiveness and efficiency. This report contains information of
multiple orders received by the company. It assists in integrating various management operations
for achieving cost leadership on the placed orders.
Accounts Receivable Aging Report- It provides the information relating to the credit
balance of the customers and includes various category items like 30 days, 60 days and 90 days
or later. It facilitates the aligning of company's credit policies with its customers paying capacity.
It break down the customer balances and the tenure they are owned. It is used by the manager for
finding the problem related to the company's credit collection process (Nakmahachalasint and
Narktabtee, 2019). It ensures removing the old bad debts and maintaining adequate liquidity in
the organization.
Performance Report- This report addressed the end results of the activities or
individual's performance in context to the work done by him. It acts as a base line for the
standard performance, evaluating the variances and take corrective actions to overcome those
variances. It includes performance indicators like achievements made, goals achieved, tasks
accomplished, etc..
TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
1 Preparation of income statements:
Cost per unit under absorption costing-
Activities April May
Variable Manufacturing Cost per unit 4 4
Fixed Manufacturing Overhead Cost per unit 6 5
10 9
Income statement under absorption costing
Particular April May
Sales 16000 16000
Less: Cost of sales ( COS) 20000 23000

Fixed Manufacturing Overhead Cost 15000 15000
Variable Cost 10000 12000
Cl. Stock 5000 9000
Op. stock 0 5000
Gross Profit/ Loss -4000 -7000
Less: Fixed Non Manufacturing Cost -4000 -4000
Net Profit/ Loss -8000 -11000
Cost per unit under absorption costing-
Activities April May
Variable Manufacturing Cost per unit 4 4
Particular April May
Sales 16000 16000
Less: Marginal Cost of Sale (MCOS) 8000 10000
Variable Manufacturing Cost 10000 12000
Cl. stock 2000 4000
Op. stock 0 2000
Contribution 8000 6000
Less: Fixed Manufacturing Overhead Cost 15000 15000
Less: Fixed Non Manufacturing Cost 4000 4000
Net Profit/ Loss -11000 -13000
Reconciliation statement:
Particular April May
Net Profit/ Loss under absorption costing -8000 -11000
Less: Cl. stock -3000 -2000
Net loss under marginal costing -11000 -13000

2 income statement using marginal costing
1. Identify which costs are fixed and which costs are variable.
Fixed cost:
Activities Amount
Manager Salary 5000
Rent Expenses 5000
Insurance Cost 500
Utility 500
Advertisement cost 1000
£12000
Variable cost:
Activity Amount
Direct Material costs per unit of Pizza 3.50
Direct Labour costs per unit of Pizza 1.50
Direct Overhead costs per unit of Pizza 0.50
£5.50
2. Show the Break-even point using a Break-even graph.
Break Even Point (In unit): Fixed cost / contribution per unit
Contribution per unit = Selling Price per unit - Variable cost per unit

= 9.50 - 5.50
= 4.00
BEP = 12000 /4
= 3000 Units
Break Even Point (In revenue): Fixed costs / PV. Ratio
PV ratio = Contribution/selling price*100
= 4/9.50*100
= 42.10%
BEP (In revenues) = 12000 /42.10 %
= £ 28503
3. What would be the Margin of Safety if the organization managed to sell 2500 Pizzas?
Margin of safety sales = Sales unit - BEP in Units
= 2500- 3000
= -500 Units
4. If the manager’s salary is increased to £6,000, how will this affect the BEP in units and in
sales value?
If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New Break Even Point (In unit) = 13000/ 4
3250 Units
New Break Even Point (In revenue) = 13000/ 42.10
= £ 30878
2 b
Preparation of graph:

Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed Cost 12000
Break Even Point 28503
Variance analysis report:
Actual units sold = 12000
Budgeted units to be sold = 10000
Budgeted price per unit = 9.50
Sales volume variance = (Actual units sold - Budgeted units sold) x Budgeted price per unit
= (12000- 10000) * 9.50
= 2000 *9.50
= 19000 Favourable
Flexible budget
Items Actual Budgeted Variance
Sale price 10 9.50 .50 Favourable
Sale units 12000 10000 2000 Favourable
Revenue 120000 95000 25000 Favourable
Fixed costs 15000 12000 3000 Adverse
Variable costs 5 5.50 .50 Favourable

TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Management accounting tools includes the processes and techniques that helps the
organisation's management committee in taking appropriate decisions. The main purpose of it is
to improve and enhance the performance, adding values in organisational processes, pillars
strategic objectives and aims (Narayanaswamy, 2017). There are various different functions
performed by the management committee like planning, controlling, price fixing, etc... Variety of
tools are required for different purpose:
Firstly, the planning of business activities is done, on the basis for observing and
supervision functions. The tool used by the management for the same is the budgeting.
Budget is the approximate forecasting of expenses incurred and revenues earned by the
business over a specific period of time and are re-evaluated on a continuous periodical basis. It is
a type of financial plan defining the period, and includes the sum of money assigned to a
particular objective (O'Leary, 2018). It is classified in two categories: Operational Budget and
Capital Budget. Few different budgets prepared by the management of Connect Catering
Services are:
Cash Budget- It is the estimated statement that includes the cash inflows and outflows in
a given time period. It assists management in discovering the source and nature of flows. It
determines the cash availability and allocation over a specific period. Advantage- Helps in avoiding situations like over or under liquidity and effective
planning for the smooth business operations.
 Disadvantage- These are prepared on estimation and does not ensure accuracy. Also it is
very rigid in nature and does not consider uncertainty of the changing business
environment.
Sales Budget- It helps in forecasting the sales of the company's product or service in a
given financial year or a specified period. It helps in strategies formulation by the organization
for their declined sales.
 Advantage- An accurately prepared sales budget is necessary for the formulation of the
master budget as it acts as the base for it (Okano, 2016). It helps the management in
estimating its ability to earn the revenue by the sales of its products and services.