Comprehensive Management Accounting Report: ABC Ltd (Finance)

This report provides a comprehensive analysis of management accounting practices within ABC Ltd, a medium-sized manufacturing enterprise. It defines management accounting, explores different accounting systems such as cost accounting, inventory management, job costing, and price optimization systems, and details various management accounting reports including accounts receivable aging, inventory management, and budget reports. The report also examines the benefits of these systems and their integration within organizational processes, alongside a comparison of marginal and absorption costing techniques. Furthermore, it discusses the advantages and disadvantages of planning tools, their application in budgeting and forecasting, and how organizations adapt management accounting to solve financial problems, ultimately leading to sustainable success. The report concludes with a discussion on how planning tools for accounting respond appropriately to solving financial problems to lead organization to sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Management accounting and different types of management accounting system.................1
Different methods of management accounting reports..........................................................2
Benefits of management accounting system and their application........................................4
Integration of management accounting system and reports within organisational process.. .4
TASK 2............................................................................................................................................5
Marginal Costing....................................................................................................................5
Absorption Costing.................................................................................................................5
TASK 3............................................................................................................................................8
Advantages and disadvantages of planning tools and their application ................................8
Use of different planning tools and their application for preparing and forecasting budget 10
TASK 4..........................................................................................................................................10
Compare how organisations are adapting management accounting system to solve financial
problems...............................................................................................................................10
Management accounting can lead organisations to sustainable success..............................11
Planning tools for accounting respond appropriately to solving financial problems to lead
organisation to sustainable success......................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management Accounting is a process of preparing management reports and accounts to
examine the costs of business and operations (Bandy, 2014). It is a internal part of an
organisation to maintain and evaluate performance of company. It will help to achieve desired
goals and objectives regarding to future perspectives. Hence, it is the instrument of making sense
for the financial and covering data and it is translating in useful information according to
management and officers. In presented report selected company is ABC, a medium sized
enterprises in the manufacturing sector. In this report consist of management accounting
definition, different accounting system and their application. There is identified rage of
management accounting techniques and use of planning tools in management accounting. Apart
from compare ways in which organisation could use management accounting to solve financial
problem.
TASK 1
Management accounting and different types of management accounting system
Management accounting is the process of identifying, measuring, analysing, interpreting
and communicating information to managers for the pursuit of organizational goals. It is also
known as managerial accounting and cost accounting.
Essential requirements of management accounting system
Management accounting system monitor and control all departments of a business such
as finance, human resources, IT, sales and operations. There is mentioned different accounting
system which is followed by company to achieve their goals and objectives and fulfil all
requirements.
Cost accounting system – A cost accounting system is a framework which is used by
firms to predict the cost of their products for the analysis of profitability, control of cost and
valuation of inventory. To estimate of accurate cost of products is critical for profitable
operations. The system is important for good cost accounting system in the following manner:
 Flexible and Simple – The cost accounting system created for flexible work and easy to
understand problems. It will help to attain the requirements regarding to several users and
it will adopt requirement of company (Basel, 2012).
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 Cooperation and participation of executive required by several departments – It will
assure about cooperation and involvement in the process of building cost accounting
system which provide help to correct find out cost of each products.
Inventory management system – It is a type of management accounting system which is
afraid with supervision and management of stock and non-capitalized asset of business. The
system can track stock through the supply chain and their portion to operates business in. it will
focus on everything which is related to stocks like production to retail, warehousing to shipping
and all the movements of stock and parts between.
Job costing system – This is a system which is assigning for manufacturing cost to each
individual product while keeping track on expenditure monitoring. ABC Limited can adopt this
system for determine required order to submit the cost information under a contract of cost
reimbursed. These information is useful for analysing the accuracy of a company's estimating
system. In job costing system including direct labour, direct material and overheads.
Price optimization system – The system is used to control the prices of resources and it
will help to decide the prices of different products. Price optimization system helps to determine
of fluctuated demand at different level of prices. The company ABC ltd can follow this system
for trading the price of customers segments by re-create their response to different level of
prices. ABCwill use this type of management accounting system which is helping to understand
price structure of an organisation for initial pricing, discount pricing and promotional pricing.
There is considering some factors like product life cycle, competitors pricing strategies and
category goals.
Different methods of management accounting reports
Management accounting reports are the confidential reports which provide financial and
non- financial information to its managers to take short term and long term decisions. These
reports help in planning, regulating, decision making and measuring performance. These reports
are generated on daily basis as major decisions are dependent on such reports. Some reports are
budget reports, performance reports, account receivable aging reports, inventory reports and
many more. The organization prepares many management accounting reports and there
description is as follows:
Account receivables aging reports - Account receivables aging reports helps in
managing flow of cash in the organization. An organization uses such reports to find problems
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with the organization's collection process. It is used to analyse the organizational reliability on its
customers. This report is used to determine the financial health of an organization's customers.
ABCprepares such reports as it helps in providing the managers a good idea of receivables
portfolio. It helps in identifying customers that are falling due on their payments. The
organization uses this report to plan collection calls and try to forecast the cash flows (Bragg,
2012).
Inventory management report - Inventory management reports are prepared to maintain
the stocks of products produced in a corrective and systematic manner. These reports help in
making the manufacturing processes more efficient. Such reports help in reducing material
handling costs in an organization. By viewing these reports, managers can ensure continuous
supply of finished products and facilitates the unhandled production. ABC prepares such reports
to maintain required quantity of finished goods for smooth sales services and providing efficient
services to its customers. These reports reduces the dependencies on one another and enable the
organization to schedule the work without depending on another organizations.
Budget report - Budget reports are prepared to make plans for the future of any
organization. These are prepared on monthly and annual basis. These are prepared to analyse
department wise performance, business performance and to control the costs. These reports are
based on the previous experiences of the organization. ABC uses such reports to guide managers
to prepare plans for employee incentives, restructure programmes with suppliers and vendors and
to cut costs. Managerial accounting reports related to budgets are crucially important as it helps
the organization to take managerial decisions to achieve its mission and goals (Kalkhouran and
et.al., 2015).
Performance report - Performance reports are prepared to review the individual
employee and organizational performance within the financial year. These are usually prepared
by large organizations. Such reports indicate the performance indicators, which help in
rewarding the committed employees and to motivate the employees who are not able to achieve
targets. ABC uses such reports to measure the achievements of the organization and its
programmes. Through these reports, the organization measure the actual performance with the
standards set and make plans to correct the deviations, if any.
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Benefits of management accounting system and their application
There are several benefits of management accounting system in the reference of ABC ltd
is presented below -
Job costing system – It is beneficial for a company to estimate cost of different types of
products at manufacturing process. The company ABC ltd has followed this system to identify
each unit of different cost item. The manager of company review all the components and
determine the quality of the work (Chenhall, 2012).
Inventory management system – The system can use to track all records of inventory
during to manufacturing process. The company ABC ltd can follow the system and apply in
effective way to reduce wastages of inventory. It will provide all detailed information about
stock of all the stages and improve the efficiency and effectiveness in saving time and money.
Cost accounting system – The system can measure the effectiveness of processes then it
will assist in making modification. The company ABC ltd adopted the system for set and
reduction of prices and it will help to provide all required information. The system will help in
the analysis of risk and planning regarding to objectives.
Price optimizing system – The company of ABC ltd can analyse of different prices of
different customer according to customer demand. It helps to maximization of operating profit
with different prices and it will assist in the customer segmentation. It will useful to set prices of
different products and ABC ltd apply to understand price structure at different level.
Integration of management accounting system and reports within organisational process
The management accounting system and reports are essential part of an organisation
which is helping to coordinate with organisational process -
Type of reporting Integrated with in organisational process
Budget Report These types of report are integrated with ABC's process
because it will help to understand business activities from
the future perspectives. It shows a way to how to conduct all
activities in order to control and monitor activities to
achieve their desired goals and objectives.
Inventory management report With the help of this report ABC can know about inventory
information and it will affect to decision making process. It
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will provide all information of manufacturing process and
know about raw material, finished goods and remaining
goods. It will help to reduce wastages of goods.
Performance report It is directly related to process of ABC because it is showing
performance of everyone like individual and organization. It
will show actual performance and shows strength and
weakness in particular financial year. With the help of this
this report motivate and encourage to employee and provide
reward to accomplish organisational goals and objectives.
Accounts receivable Agin report It is integrated with ABC limited process to show
performance of cash flow. It will present actual cash inflow
and cash outflow to measuring performance of accounts.
With the help of this report dealing with problems of
accounts and solve by apply different strategies (Cleary,
2015).
TASK 2
Marginal Costing
It is a technique of costing where in the variable cost are charged from cost units and the
fixed cost credited from relevant period is written off in full against the contribution for
particular time period. Marginal costing is the observed of marginal cost effect on the profit as
well as changes in volume. It is a type of result by differentiating between variable costs and
fixed costs. In marginal costing costs are divided into variable cost and fixed cost.
Absorption Costing
It is a cost method of managerial accounting where all costs are connected with
manufacturing product which is based on generally accepted accounting principles. There are
manufacturing products including wages for workers who manufacturer physically, producing
raw material and overhead costs. It is the ending of cost of the production process which is
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included of direct materials, variable manufacturing overhead, direct labour and fixed
manufacturing overhead (Fiondella and et.al., 2016).
Production Cost per unit
Direct Material – £10
Direct Labour – £20
Variable overhead – £5
Total fixed production overhead cost – £100000
Use standard volume of 2000 units to absorb the fixed production overhead cost
Selling price - £50
Absorption cost - £40
Absorption costing = 10+20+5+100000/20000 = 40
Total Production cost
Budget – Absorption costing technique January
Production cost per
unit
Total
Direct Material 10 18000*10 180000
Direct Labour 20 18000*20 360000
Variable overhead 5 18000*5 90000
Fixed overhead 5
40 18000*40 720000
Total Cost of sales (January)
£
Cost of production 720000
Opening inventory 0
Closing inventory -80000
Cost of sales 640000
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Absorption costing – Actual profit or loss statement Jan 2019
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 190000
Direct Labour 20 380000
Variable Overhead 5 95000
Fixed Overhead 5 95000
40 760000
Opening inventory 0
Closing inventory -120000
Cost of sales 40 -640000
Standard profit 10 160000
Adj. For under absorption -5000
Budgeted profit 155000
Variable Costing - Actual profit or loss statement Jan
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 180000
Direct Labour 20 360000
Variable Overhead 5 90000
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Fixed Overhead 35 630000
Opening inventory 0
Closing inventory -70000
Cost of sales 35 560000
Contribution 15 240000
Fixed overhead production -100000
Budgeted profit 140000
Variable Costing - Actual profit or loss statement Jan (When
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
Direct Material 10 190000
Direct Labour 20 380000
Variable Overhead 5 95000
Fixed Overhead 35 665000
Opening inventory 0
Closing inventory -105000
Cost of sales 35 560000
Contribution 15 240000
Fixed overhead production -100000
Budgeted profit 140000
Financial Report
BUDGET ACTUAL
£ £
Fixed overhead charged to production cost 90000 95000
Under fixed overhead charged to profit or loss account 10000 5000
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Fixed overhead charged in the month 100000 100000
Fixed overhead transferred through closing inventory to
next month February 10000 15000
Fixed overhead charged 90000 85000
TASK 3
Budget
A budget is a formal statement which is based on predication of incomes and expenses
regarding to future plans and objectives. In additional words it is a document that management
makes to predict upcoming expenses and incomes for following year to achieve desired goals
and objectives.
Budgetary Control
It is a process of controlling cost of expenses and how well managers can apply budget to
monitor and control costs in particular time period. With the help of this process manager can set
particular goals and objectives after then compare actual and budgeted result of company.
Advantages and disadvantages of planning tools and their application
Zero base budget
Zero based budget represents a method of budgeting where all expenses and incomes are
justified according to new period. This budget includes all other financial budgets and acts as a
strategic plan for the future of the company. This helps an organization to build strategic
decisions for long term as well as for current year forecasting. It is a summary of all other
budgets (Klemstine and Maher, 2014) .
Advantages: Zero based budget helps in financial planning, preparation of budgeted
profit & loss account and balance sheet of the organization.
Disadvantages: It is very difficult to update Zero based budget as it includes various
other budgets in it. Also it is complex task to understand it.
 Incremental Budget
Incremental budget is based on the previous budget because it will prepare according to previous
budget policy and also analysis of current position. If accountant identify any changes so new
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amounts will be added and prepare incremental budget. In the budget allocation of resources
based upon allocation from the previous period.
Advantages: Incremental budget helps in identifying the potential deficits quickly. An
organization can easily communicate its financial position by having a glance towards it.
Disadvantages: Incremental budget limits the spending power of an organization. This
budget limits the ability of an organization to build a credit profile as only cash transaction are
recorded in it.
 Flexible Budget
Flexible budget is prepared to present the changes of organizational strategies to manage its
assets, expenses, incomes and cash flows. This budget helps in analysing the impact of financial
decisions taken by the analysts of the organization.
Advantages: Flexible budget provides Flexibility regarding to volume or activity and it
will help to flex amounts according to fluctuated situations.
Disadvantages: Inaccurate planning and calculations makes flexible budget unrealistic. It
requires a lot of time and effort to prepare and understand flexible budgets (Leitner, 2013)
(McVay, Kennedy and Fullerton, 2016).
 Rolling budget
Rolling budget is a flexible budget in which changes can be done whenever required. It is like
extension of an existing budget model. These are used in long term financial planning. It requires
more managerial attention while preparing it as few activities are repeated in it.
Advantages: Rolling budget is flexible in revising the assumptions from the last budget
made. It helps in extending the period of existing budget.
Disadvantages: Rolling budget preparations are not advisable when many changes are
there. It is a wastage of time and money to prepare the rolling budget
Use of different planning tools and their application for preparing and forecasting budget
For preparing and forecasting budgets applied Strategic and forecasting planning tools.
These tools are helping to prepare strategy according to organisational rules and regulations. It
will help to accomplish their goals and objectives. ABC ltd can apply strategic planning tool to
prepare effective strategy and it is changeable according to time period and as per the
requirements. In strategy tool includes SWOT analysis and balanced scorecard, both are related
to internal policies for external apply PESTLE analysis. Forecasting tool used by company to
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estimate future expenses and incomes in the manner to prepare different types of budgets of
different sections. It will help for decision making to attain future goals and objectives and
observe performance of company. In strategic planning tool SWOT analysis provide all internal
information at various level and balanced score card through measure performance of company.
In forecasting planning tool estimate performance in order to know strength and weakness of
company but it is based on market research and on different software (Rankin and et.al., 2012) .
TASK 4
Compare how organisations are adapting management accounting system to solve financial
problems
Management accounting system can help to
KPI - The key performance indicator helps to measure the performance of division,
departments and employees of business organisation. The amount of investment made into a
project and return on investment can be identified with the help of these performance indicator.
ABC analyse various alternatives available in the market they are evaluated and best alternative
amongst them is selected by this company.
Benchmarking - This technique measures the company's performance with best
performance of competitor's company. It allows a comparative analysis between two companies.
This technique helps to identify key strengths of competitor's successful business which ABC
company incorporates into his working to become successful (RW Hiebl, 2013).
Financial governance - The financial governance govern the collection and management
of information related to finance. Problems occurring in various departments of organisation
can be solved with help of this. ABC evaluates the risk associated with frauds, mismanagement
and errors of data in financial books can also be prevented with the help of financial governance.
Difference between ABC limited and Parkwood enterprises
ABC Limited Parkwood Enterprises
ABC limited is a medium sized enterprises in
the manufacturing sector. It can promote
different departments in the organisation. The
company can faces extra wastages of materials
which need to be controlled. In hence, there is
Parkwood enterprises belongs to food chain
industry that is following benchmarking as a
financial tool for identify problems in
management system. Organisation is getting
challenge regarding to different types products
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using KPI tools for understanding the expenses
and the outcome for following year. It will
provide chance to manager for keep watching
and control irrelevant cost regarding to
manufacturing process.
and their price according to customer demand.
Company cannot set amount in appropriate
way.
For solving financial problem relating to
inventory, carrying cost, order cost is adopting
inventory management system which mange
all stock at every level with detailed
information. The company can manufacturer
several types goods and services to set
standards for their employees. The tool
benchmarking can help to improve
performance of employees in an organisation.
Management accounting can lead organisations to sustainable success
Management accounting is necessity of business organisation which is provided different
accounting system to identify financial problems. These problems can have related to money or
non-budgetary issues. It will arrange with the help of different strategies and policies which is
appropriate for an organisation (Sisaye and Birnberg, 2012) . These systems can help for better
improvement and change structure of an organisation. Different accounting system work in
different system and arrange all issues and problems in the under of supervisor and mentor. They
are monitoring activities of business and survive for money related issues and react on these
issues for successful arrangements.
Planning tools for accounting respond appropriately to solving financial problems to lead
organisation to sustainable success
Planning tools are part of accounting which is helping to manage all accounting activities
in order to getting sustainable success. The planning tools are connected to organisation position
and help to prepare budgetary plans for upcoming year. Budgets can arrange all income and
expenses regarding to company and control activities to getting objectives. With the help of
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planning tools identify all financial problems and sort out in accounting period (Spraakman and
et.al, 2015).
CONCLUSION
From the above discussion it has been concluded that management accounting system
and reports are essential part of an organisation. Both are interrelated to process of a business
and help to decision making process. There is calculated and measure performance of a company
through absorption and marginal costing. The company has adopted different planning tools to
evaluate performance of company and show actual situation. The company has using KPI,
benchmarking and financial governance in order to solve financial problems and achieve
sustainability success.
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