Management Accounting Report: Cost Analysis, Planning Methodologies

This report provides a comprehensive overview of management accounting, encompassing essential concepts and practical applications. It begins by defining management accounting and its significance in strategic decision-making, emphasizing the need for qualified professionals to guide companies toward their objectives. The report delves into various methods, including traditional and lean accounting, highlighting their roles in cost reduction, efficiency, and strategic planning. It explores different reporting tools such as job cost reports and inventory management reports, crucial for assessing performance and making informed decisions. Furthermore, the report analyzes cost computation techniques, specifically absorption and marginal costing, and demonstrates their application in framing income statements. It also examines the benefits and drawbacks of different planning methodologies used for budgetary control, and how management accounting systems can be utilized to address financial challenges. Finally, the report provides a detailed income statement comparison using both absorption and marginal costing methods, offering a practical understanding of their impact on financial reporting and decision-making.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
P.1 Management accounting and its mandatory requirements for making ................................3
P.2 Methods used for the management accounting:....................................................................5
P.3 Computation costs via adequate techniques of cost analysis to frame an income statement
through marginal and absorption costs:......................................................................................7
P.4 Benefits and disadvantages of different kinds of planning methodologies used for
budgetary control:.......................................................................................................................9
P.5 Management accounting system is used to face the financial problems:...........................12
CONCLUSION:.............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accountants are the qualified specialist through which company is able to make
their strategy for the attainment of their set objectives and goals. With the help of management
accounting practice, company will frame their strategy in order to attain the goals. Nowadays,
decision making is an important task for making company sustainable(Talha, Raja and
Seetharaman, 2010). It requires the quality team to make the effective decision for the viable of
the firm. This is the main tool so that the management can be effectively made and make the
company profitable. Now effective decision making is necessary for the development of the
company and this could be done with the help of qualified management accountants. Now, there
is need for selecting the qualified staff and this is done via effective HR policies.
P.1 Management accounting and its mandatory requirements for making
Management accounting is the process by which reports and accounts are made and also
provides the exact and beneficial information which is needed by the managers of the company
to make their routine operation in a better way(Vaivio and Sirén, 2010). Management accounting
is a different from the financial accounting and make monthly and quarterly reports for the
company’s inner management or staff like production managers and managing directors so that
they could frame their better policies and also assist in getting the sustainable development.
Mainly these kind of reports displays the current cash, sales outstanding debts, company’s stock
etc. and also assist the company to make trend chart, variance research. However, management
accounting helps the company to frame the accounting information for providing effective
information within the organization(0van der Meer-Kooistra and Vosselman, 2012). However,
there are the three main areas where management accounting practices can be done. These are:
1.Strategic management: Management accountant plays a crucial role for making the
effective strategy so that the effective policies could frame and also better decision can be
designed.
2.Performance management: Management accountant emerges the practice of designing
better decision making and handling the performance of the company.
3. Risk management: Management accounting helps the firm to effectively mange the
risk and also try to eliminate it with the better performance for the firm’s division. With the help

of management accountant officer, company could able to manage their risk and that is why it
can focus on the development of the firm(Van Helden and et. al., 2010).
However, management accounting main task is for planning and providing decision support for
the management of the firm for effective and efficient running of the company. Management also
assist the company’s management in framing and presentation of financial and other decision
oriented information for formulation of strategy for the planning and control of the routine
activities of the company.
There are so many accounting practices have been adopted since the emergence of the
corporate world.
Traditional management accounting: Earlier, organizations were limited to the traditional
management accounting approach that was mainly applied to cost accounting. And this was only
concerned to the cost of the product, as it is also depends on how to calculate and minimize the
cost and additionally, helps to minimize the cost. During the modern company concept, a great
deal of creation was transferred from people to huge organizations. The entire manufacturing and
selling comprised of a few change forms which were altogether performed in these huge firms.
Transformation procedure that some time ago were provided at a cost through market exchanges
moved toward becoming performed inside one association(Weißenberger and Angelkort, 2011).
A great deal of internal transaction happened as transformation procedures provided their profits
to a next procedure inside the association as opposed to offering their profit available.
Proprietors of these big organizations conceived frameworks to abridge the productivity by
which labour and material were converted over to finished product. These traditional accounting
system delivered proficiency measures, for example, cost every hour or cost per pound created
per process and per laborer.
Lean accounting: this accounting technique is differ from the traditional accounting
system. As, this accounting system does not only focus in the cost reduction process but also to
help the management of the company to make the strategy for the producing the better output
with the least cost. As this is the modern accounting technique(marginal cost. 2017). Lean
accounting helps the company to change the accounting , management procedure so that
effective manufacturing process can be done. Lean accounting technique enhanced the cost as
standard costing implement the labour and overheads cost. There is only one negative impact of
lean accounting which associated the standard costing in the manufacturing process. Lean

accounting is worked hard to overcome the waste cost from the cost process so that the company
will able to make company’s product profitable.
Importance of lean accounting: with the assistance of lean accounting , Astra Zeneca’s
management accountant can make the policies for the cost diminishment of goods. It is assessed
that if every one of the employee or member have thought regarding the lean accounting then
they could see how to segregate cost in various division in orderly way. This kind of accounting
data gives extensive variety of information to top administration to settle on most decision(Cost-
Volume Profit Analysis. 2017). Lean accounting additionally roll out successful improvements
in value chain exercises of firm which provides absorption of cost in various operational division
of Astra Zeneca. Management of firms implement this data to settle on an important decision
making and furthermore gives extensive variety of data to reviewers of organization to review
interior and outside elements of associations.
Cost accounting system: This is the system under which all the costs related to the cost of
production assessed in a great manner. With the help of this framework, company is able to
lower the cost in a most effective manner. The cited company also need to make their
business operations in an effective manner. As, this technique, eliminate the wastage costs
form the production process.
Inventory management system: This is the system which is used in order to control the
inventory in an effective manner (Ward, 2012). Inventory management also helps the firm to
assess the stock level and tries to optimum utilise it in a most effective manner.
Job costing system: This is the costing tool which is used in the firm in order to assess the
individual costs or each job cost. Job costs is assigned for a batch of products. Ususally, such
kind of system is implemented at the time when the goods are different from others. Such job
costs reflects direct material, labour and overheads costs connected to the production.
P.2 Methods used for the management accounting reporting:
There are different instruments to report the management accounting. These strategies
can be utilized to make for the organization's future venture of the organization. Such tools and
methodologies are used in management accounting reporting for effective running of the firm
and also to make the company to make profitable and viable. These will also assist the firm for
making efficient decision making. Some of the management accounting reporting tools are
mentioned hereunder:

Job cost reports: With the help of this report, the company would get to know about the actual
performance of the company (Shah, Malik and Malik, 2011). Under this, various costs reports
are used such as, work in progress, variance reports, sales recovery, value added profit summary
and so on. These all are included by the firm in order to have the business in an effective manner.
Inventory management reports: this covers three stock reports. Which are: inventory status
reports. With the help of these reports, company would recheck the status of the company by
locations, time gap and others. Implementing such reports to assess the profitability, turnover and
others for the stock. This is the reports where the company would get to about its actual profits
margin. With the help of this, company would get to assess the business performance. Under
this, various costs are analysed.
Cost accounting reporting: This accounting reporting is a system through which firm can
appoint its cost and it can display its cost figures as per the unit of thing. Cost accounting
supports the firm for solving the cost issue and attempt to understand them with the assistance of
cost accountant inside the firm. Cost accounting is essentially is required in the assembling firm
and organization likewise makes the procedure related technique for the limiting of the cost of
products with the assistance of cost accountants (Sánchez-Rodríguez and Spraakman, 2012).
Through a predominant cost distribution system, Astra Zeneca could execute better techniques
which can help them in diminish the cost of the manufacturing the product (Quinn, 2011).
P.3 Computation costs via adequate techniques of cost analysis to frame an income statement
through marginal and absorption costs:
There are such a large number of routes by which organization can figure the net benefits.
Management accounting helps the organization to compute the net profits of the
organization. By means of absorption costing and marginal costing, Astra Zeneca can
ascertain the net profits.
Absorption costing: it is the procedure which is utilized to separate the diverse costs which
are connected to the different production processes(Pipan and Czarniawska, 2010). This
philosophy additionally help the organization to evaluate the stock of a firm. Estimating is
additionally the main segments of the firm. Through this strategies whole assembling costs
can be ascertained when they really happened, budgeted costs could fluctuate from the actual
one. By means of absorption costing, over and under absorption could be dealt with in like
manner.

1. Marginal costing: This is the costing technique on which only variable cost is to be
considered. Fixed cost have been eliminated while calculating the profit volume ratio.
Through this tool, firm would able to make contribution in the firm.
2. Absorption costing: Under this technique, firm will able to absorb entire cost in the
production process. Fixed and variable cost, both are to be considered in the firm
production process(Dillard and Roslender, 2011)
Income Statement as per absorption and marginal costing :
Selling price £35
Unit costs
Direct materials £6
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £1
Budgeted production for the period is 600 units
Fixed costs for the month are given below
Budgeted cost Actual cost
Production overhead £1,800 £2,000
Administration cost £800 £700
Selling cost £400 £600
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £3
Fixed cost £5
Total £19
Sales (35*600) 21000
less:

Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable cost -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed overheads -2000
Admin & selling cost (700+600) -1300
-3900
NET INCOME AS PER MARGINAL COST 9300
NET INCOME AS PER ABSORPTION
COSTING:
Sales (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
less;over absorbed fixed production overheads -100 -1800
NET INCOME AS PER ABSORPTION
COSTING: 9600
Marginal costing: This procedure is utilized for settling on the inward strategy in the firm for the
short run. A different phases of exercises, point of marginal costing is distinguished about the
phase at which commitment can be earned(Nandan, 2010). whereas, marginal costing is the
procedure through which fluctuate in cost of opportunity which vary due to enhanced production.

Fluctuate in the opportunity cost because of improved production by unit over the specific level
can be recognized as marginal cost for the organization. Marginal costing manages the
managerial cost of creating that additional unit.
P.4 Benefits and disadvantages of different kinds of planning methodologies used for budgetary
control:
Budgetary control is necessary for the effective operation of business and this could help
in making the company sustainable. Now, there has been some advantages and disadvantages as
well of for budgetary control(Lee, 2011). Budgetary control assist the Astra Geneca company so
that the company could able to make the effective plan for the business, improved the efficiency
as well, improving the communication as well for the betterment of the firm, control the firm, co-
ordination the entire departments of the firm, motivation of the employees, maximizing the
revenues of the firm, estimating the loan or funding requirement of the firm and assist in making
the uniform policies. There are different types of budgets which are designed in order to maintain
balance in the organisation. Some of them are:
 Master budget – it is the biggest budget which is made after analysing al the other small
budgets. It controls the overall inflow and outflow of funds which is necessary to
maintain the overall performance of the organisation.
 Cash budget – It is specifically design to set the cash targets against each department.
Through this system allocation of finance is done in the most productive manner.
 Capital expenditure budget – every year management needs to take decision regarding
purchase of fixed assets in order to increase the scale of operations. Under this budgeting
system an amount is kept aside which will be utilised to acquire new resources.
Each of the above budgetary tool has their own advantages and disadvantages which are
discussed below:
Positives:
 Assist in planning: Planning is the basic requirement for any firm's development. This is
the tool by which company would able to make the effective decision and strategy for the
betterment of the objectives. This is the primary stage which is needed before
implementing the plan of the firm (Luft and Shields, 2010). By this tool, company would
able to know the in and out about the future projects on which company need to work.
like- cost of project, labour requirements, material requirements and so many things have

to know in advance. Astra Geneca will also know the money that company are going to
spend on a certain project and company also know the incoming of capital which have
been received in future year.
 Increase the productivity: The firm total output can be improved with the help of
budgetary control. This is the tool by which company would able to make their
productivity better so that the company would able to gain the better profits and that is
why firm can make sustainable development (Kaplan and Atkinson, 2015).
 Adequate communication: With the help of proper communication among the each
departments of the firm, company could perform in a better way and also make their
operation so effective at providing timely information.
 Control: Budgetary control assist the organisation to control the whole firm so that the
firm could eliminate the waste from each divisions and make the company so profitable.
Budget makes the firm to compare the actual outcomes with the expected outcomes and
then strive hard to eliminate the deviation between the two process(Lukka and Modell,
2010). Also, company will take a decisions effectively via controlling.
 Co-ordination: This will assist the company to co-ordinate each departments for the
effective utilization of human resources. Budget process encourage the co-ordination
among various department of the firm. It supports the centralised regulations of
heterogeneous operations. The budget committee perform as a co-ordinator of operations,
sales and other divisions. The significant quality of budget planning is that it organizes
exercises across over other departments.
 Delegation of authority: Budget appreciates the delegation of authority. It set the target
within which the delegated authority can be implemented(Jansen, 2011). Lower level
authority could act initiatives and judgement within the budgetary limits.
 Motivation: Budget assist the company to stimulate the performance of the firm and also
motivates the employees to do better with the company's operations. Motivation is the
tool by which employees feel associated to the firm and do work with more efficiency so
that the firm would able to make its operations more profitable.
 Maximization of revenues: Budget helps the company to utilize firms human and other
resources effectively so that the maximum output can gain. This is the tool by which the
firm would able to boost their revenues and also think about their diversification.

 Estimating fund requirement: budget is the technique which is used to make their
operation effective and also helps the finance managers to understand the need of the
capital for their existing operations or new one(Macintosh and Quattrone, 2010).
Budget plans can possibly help associations and their employees achieve their objectives.
Budget control offers a few points of interest to supervisors. Some of these are:
 Budget plan make an interpretation of vital arrangements enthusiastically. They
determine the resources, incomes, and exercises required to complete the vital strategic
plan for the next year.
 Budget plans convert strategic plan into action .
 Enhance communication with workers.
 Budget enhance resource allocation, since all request are explained and supported.
These above mentioned are the advantages of the budget. However, there are some
disadvantages as well which also need to discuss by the company so that the managers of the
firm would analyse the disadvantages as well for taking decisions effectively(.Hiebl, 2014).
Disadvantages of budgetary tool
 The significant issue happens when budget plans are connected mechanically and
inflexibly.
 Budget plans can demotivate workers on account of absence of support in the work. If,
the budget plans are forced top down, representatives won't know the purpose behind
budgeted expenditure, and won't be focused on them.
 Budget plans can bring about view of unfairness.
 It can make rivalry for resources and legislative issues.
 A inflexible budget structure decreases activity and advancement at lower levels, making
it difficult to get funds for new thoughts.
 It is a complex process to design a master budget
 Much cost has to be incurred in hiring a capable individual who can design an effective
budget.
 It reduces the level of flexibility in operation's.
These aspects of budget plans frameworks may interfere for the accomplishment of the
Astra Zeneca objectives. One for the most part acknowledged rule for powerful budgeting is to
build up objectives that are troublesome yet achievable. Therefore, most proficient managers or

directors who knows budget plans and how to utilize them so that they would able to attain the
effective control by which they are able to get firm's set objectives.
P.5 Management accounting system is used to face the financial problems:
Management accounting assumes a key part in the firm today. The top accountants in
many associations is the controller. Management accountant officer in the firm are the main
person who took all decisions in finance field and every departmental heads is required to
respond to him covering the cost accountant, finance and tax accountant, internal auditors etc..
Despite the fact that much management accounting starts inside these positions, entire decision
maker in the firm must see how to make and utilize great management accounting data. Today's
innovation permits administration to track performance data that goes beyond the cost-based
data. Great management accounting system includes an obligation to deal with a wide
assortment of crucial information(Herbert and Seal, 2012). Subsequently, those included need to
expect and be ready to manage different ethical dilemmas.
By utilizing diverse instruments and systems which are talked about above administration
become more acquainted with about its unmistakable issues and issues which impact the last
outcomes and execution of the organization. Through utilizing the budgetary apparatuses it is
distinguished that what is the distinction in organizations execution if contrasted it and the earlier
years comes about. Keeping in mind the end goal to defeat such issues a few procedures are
utilized by administration which help them in accomplishing the coveted outcomes and
recognizing the issues behind deviation in expected result. Some of them are given beneath in
detail :
Benchmarking – It is a procedure through which principles are set against a specific
undertaking which helps in influencing the correlation with errand all the more simple. Through
this idea a coveted standard is set which is being normal as a final product. It can be set against
an item, program, techniques and so forth. The principle objective of this arrangement of activity
is to decide the territories which needs additional care and advancement. The other target of
same is to contemplate how organizations is same field are effective in accomplishing their set
execution gauges and furthermore to build the present effectiveness level of workers. It is a
consistent procedure which proceeds till the outcomes are accomplished.