Management Accounting Report: Unit 5, BTEC Higher National Diploma

This report provides a comprehensive overview of management accounting, focusing on its application within a business context. It begins by defining management accounting and exploring different types of management accounting systems, such as cost accounting, inventory management, job order costing, and price optimization. The report then details various management accounting reporting methods, including job costing, inventory management, operating budget, accounts receivable aging, and performance reports. It highlights the benefits of these systems, such as improved cost control and enhanced decision-making. The report then delves into practical applications, including cost calculations, income statement preparation using marginal or absorption costing, and the use of planning tools for budgetary control. Furthermore, it examines how organizations adapt management accounting systems to address financial problems, emphasizing the role of these systems in achieving sustainable success. The report uses Grant Thornton and Creams Limited as case studies throughout the analysis, providing real-world examples of management accounting in practice. It addresses the essential requirements of management accounting systems, such as reliability, accuracy, and understandability, and concludes by evaluating how management accounting tools help organizations solve financial issues and achieve sustainable success.

Management
Accounting
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INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
TASK 1............................................................................................................................................4
P1. Explain management accounting and different types of management accounting systems
along with its essential requirement.............................................................................................4
P2. Describe different method of management accounting reporting which are used by
organizations................................................................................................................................6
M1. Benefits of management accounting systems.......................................................................8
D1. Critically evaluate that how management accounting systems and management
accounting reporting are integrated within organisational processes..........................................8
TASK 2............................................................................................................................................9
P3. Calculate cost by using appreciate cost analysis techniques and prepare income statement
by using marginal or absorption costing method.........................................................................9
M2. Apply range of management accounting techniques and generate financial reporting
statements...................................................................................................................................13
D2.Produce financial reports that accurately apply and interpret data for a range of business
activities.....................................................................................................................................13
TASK 3..........................................................................................................................................14
P4. Explain the advantages and disadvantages of different types of planning tools used
for budgetary control...............................................................................................................14
M3. Analyze the use of different planning tools and their application for preparing
budgets and forecasts..............................................................................................................16
TASK 4..........................................................................................................................................16
P5. Compare how organizations are adapting management accounting systems to
respond to financial problems................................................................................................16
M4.Analyze how, in responding to financial problems, management accounting can lead
organizations to sustainable success......................................................................................19
D3.Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organizations to sustainable success..............................................................20
CONCLUSION..............................................................................................................................20
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REFERENCES..............................................................................................................................21
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INTRODUCTION
Management accounting is defined as an accounting method that helps an organization to
function better(Weetman, 2019) (Muller, 2019). This can be described as implementing
management approaches and knowledge required to assist all department heads in managing and
controlling the business. It focuses on accounting aspects. The primary role in accounting units is
the compilation and analysis of data. Managers have used the gathered information to routinely
decide. Management accounting required information for managers to fulfil strategic
requirements. In financial reports various management decisions are presented.This report is
based on Grant Thornton which is UK based company and provides professional network
services.They offer financial services to their clients and Creams Limited is one of them. It is UK
based medium size organization which offersice creams, doughnuts, waffles etc.
This assessment covers several topics such as management accounting systems, range of
different accounting techniques which are used to evaluate operational performance. In addition,
it involves planning tools that are used for budgetary control and further evaluate the ways which
helps firms to resolve their financial issues through implementing range of management
accounting techniques.
MAIN BODY
TASK 1
P1. Explain management accounting and different types of management accounting systems
along with its essential requirement
Managerial accounting is an accounting division that deals with the identification,
calculation, review, and evaluation of accounting data so that it can be always had to help
managers make the required decisions to handle the activities of a organization
effectively(Singhand Verma, 2018). In order to perform accounting activities, there are several
management accounting systems which are used by the Creams Limited to improve their
operational efficiency as well as effectiveness. Some of them are as follow:
Cost accounting system: It is known to be the type of accounting management approach
encompassing a variety of activities as well as monetary factors(Cristea, 2018). For businesses it
is necessary to keep costs under estimated. In the Cream Ltd context, this accounting is used to
keep the costs of sales below the estimated costs. The main purpose of this system is to
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concentrate as much as feasible on keeping the costs of various activities lower. Cost accounting
system essentially required by the Creams Ltd to estimate their product cost and make sure that,
production cost will not going to exceed. Otherwise, it minimise the profit margin which is not
good for the company to run their production so long in this situations.
Inventory management system: The inventory management system is an instrument for
improved stock control across the distribution chain of the company(Welsh, 2018). In Creams
limited the entire delivery process from placing an order to vendors is controlled by this
approach and makes the entire route of one business towards the customer. Through
using inventory management system, sales companies, suppliers, producers, and vendors may
make their businesses successful through making appropriate stock buying decisions. The
program contains critical methodologies such as LIFO, FIFO and Average Costs. Corrective
steps are important for businesses to take to control stored inventories. Company follow FIFO
inventory method which is essentially required to avoid wastage or damage due to store stock for
longer period. Due to this reason, this system essentially required by the organization to keep
tracks their inventory position and make further buying decisions accordingly.
Job order costing: The method of job order tracks the cost of each function within the
company. The management will closely monitor the costs of each job and assess if the real costs
produced are fairly similar and the costs estimated are higher (Hashorva and et.al., 2018). Large
cost shortfalls would compel managers to evaluate and enforce proactive measures to fix the
cause of cost increases. This method gathers and absorbs costs for individual jobs, tasks or work
orders. The cost of each function is correctly measured and each job is individually defined.
They apply such accounting method in the dimension of the above business, in order to
efficiently control the cost of each job. It is essentially required for managers of Cream Ltd, so
they can formulate effective strategies which are essentially required evaluating each order cost
and taking necessary actions accordingly.
Price optimising system: This is a type of management system which involves a detailed
pricing system and customer satisfaction requirements (Bottomleyand Bosman, 2018). This
method of accounting lets companies obtain valuable business trends and information on
customer demands. Basically this accounting method is essential for businesses to change the
market level of products and services. In the case of chosen business their marketing department
adjusts pricing strategies according to the desires of the customer. This system is essential to set
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the product price which satisfy consumers as well as meet business objectives. It is essentially
required for the organizations to set suitable price which increase consumers’ willingness to buy
goods and services.
Essential requirement of management accounting systems:
Management accounting systems are essentially required for the organization and make
sure the available information should be reliable, accurate, presentable, updated and in
understanding form. So people can understand and further managers of Cream Ltd can used such
information in decision making process. All essential requirements mentioned below:
 Reliable: In context of management accounting systems, all the information should be
reliable because managers will take strategic decisions on the basis of it.
 Accurate: Accounting information should be accurate which an essential requirement of
management accounting is. Because it helps in identifying true financial position of the
Cream Ltd in terms of profit and loss.
 Presentable: All the accounting information is presented in standard format structure
which is globally used by the organizations to understand other’s financial reports.
 Up to date and on time: In the financial report, data recorded on quarterly or yearly
basis because managers of Cream Ltd make decisions on the basis of it and it is an
essentially required for decision making process to get updated data.
 Understandable and relevant: Data should be recorded in understandable manner, so
people of Cream Ltd can understand or perform their task accordingly.
Above discussed management accounting systems are very essential for organization to
perform their operational activities and make sure that it will maximise their efficiency as well as
effectiveness. By using these systems, managers of Creams Ltd build effective strategies to
maximise their production, profitability, performance and minimise overall cost of
manufacturing to meet their business goals & objectives.
P2. Describe different method of management accounting reporting which are used by
organizations
Job costing report: Job costing reports are administrative mechanisms used to assess the
performance of a project or output against a defined or expected norm (Quilty, Cosentinoand
Bagby, 2018). They have been used in areas of the market and their associated industries. The
primary objective of reporting on job costing is to recognize differences or favourable results,
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typically as financial values. These can be used for recording results in both monetary and
statistical growth. This report assesses the amount of production as against time. When volume
falls within a given time limit, the primary reason must be resolved by management. Many
sources describe the quantity and waste of the raw materials such as chocolate, sugar and nuts.
The final average production cost per unit is measured to the norm when the reports are merged.
Creams Ltd uses this reporting technique to record particular job cost and further strategic
decisions take accordingly.
Inventory management report: This report provides information on the stock of goods in
warehouse. This report is designed with the aid of the inventory management program (Hicks
and et.al., 2019). Main objective of this report is to support the department of production in
taking the necessary actions regarding how many units are required. Above mentioned company
such as Creams Ltd in compliance with the details of this study, manufactures various types of
food items.This report used by the organizations to keep track inventory level for the
manufacturing purpose and makes sure to avoid the situations like shortage of raw material as
well as wastage due to order bulk material at one time. This report helps the managers to
estimate accurate volume of raw material for manufacturing of goods.
Operating budget report:It shows the company's estimated profits and related costs for
the current year, usually the following year and is also displayed in the style of an income
statement (Fleischmanand McLean, 2020). Management usually goes through the process of
preparing the plan before the next year begins and then conducts continuing updates every
month. An operating budget report may consist of a high-level overview plan, accompanied by
information in the budget to substantiate each line item. Managers of Creams Ltd follow this
report and prepare all it, which include the estimated revenue or cost of production that further
helps to take managerial decisions or build strategies.
Accounts receivable aging report: This contains information on both the volume of
debtors who are responsible to businesses without the appropriate selling date. The report's
purpose is to assist the division of finance to formulate clear policies and tactics. The financial
department in the Creams Ltd produce this report by using vital information to recover payments
from debtors on deadline. The report is arranged by customer name, with those invoices
expressed immediately below client name of each consumer, generally sorted by either payment
number or date of invoice.
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Performance reports: A performance report deals with a person's result of an action or
function. The report will equate real results with a estimate or norm and the discrepancy between
both the two figures (Feldmanand Paul, 2019). If there is an adverse difference, the receiver of a
results assessment is supposed to take action. This report is not only to measure employee’s
performance, but also evaluate the overall performance of the organization. On the basis of
performance report, management provide rewards to their employees and plays as motivation
factor which improve their overall performance and productivity.
Above mention reports are used by the managers of Creams Ltd to measure the
performance of organization. Using above discussed reports managers able to formulate
strategies which required to enhance employees as well as business efficiency.
M1. Benefits of management accounting systems
There are several management accounting systems which provide various benefits to the
company in different ways. Cost accounting system helps in measuring actual degree of volatility
is related to the control of overall expenditure for particular activities. This accounting approach
used by the Creams Ltd to estimate the cost of product and try to control cost throughout the
period. Job order costing is beneficial for businesses in quantifying the cost of each produced
output number (An, Wang, Emrouznejad, 2020). Such accounting is done by calculating and
evaluating the costs of workers in the above organization for an examination of the costs of each
produced goods. Price optimization system is enables companies to assess the price of the
product in line with the recent trend in the industry. Their logistics team sets prices of products
according to customer needs in Creams limited and as per their competitors 'actions in the area
above. The value of the inventory reserved is essentially calculated by this accounting
(Maggardand Barlow, 2018). This method of accounting is intended to reduce the processing
costs. This accounting scheme is implemented at the Creams limited to lower their cost of
production. These systems help the managers to make effective decisions which further helps in
achieving operational goals & objectives.
D1. Critically evaluate that how management accounting systems and management accounting
reporting are integrated within organisational processes
Management accounting includes a number of accounting systems and reports which are
compatible with administrative processes and companies. According to Creams Ltd, specific
departments are related to accounting systems. The market optimisation program is integrated
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into the sales department as a way of growing selling revenues. Accounting Statements are often
aligned with the sales cycle, near the accounting systems. Inventory report is in relation to the
unit of development. In the latter organization, for example their managers use various reports
for corrective steps in the retail sector.In order to run business process properly, managers of
Creams Ltd need to implement various systems such as inventory management to keep track
their stock level and then prepare inventory report to review level or make decisions accordingly.
TASK 2
P3. Calculate cost by using appreciate cost analysis techniques and prepare income statement by
using marginal or absorption costing method
There are various types of cost which has different nature and these are discussed below:
Fixed cost: Fixed costs are costs which will not alter with each increasing or decreasing in
the quantity of products or services manufactured or sold. Leasing, insurance premiums, or
mortgage payments are fixed costs (Modell, 2014). Fixed costs will build economy of scale that
is decreases in per-unit costs by increasing the amount of production. This concept is often called
marginal cost decrease. At the end, all prices are ultimately variable.
Variable cost: Variable costs are company's expenses which change in relation to the
performance of the output. Depending on the level of output of a business variable costs increase
or decrease. They rise as output rises and decline as production decreases. Examples of variable
costs included the raw material and shipping costs.
Real cost: The cumulative real cost involved in producing a perishable product or service
to customers. For Creams Ltd, the overall cost of production usually involves the cost of all
measurable resources such as labour and raw materials used in the manufacturing process.
Prime cost: Prime costs are the expenditures of a business which are directly linked to the
products and resources used in manufacturing. The prime cost estimates the direct costs of the
raw materials and labour involved in manufacturing an item. Direct costs such as advertisement
and operating costs and do not include indirect expenses.
Total cost: The overall cost of a product portfolio contains not only the variable cost of the
items sold as well as the cost of marketing and operating the manufacturing line on which goods
are produced. View of the overall cost for the project.
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Average cost: The average cost is the cost of production per unit which is calculated by
multiplying overall cost (TC) by total production (Q). By the cost of manufacturing per unit,
company say that both the fixed and variable costs are taken into account when measuring the
overall cost(Nielsen, Mitchell and Nørreklit, 2015).
Marginal cost: It is the value of one added unit of products or services being generated.
When one extra unit is added for manufacturing that is the shift in the cost of the product. It is
evaluated to assess the stage at which an organisation's economies of scale can be achieved.
Income statement by using marginal costing method:
Particulars January February
Sales 250,000 125,000
Less: Cost of Goods Sold
Direct Material 50,000 50,000
Direct Labour 30,000 30,000
Variable Manufacturing Overhead 20,000 20,000
Variable Selling Overhead 30,000 30,000
Closing Stock - -65000
Cost of sales 130000 65000
Contribution 120.000 60.000
Less: Fixed Costs
Fixed Manufacturing Overhead 40,000 40,000
Fixed Selling and Administrative
Overhead 30,000 30,000
Net Profits 50,000 -10,000.
Income statement by using absorption costing method:
Particulars January February
Sales 250,000 125,000
Less: Costs of goods sold
Direct Material 50,000 50,000
Direct Labour 30,000 30,000
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Variable Manufacturing Overhead 20,000 20,000
Fixed Manufacturing Overhead 40,000 40,000
Closing Stock - -14,000
Total 140,000 126,000
Gross Profit 110,000 -1,000
Add: Underabsortion of overheads 51,000
Less:
Variable Selling Overhead 30,000 30,000
Fixed Selling and Administrative
Overhead 30,000 30,000
Net Profits 50,000 -10,000
Calculation of variance:
Budgeted Actual
Production 1,000 1,100
Labour Hours 3,000 3,400
Labour Cost 15,000 17,680
Labour rate per unit 15
16.0727272
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Direct labour price variance = (SR – AR) x AH (15 - 16.07) * 3400 -3,638
Direct labour quantity variance = SR x (SH – AH) 16.07*(3000-3400) -6,428
Total direct labour variance = (SR x SH) – (AR x
AH)
(15 * 3000) - (16.07 *
3400) -9638
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Flour for Waffles and Pancakes
Budgeted material cost per unit of the product 2kg at £10 per kg
Actual Output 1000 units
Actual material purchased and used 2200kg
Actual material cost £20,900
Actual Material Cost per units of product 2.2 kg at 10 per kg
20000
Material cost variance = (AQ X AP) – (SQ X SP) 20900 - 20000 = 900
Materials quantity variance = (AQ – SQ) x SP (2200 – 2000) * 10 = 2000
Notes:
Marginal Cost Jan Feb
Direct Material 50000 50000
Direct Labour 30000 30000
Variable Manufacturing
Overhead 20000 20000
Variable Selling Overhead 30000 30000
130000 130000
Units 10000.00 10000.00
Cost per unit 13 13
Closing Stock units - 5000
Value of Closing Stock - 65000
Aborption Cost Jan Feb
Direct Material 50000 50000
Direct Labour 30000 30000
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