Detailed Report on Management Accounting System and Reporting for EEC

This report provides a comprehensive analysis of management accounting systems and reporting, focusing on Eastern Engineering Co. Ltd (EEC). Task 1 explores the core concepts of management accounting, its role in decision-making, and the benefits of implementing such systems, including cost savings, improved financial visibility, and enhanced decision-making. It also delves into the principles of management accounting, such as designing and compiling data, management by exception, and resource utilization. Task 2 presents income statements using both absorption and marginal costing methods, highlighting the differences in profit calculation due to fixed cost allocation. The report compares the profit figures derived from both methods and explains the underlying reasons for the variance. Finally, the report concludes by discussing how the effective application of management accounting systems can contribute to a company's success and mitigate financial risks. The report emphasizes the practical application of management accounting principles and techniques within the context of EEC's operations.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK-1............................................................................................................................................3
TASK-2............................................................................................................................................7
TASK-3..........................................................................................................................................11
CONCLUSION..............................................................................................................................15
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting refers that part of the accounting which is concerned with the
mangers and also known as managerial accounting. This accounting is mainly used for the
internal purpose including taking of decision (Ameen, Ahmed and Abd Hafez, 2018). Like
managerial accounting, management reporting is also an important concept under which the
reporting related with the business operations of the company is being made on regular interval.
Management reporting is the base on which the managers and the managerial level of the
company would determine the actual performance of the company. The task-1 of this report
would discuss about the concept of management accounting system and the reporting along with
their implication in the company. a detailed explanation about the management accounting
principles and the reporting techniques will also be made in this report. Likewise, the task-2 is
concerned with the production of financial report with a practical implication of the task-1
concepts and principles. Under this task income statements are presented with regard to the
marginal and absorption costing method. Lastly, task-3 will determine that how the applicability
of management accounting system would lead the company towards the direction of success
along with meeting the financial risks.
TASK-1
Management accounting system and management accounting reporting:
Management accounting:
It refers to the accounting that is concerned with the management of the company. It is used for
the internal purpose and by the managers in order to take the decision regarding the company. it
refers to a process under which the information is identified, analyse, interpreted and
communicated to the managers in order to achieve the business objective (Rikhardsson and
Yigitbasioglu, 2018).
With reference to Eastern Engineering Co. Ltd (EEC) management accounting system is
well established in such a manner that the managers can easily analyse the business operation
along with taking adequate decision. As EEC perform various operation in the form of
purchasing the raw material, delivering best engineering products, making contact with suppliers
and various other. So in order to have a adequate recording and analysation management

accounting works in the company. Right from measuring activities and taking decisions
management accounting helps the EEC to perform its business operation as per planned
objectives. As management accounting system of EEC is consists of three parts including the
planning, evaluation and controlling so performance of these functions enable the managers to
maintain smooth operation. However, on a critical note, being performing function at broader
level it would not be wrong to said that the application of management accounting functions
would involve certain deviation. This means that applicability of management accounting system
and performance of its function is not applicable in emergency situation.
Like the management accounting system, the management accounting reporting in EEC is also
generated on a regular interval. Since these reports are used to analyse the performance of the
company, so with the help of this report the management and the managers can take the adequate
decision (Kostyukova and et.al., 2018). This means that these reports plays an important role in
EEC in terms of planning, decision making along with performance measurement. Since these
reports are produced within a short interval or the required time interval so it would not be wrong
to said that although it is useful but at the same time this will lead to wastage of time. This means
that critically it will lead to wastage of time.
Thus, it can right to said that the management accounting system and reporting of the
EEC is useful for the company in terms of making adequate plans and taking decision but at the
same time also lead to wastage of time and non-applicability in certain situations.
Evaluation of benefits of management accounting system and their application:
There are various benefits that are applicable with the management accounting system in EEC.
These are as follows:
Save time and cost:
As bookkeeping system requires a lot of time and a requirement of accountant. However
in case of adoption and implementation of the management accounting system the time and the
cost of the company including the EEC bot saved.
Raise financial visibility:
As the management accounting involves recording of every truncation and their analysis on
regular interval so it will raise the visibility and image of the company in front of its shareholders

(Abdusalomova, 2019). In case of EEC also due to the execution of management accounting
system the image or the visibility of the company is both being raised.
Minimise errors:
As it involves continuous checking of all the transactions and the business operations so
with the applicability of management accounting system in EEC the percentage of occurrence of
error can be reduced. This means that the application of management accounting system in the
EEC leads to reduction of error because of timely noticing and minimising.
Improve asset and management of inventory:
Management accounting system also lead to the improvement in the assets as well as
inventory. This is because with the continuous monitoring and evaluating the business operation
and the using of assets the management accounting system would definitely lead to improving
the value and life of assets of EEC.
Enhance decision making:
As the main purpose of the management accounting is concerned with decision making
(Kanya, 2020). So an applicability of the accounting system in EEC would raise the decision
making efficiency. As along with the generation of management report on regular interval would
enable the managers and the investors to take the decision adequately.
Enable the real situation:
An implication of management accounting system in the EEC also implies an analysis of the
real situation of the business. This means that through this system the EEC can enable the real
situation and the condition of the business and on the basis of that the most appropriate business
decision can be taken by the manager of the company which will again lead the company
towards the direction of the goal accomplishment.
Principles of management accounting:
There are various principles that are concerning with the management accounting. These are:
Designing and compiling:
As per this principle the all the relevant data in the form of financial statements, records,
reports of the past, present and the future is be designed and compiled so that as per the need of
the business it can used. This will further help the business to resolve any business issues.
Management by exception:

This principle is usually followed when the information is being presented to the management.
Here budgetary control and standard control techniques are followed (Dahlan, 2019). This means
that as per this principle the actual performance is being measured with the standard one so that
the deviations can be identified. And that information is presented to management so that
adequate decision would be taken.
Controlling at source:
As per this principle the cost controlling is to be done at source. This means that if the cost
would be control at the source it-self then the entire cost structure will be balance and cost will
be lowered down.
Integration:
As per this principle all the required information is being integrated so that the
management can best utilize them. here under management accounting all the relevant
information is integrated and then on the basis of wider information decisions are taken.
Utilization of resources:
Management accounting system ensure that all the resources of the business will be fully and
efficiency utilised for the sake of the business. This means that under management accounting all
the resources will be considered that whether they are adequately used or not so that it can be
analysed that there should be no plenty or shortage of resources (Bento, Mertins and White,
2018).
Thus as per the above principle of management accounting it is very clear that an integration
of the management accounting system in the EEC would lead to raise its performance along with
better utilisation of its resources. This means that with the inculcation of management accounting
system into the company a clear check over every transaction and business action would be
possible. Likewise, when the data will be all gathered and used for the decision making then the
best and the most appropriate decision concerning the growth and the development of the
company be taken. Likewise, the integration of the system also enables the EEC to have a check
over its transaction against the standard so that any deviation would be identified and
accordingly corrected. Also, through this system the cost of operation will also be mitigated and
reduced.
Techniques and methods concerning management accounting reporting:

Margin analysis:
It is all related with the incremental benefits concerning the optimization of production. It
is one of the important and useful technique of management accounting. Here the breakeven
point is being calculated so that the companies can determine their optimal sales mix.
Capital budgeting:
Here the budgeting related with the capital expenditure is being executed. Under this
technique the net present value and internal rate of return is calculated which will assist the
managers to take the budgeting decisions (Fehrenbacher, Kaplan and Moulang, 2020).
Valuation of inventory and costing:
Here the identification and an analysis of the actual cost of the inventory of the business
is being determined. Under this technique the cost of overhead as well as direct cost with relation
of cost of goods sold is calculated.
Trend analysis and forecasting:
Here an analysis of the current trends and the patterns concerning the cost and the possible
and the trending variances are being forecasted. Along with forecasting, reason of the occurrence
of variances are also determined.
TASK-2
Income statement from absorption costing mode:
It refers to a statement that is concerned with the analysis of the profit. Through this statement
companies can determine their actual profit which they have earned by performing their
operation and sales (Arora and Soral, 2017). As per the determination of profit through
absorption costing method the profit is being totally based on the actual sales of profit along with
absorption of all the fixed coat during the period. So this would not be wrong to said that through
this method the actual profit over the sold products are determined.
Particular January February
Sales £1323000 £1568000
-Cost of goods sold -£784000 -£835130
Profit £539000 £732870

Sales:
For January
=9800*135
=£1323000
For February
=11200*140
=£1568000
Cost of goods sold:
=fixed cost + variable cost
For January
Fixed cost= Total fixed production cost/production volume units*sales volume units
=350000/10000*9800
=£343000
Variable cost= sales unit*variable production cost per unit
=9800*45
=£441000
COGS= £343000+£441000
=£784000
For February
Fixed cost:
= 340000/11500*11200
=£331130
Variable cost:
=11200*45
=£504000
COGS= £331130+£504000
=£835130

From the above statement of income, it can be analysed that the amount of profit is being
raising from the January to February. This means that the trend of profit with respect to the
company is in the increasing stage.
Difference between the profit:
Income statement from marginal costing:
Under this method profit of the company is determined on the basis of actual production. This
means here it is assumed that all the produced items are sold out and profit is based on all those
sold items (Drury, 2018). Apart from being a good method of profit determination it contain the
loophole with regard to its assumption.
Particular January
Sales £1323000
-Variable cost -£441000
Contribution £882000
-Fixed cost -£350000
Profit £532000
From the above calculation and analysis, it is clear that the amount of profit will be differ
when it will be calculated through the mode of marginal method and the absorption costing
method. The main reason for the occurrence of the difference is the fixed cost. This means that in
case of absorption costing the fixed cost is being calculated and deducted on the basis of the
number of unit sold. However, in case of the marginal method the calculation of the fixed cost is
based on the actual quantity produced.
This means that under the mode of absorption costing the calculation of the profit is
being determined on the basis of the quantity sold and the selling quantity. However, under
marginal costing a margin is exist and due to that it is being calculated on the basis of the
produced quantity and the production unit (Dierkes and Siepelmeyer, 2019).
Thus, it would be right to said the profit that is being produced through the absorption
costing technique will depict the actual profit that the EEC has earned over the sales of the
product and the units. However, in case of profit which is being calculated using the marginal
costing will instead of depicting the profit over the actual sales, it shows on the basis of the

production. This means that it works on the basis of assumption that all the produced units are
being sold.
Due to the presence of the reason the calculation of profit with regard to the absorption
costing and the marginal costing differ from each other.
Other financial statement:
Cash flow statement:
It refers to the statement that is concerned with the analysis of the cash inflows and
outflows. This means that through this statement the cash position in terms of actual inflow and
outflow is being analysed. In simple words, it refers to that statement that is concerned with the
analysis of the cash and cash equivalent which is entering and leaving the company. as this
statement is related with the analysis of the cash position of the company so it would not be
wrong to said that the high cash inflows is an indicator of good cash presence and position
(Anyushenkova and Samorukova, 2019). While a low cash inflow and more outflow denoted
poor cash position of the company. it is to be noted that there is a need of good cash position
because it depicts that the company can easily meet up its short term debts. With regard to EEC
the cash flow statement is as follows:
Cash flow statement:
Particular January February
Cash inflows
Sales £1323000 £1568000
Total £1323000 £1568000
Cash outflows
Fixed cost £350000 £340000
Variable cost £450000 £517500
Total £800000 £857500
Net cash inflow/outflow +£523000 +£710500
Notes:
Variable cost:

For January
=45*10000
=£450000
For February
=45*11500
=£517500
It is also to be noted that while preparing the cash flow statement it is being assumed that all the
sales is being made in cash and the expenses in the form of fixed and variable cost are also made
in cash.
From the above statement of the cash flow it is analysed that the cash inflows in the EEC
is raised and more in comparison of the outflow. This means that the company is earning more in
comparison of incurring expenses. As the cash inflows with respect to the sales are being raised
so it would not be wrong to said that the company after recovering its cost, still earned the profit
or have enough cash balance. High cash balance is also an indicator of high liquidity. This means
that EEC can easily meet its short term obligation because of the availability of adequate cah
balance.
TASK-3
Planning tool for accounting:
Planning is considered as an important concept with regard to every business including
the EEC. Planning will lead to the success or the accomplishment of the goal of the company.
planning is the base and the starting upon which all the operation of the company and the
business are being operated and performed. Planning is the key concept concerning the
management accounting. This can be understood with the help of the techniques concerning the
management accounting:
Financial planning:

This is the main and the important technique of management accounting wherein the
planning related with the company is made so that it can grab success and objective of raising the
percentage of profits.
Analysis of financial statement:
Under management accounting an analysis of the financial statement is being made in
detail. The reason behind such analysis would enable the management to determine the future
plan so that company’s objective can be achieved (Lambovska, Rajnoha and Dobrovič, 2019).
Cost accounting:
Under this technique the cost concerning with the product, process and the department
are being analysed and then measured and compared with the actual cost. This will lead to
planning related with the cost measurement and the implication.
Budgetary control:
Here budgets related with the future are being made and forecasted. However, these will
again be compared with the actual expenses and the income so that the deviations are found
(Mirgorodskaya and et.al., 2017).
Thus, from the above technique it is very clear that management accounting is deeply
concerned with the concept of planning. As plans are the guidelines that will assist the business
and the companies including the EEC. So that they can perform their business operation
accordingly and move towards the direction of achievement of sustainable success.
Budgetary tools and their advantages and disadvantages:
Budgetary tools:
It refers the tools that are used for the making of budgets. These tools usually include:
Financial tracking:
This is the first tool and technique under which the financial information is recorded.
Financial information related with the percentage of income and the expenditure.
Spending system:
Like recording of income and expenses are important, similarly the spending system
enable the company to record the overall spending of money that is being going out of the
company (Pellerin and Perrier, 2019).
Payment reminders: