Management Accounting Report: KEF Ltd Performance Analysis and Systems

This report provides a comprehensive analysis of management accounting systems and reporting, focusing on KEF Ltd. It begins with an introduction to management accounting, its systems (cost accounting, inventory management, job costing, and price optimization), and their benefits. The report then explores various management accounting reporting methods, including budget reports, accounts receivable aging reports, job cost reports, inventory reports, and performance reports. The integration of management accounting systems and reporting within organizational processes is also discussed. The report further delves into the calculation of net profit/loss under marginal and absorption costing methods for KEF Ltd, providing detailed calculations and interpretations. Finally, it defines the advantages and disadvantages of various planning tools, such as budgetary control, and analyzes their application in financial planning. The report concludes by comparing management accounting systems used to overcome financial issues and evaluating their role in organizational success.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
P 1. Systems of MA.....................................................................................................................3
M 1. Benefits of MA system........................................................................................................4
P 2 Methods used for Management Accounting Reporting ........................................................5
D1 Evaluation of management accounting systems and reporting is integrated within
organisational processes...............................................................................................................6
LO 2.................................................................................................................................................7
P 3 Calculation of net profit/(loss) under Marginal costing and absorption costing of KEF Ltd7
M 2 Application of management accounting techniques produce appropriate financial
reporting documents.....................................................................................................................9
D 2 Application of financial reports and interpretation of data for complex business activities9
LO 3 ..............................................................................................................................................10
P4. Defining advantages and disadvantages of vatious planning tools. ...................................10
M3 & D 3. Analysing uses and application of the different planning tools..............................12
LO 4...............................................................................................................................................13
P 5. Comparing management accounting system used for overcoming financial issues...........13
M4. Evaluating use of management accounting system in organisation success......................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting (MA) is an effective process which helps internal management
of the organization to achieve desired results and outcomes on time by attaining organizational
goals and objectives. MA helps in effective decision making and controlling cost for higher
operational standards. This study will highlight, various systems of MA and also determine
different methods of MA reports. Furthermore, this study identifies various MA techniques and
interpret the data using effective methods. This report further identifies various planning tools for
budget. This study also compare the MA tool to solve financial problems.
KEF Ltd. Company is a manufacturing company which was established in the year 1961
by Raymond Cooke and is headquartered in Maidstone, England. This company mainly deals in
ipod speakers, headphones, studio monitors, loudspeakers and drivers subwoofer.
LO 1
P 1. Systems of MA.
Management accounting (MA)
It is an effective tool which helps management of the organization in determining the
performance of the company and taking strategic decision which leads to higher operational
standards and efficacy (Management Accounting: Meaning, Functions and Characteristics,
2019). It also helps management in planning, forecasting the future and analysing the trends
(Hiebl, 2018).
Management Accounting System
System of MA helps in strategic decision making and also identify the areas to critically
solve various financial problems for smooth functioning of KEF Ltd. company. MA system
includes capital budgeting analysis, future forecasting and variance analysis to determine the
cause of the problem and take necessary measures to resolve the issue for long term sustainable
growth (Otley, 2016).
Cost accounting system: This tool helps in crucial analysis of the cost attached to the
each manufacturing unit of the production process in KEF Ltd. Company. This report helps in
analysing the profitability and controlling the cost (Fleischman and Parker, 2017). This system
helps management in giving detailed information about the output levels, level of accuracy of
each production and selling process, machines, labour, raw material, etc. This tool also helps in

removing unnecessary cost and taking necessary measure for higher sustainable growth.
Inventory management system: This MA system keeps proper track and record of the
inventory levels, orders, sales and delivery for higher operational efficiency. This helps in
automating the records and tracking inventory which makes it easier for management to take
strategic decision (Maskell, Baggaley and Grasso, 2017). It is also useful in reducing manual
labour and focus on more skilled work for higher operational efficiency. There are various
inventory management methods such as LIFO, FIFO, JIT method, ABC methods, stock review
and weighted average method.
Job costing system: This system is useful in accumulating and distributing cost to each
individual unit of production which leads to higher operational standards and attainment of goals.
This helps management in determining the cost of the job and also analyse the most profitable
units in order to prioritize the job for higher growth of the KEF Ltd. Company (Maas,
Schaltegger and Crutzen, 2016). This system helps management in keeping proper track of the
expenses of each job for strategic decision making. This can be done by accurately categorizing
the cost of manufacturing into direct material, labour and overhead cost.
Price optimization system: This system is an effective process which helps in critically
analysing and predicting the behaviour of the consumers with the change in the price of the
particular product of the KEF Ltd. Company. This system helps in evaluating the accurate price
in order to attain greater profitability (Taleizadeh, Noori-daryan and Cárdenas-Barrón, 2015).
This tool effectively evaluates the price of the varied products and services to meet the
organizational goals and objectives and generate higher revenues and profit. This system also
critically examines the change in the demand and supply with the variation in price of the goods
and services offered by KEF Ltd. Company.
M 1. Benefits of MA system.
Cost accounting system: This tool is beneficial because it helps management of the
organization in evaluating the accurate cost of the production units in order to generate higher
profits (Fleischman and Parker, 2017). This system helps in determining the most profitable units
of the company and have proper control over the materials for smooth functioning of the
business.
Inventory management system: This tool is useful as it helps in increasing efficiency by
using ERP management tool and also helps ins saving cost by minimizing expenses and

achieving economies of scale (Maskell, Baggaley and Grasso, 2017).
Job costing system: This tool is beneficial when there are different varied products
manufactured by the company and each product has a particular cost attached with the products
(Laudon and Laudon, 2016). This system is useful as it helps in determining the cost of each job,
controlling expenses which leads to higher performance and productivity.
Price optimization system: This is an effective system of MA which helps in determining
the production process and evaluating accurate price for higher revenue generation and
profitability (Taleizadeh, Noori-daryan and Cárdenas-Barrón, 2015). This system is referred to as
effectively finding the balance between value and profit by optimizing the price of various goods
and services rendered by KEF Ltd. Company.
P 2 Methods used for Management Accounting Reporting
Management Accounting Reporting are the reports used in the evaluation of Financial
Statements. These reports are prepared for the purpose of taking decision in KEF Ltd. This
reports are used by internal stakeholders in order to certain decisions and for external
stakeholders in order to know the financial position of KEF Ltd. There are various reports such
as-
Budget Reports-
These reports are prepared in order to set the budgets by the company about the future
targets. Budget reports are compared with the actual reports of KEF Ltd. The budgets are set
targets by the company which are to be achieved by the company and then take decisions related
to the deviations occurred in the company (Kihn, 2015). Budget reports are generally prepared in
order to analyse the performance of the company on the basis of the deviations occurred in
budgets and actual performance of the company.
Accounts Receivable Aging Reports-
These reports are prepared in order to know that in how much time KEF ltd. Convert
their debtors into the cash. This report is very essential for any company because it shows that in
how much time cash inflows will be there in the company (Schaltegger 2017). This report can be
used by the manager in order to prepare the policy in the company related to cash collection from
debtors.

Job Cost Reports-
This report is prepared by the cost accountant of KEF Ltd in order to know the total cost
of the company. It is generally prepared in order to control the extra cost allocated in the
department which is not giving any profits to the company. This also helps in knowing that
because of which extra expenses company is having low margin profits (Kocakulah and et.al
2016). This report also helps in allocation of costs in different department in the company as per
their needs in this department.
Inventory Reports-
These reports are prepared in order to know that how much time KEF Ltd takes in order
convert its inventory into sales. This report shows the production and sales of the company. This
report helps the inventory manager to know the production budget for the company and also
what will be the actual sales of the company. It is mainly prepared in on the basis of previous
year's production and sales of the company (Bjursell, 2015).
Performance Reports-
Performance reports helps in knowing the performance of the company by comparing the
actual performance of the company to budgeted performance of the company (Kihn, 2015). This
helps the company in finding the deviations and taking the corrective actions in order to solve the
problem. This also helps in taking the decision for KEF Ltd.
D1 Evaluation of management accounting systems and reporting is integrated within
organisational processes
Management Accounting systems and reporting both are integrated to each other.
In case any one of them are not presented in the company than the preparation of financial
statements are not possible. For example, Job cost reports are necessary to be prepared because
regarding the costs decisions are taken on the basis of job cost reports only. These reports are
needed preparation of financial statements of KEF Ltd. These reports are the base of
management accounting systems and both of them are interrelated and interconnected to each
other.

LO 2
P 3 Calculation of net profit/(loss) under Marginal costing and absorption costing of KEF Ltd
(I) Production cost per unit – 46.67 per unit
(ii) Total Production cost – 886730
(iii) Total cost of sales – 1026740
(iv)Calculation of Budgeted and Actual Profits or loss for 19000 units
(V) Marginal costing and Absorption Costing
Marginal Costing is the costing method where it takes only variable expenses in the
company. It does nor charges fixed costs at the time of valuation of closing inventory. Under this
method, all the variable costs are deducted first which leads to contribution for the company and
after that it deducts all the fixed costs (Labro 2019. Costing Systems).
Absorption costing is the method under which all the absorbed costs are taken into
account while taking out absorption cost per unit (Aleem, 2016). Under this method, all the fixed
and variable Production costs are deducted and then fixed and variable selling expenses are
deducted. The closing inventory under this method is calculated at absorption cost per unit.
Calculation of Net Profit or loss under marginal costing and absorption costing

(vi) Interpretation and analysis of net profit / loss under marginal costing and absorption
costing
KEF ltd is having more net profit under absorption costing than net profit under marginal
costing. In the month of June company under absorption costing calculation of closing inventory
is done on the absorption cost per unit because of which cost is decreased and this increases the
profit of the company. Under marginal cost, calculation of closing inventory is done only on
variable cost per unit so it leads to increase in the costs.
M 2 Application of management accounting techniques produce appropriate financial reporting
documents
KEF Ltd shareholders should use the absorption costing method because it is providing
better presentation of calculation of net profit under absorption costing. This method is giving
better results to the company as compared to the calculation of net profit under marginal costing
for the month of June.
D 2 Application of financial reports and interpretation of data for complex business activities
KEF Ltd should apply the method of absorption costing for the calculation of net profit.
Under Absorption costing, company is having Profits of £218000 whereas under marginal
costing company is having net profit of £200000 only. By analysing the net profit under both the
methods, KEF Ltd should use the absorption method in the month of June for calculating cost for
the company.

LO 3
P4. Defining advantages and disadvantages of vatious planning tools.
Budgetary control is defined as a process which is related with the formulation of sound
and effective financial plans and objectives with budgeted target amount for an accounting
period. It helps every business organisation in proper use of available limited financial resources
of the business. By preparing budget it helps in making comparison of actual result with
forecasted one and makes changes if required. Following are the types of budgetary planning
tools which are available for KEF Ltd:
Flexible Budget - Is a budget which is having flexibility in its nature in context of
volume and sales activity changes. It has ability to makes adjustment on its own with change in
level of business activity or sales volume. This budget helps KEF Ltd in measuring the actual
revenue with estimated one maintained for future use at the time of framing budget after
completion of an accounting period. In this budget form, actual expenses are compared with
actual revenues for determining all the unnecessary cost expense and thus control it. It's changing
feature helps in providing several benefits to business at the time variations in the business.
Advantages Disadvantages
 It helps in determining relevant and
necessary changes as required in
respect of business activity change for
increasing result accuracy and take
corrective action against variance if any
(Boyabatlı, Leng and Toktay, 2015).
 It provides a metric for measuring
performance of company & its
employees both at regular interval time.
 Each expense and revenue amount is
adjusted on continuous basis for
 It is considered as one of the
difficult process as it takes into
accounts all the changes in it.
 A time-consuming process as it
requires lot of time in formulation
of final budget as it considers all
the changes.

overcoming prevailing conditions.
Fixed Budget – Is a financial plan which doesn't modifies or changes during the time
period of budget irrespective of changes which is taking place in the business activity on actual
basis. It remains unaffected with change in other resources of business such as sales, units
produced etc.
Advantages Disadvantages
 One of the simple method of budgeting
as it doesn’t affected by any changes in
respect of the sales level etc.
 Flexible budgets are known as static
and master budget as it helps
companies in analyzing data and
prediction for future.
 Is considered as unrealistic budget
as it remains unchanged as a result
any change in the expenses and
revenue cannot be determined.
 Forecasting is not possible due to
lack of presence of actual changes
with the changing business
environment.
Cash Budget — It assists in predicting requirements of cash & finance in business for
conducting future operations. It helps in process of forecasting related to cash inflow & outflow
from business operations performed in future time period.
Advantages Disadvantages
 It helps in evaluating all cash
expenditure and incomes for specific
period.
 It acts as basis for making comparison
of actual with estimation made and
ensures cash is spend as per budget
design.
 It heavily relies on estimation made
as a result allocation of previous
year as of cash inflows and
outflows are used for proper cash
allocation process to all items in the
coming year budget.
 It affects decision-making process
of business by considering cash
present in business.

M3 & D 3. Analysing uses and application of the different planning tools.
Planning tools Uses Application
Flexible Budget  It can be used for making
future estimates associated
with business operation of
KEF Ltd.
 It assists in controlling
unnecessary cost expenses
of business areas (Kaplan
and Atkinson, 2015).
 Is suitable for those
business organizations
where business activity
varies at regular time
period.
 Also, it assists in making
future estimates and
forecasting demand
related to the new product
and service of KEF Ltd.
Fixed Budget  This tool helps KEF Ltd. in
measuring performance
level and makes strategies,
plans and budget
accordingly.
 Provides better efficiency
by allocating fixed figure
for carrying on business
operations.
 Suitable where business
operations and activities
are of consistent nature.
Cash Budget  It helps in making effective
utilization of available cash
resources by developing
cash plan.
 It determines current
liquidity & solvency
position of company.
 Can be prepared for
mitigating issues related
to excess of
nonproductive cash
balances of the firm.
 KEF Ltd. By making
proper use of available
cash amount for making

more profit and
improving performance.
LO 4
P 5. Comparing management accounting system used for overcoming financial issues.
Management accounting system is related with process of preparing internal managerial
report which aids in the decision-making process of KEF Ltd in following manner:
1. Benchmarking – It is a process which supports the management of company in making
comparison of its own business processes, procedures, products with those companies
which are considered as one of the best performing in the same industrial market. By
using such tool, KEF Ltd can overcome its issue related to inefficient business
operations, low productivity and profitability aspects. It helps in identifying own internal
weaknesses and opportunities and provides measures for improving own business
performance by understanding all the strategies, standards, plans and policies which are
followed by profit making company.
2. Budget target – For mitigating risk of business loss in form of unnecessary increase in
cost expenses, it is very essential to formulate budgetary target for a specific period. By
making budget, it helps KEF Ltd in making proper and effective allocation of available
financial resources in optimal manner (Boiral, 2016). Thus, this tool can support KEF in
attaining its financial goals with limited budgeted amount in a cost effective manner
thereby increasing profit margin simultaneously.
3. Key performance indicators – It is considered as a quantifiable metrics by use of which
KEF Ltd can evaluate and review the success and growth journey of its business
operations towards the set defined business goals. By this tool, KEF can overcome its
issue of bad and poor performance of its employees and business operations. It can
improve the performance of its employees by imparting training, workshop and
encourages them to use better and effective production techniques.
ABC Ltd is using Budget target for maintaining its business operations in cost effective manner
pertaining to its revenue factor. By using this tool, it has been able to assess its future profit or
loss margin as associated with future business operations.

KEF Ltd focuses on using of Benchmarking tool, as it is facing issue related to inappropriate
business operations and production. By identifying success techniques and concepts of other
companies, it can bring improvement in it as well.
M4. Evaluating use of management accounting system in organisation success.
By making use of different management accounting system, KEF Ltd can eradicate its
financial problems as it comes up with several benefits and limitations:
1. Benchmarking
Advantages Disadvantages
Provide better and deep understanding related
to business processes and standards adopted by
successful companies.
Not measure the effectiveness of business
operations and activities of the company
(Bligaard and et.al., 2016).
2. Budget target
Advantages Disadvantages
Helps in achieving set defined business goals
by making proper and effective use of
available and allocated business and financial
resources.
Is not suitable for companies, where
performance target are not followed up for
assessing their progress level.
3. Key performance indicator
Advantages Disadvantages
Can be used for measuring progress of business
area which is lacking behind. It is best in case
when improvement is required to made in
business and employees performance.
By emphasizing on attainment of short term
goals, it sometimes results in decline in quality
and standards.

CONCLUSION
From the above study it has been concluded that, management accounting is an effective
framework which helps management in taking strategic decision. Furthermore, this study is
useful in determine various MA system and MA reporting. MA systems helps in controlling cost
and reducing wastage to generate higher profitability. It has been summarized that, MA reporting
helps in giving detailed statements of the performance and functioning of the company for
making strategic decision. This study also concludes various management accounting methods
which includes marginal and absorption costing. Furthermore, this study also summarized
various budgetary tools to evaluate the actual results with the projected future plan. This report
also concludes, financial problems of the different organization and it takes necessary tools such
benchmarking, financial governance, key performance indicators and variance analysis to
effectively solve the financial problem with utmost efficiency and accuracy to reach desired
goals and objectives.

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