Management Accounting Report: Analysis for KEF Ltd. (Unit 5)

This report provides a comprehensive overview of management accounting, focusing on its application within a manufacturing company, KEF Ltd. It begins by defining management accounting, outlining its core elements, and differentiating it from financial accounting. The report then delves into various management accounting systems, including cost-accounting, inventory management, job-costing, and price-optimizing systems, detailing their benefits and requirements. It emphasizes the importance of relevant, reliable, and accurate information, along with effective presentation methods. Furthermore, the report examines different types of management accounting reports, such as budget, accounts receivable, performance, and cost reports, highlighting their roles in decision-making and performance evaluation. The report also explores the integration of management accounting within a firm, discussing its role in forecasting, variance analysis, and investment analysis. Finally, the report examines the advantages and disadvantages of different planning tools and how organizations adapt different management accounting systems.

Unit 5 - Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
LO1..................................................................................................................................................2
Management Accounting.............................................................................................................2
Management Accounting System................................................................................................2
Integrating management accounting in an firm...........................................................................3
Origin, role and principle of management accounting.................................................................3
Comparison between management and financial accounting......................................................4
Types of management accounting system...................................................................................5
Relevance, reliability and accuracy of information.....................................................................6
Presentation of information..........................................................................................................7
Types of management accounting reports...................................................................................7
Critical evaluation of integration of management accounting in businesses...............................9
LO 2.................................................................................................................................................9
Calculate cost using appropriate technique of cost analysis........................................................9
LO 3...............................................................................................................................................12
Advantage and disadvantages of different type of planning tool .............................................12
LO 4...............................................................................................................................................14
Compare how organization are adapting different management accounting system ...............14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
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INTRODUCTION
Management accounting is the process of analysis business cost and operation to prepare
internal financial reports, records and accounts so that organization can make a different decision
in an cited firm. KEF Ltd. Is a loudspeaker manufacturing company in United kingdom. This
report highlights the definition of management accounting and essential element of management
accounting. After that the report highlights the different type of management accounting system
and management accounting reporting tool. After that the report highlights the different type of
budget planning tool and advantage and disadvantage of using the same. After that the report
highlights the different management accounting monitoring system and different way through
which different company adopt the same in their cited firm.
LO1
Management Accounting
According to Chartered Institute of Management Accountants, 1986, management
accounting refers to the process of identifying, measuring, analysing, interpreting and
communicating the resulted information to management to plan, evaluate and control within the
entity and appropriate use of resources. Management accounting is generally designed in the
organization to provide a good sort of supportive data to the manager, so that they can make
different decision in an cited firm. (Management Accounting definition. 2019).
According to The Institute of Cost and Management Accountants, 1956, management
accounting is the application of professional skills in the preparation of reports that assists
management in formulating policies and undertaking operations. In simple words Management
accounting is the presentation of analysis of business activities to the internal management to
facilitate decision-making and achieve goal of the business.(Ax and Greve, 2017).
Management Accounting System
Management accounting system is deployed to provide useful information that can be
used by the management in taking better decisions. It provides valuable data that helps in
operating business efficiently.
Function of Management Accounting
Planning: Management accounting used to help the cited firm in planning different activity in
the organization. As on the basis of information cited firm used to plan different activity.
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Organizing: Organization used to organize the different resources on the basis of decision taken
by the manager in the company.
Staffing: Helps the executives to establish positions and lay down their functional relations to
each other. staffing function that different positions in the cited firm structure are manned
Directing: Management accounting used to help the organization in getting different information
to direct different activity in the firm.
Controlling: Helps manager in forecasting different activity, which helps the company in
controlling different activity.
Coordinating: Management accounting help the company in coordinating different activity in
the cited firm.
Integrating management accounting in an firm
Management accounting helps in preparing the reports that provides accurate and timely
information to managers to make decisions. Importance of integrating it in Prime Furniture's is
given below. Helps in forecasting future: Management accounting helps in forecasting the future
trends I business and helps in taking decision based on forecasts. It helps in answering
whether company should diversify in different market, invest in new equipment’s, to
merge or acquire another company etc. Helps in analysing variances: Management accounting helps in identifying performance
discrepancies. This actually happens when actual performance deviate from the standard
performance (Chenhall and Moers, 2015). Management accounting uses different
techniques to help management to reduce such variances, mostly the negative ones.
 Analysing the rate of return: When there are more than one investment opportunities,
company is required to choose the most profitable one, in how many years company will
achieve breakeven point etc. Management accounting helps in answering these questions.
Origin, role and principle of management accounting
Origin
Management accounting is derived from financial accounting but are very distinct from
each other in terms of roles and functions. It was developed in England during industrial
revolution.
Role
3

There are different roles management accounting plays and some of the important roles
are stated below. Planning: It helps in carry out planning process to meet the short term and long term
requirement. Management accounting helps in this by providing relevant accounting
information that is used in decision making process. Organizing: Management accounting helps in formulating internal framework within
which activities are required to be carried out. It also clears the roles and responsibilities
of the authority. It helps in proper functioning of the company.
 Communicating: It helps in establishing and maintaining the effective communication
system. It reports performance based on the information provided. It also highlights the
activities that requires more attention. Communication is plays a vital role in an firm.
Principles
The management accounting principles are of two types which are discussed in detail
below. Principle of Causality: This principle models cited firm cost based the relationship
between inputs and outputs of the resources involved in the production process.
 Principle of Analogy: This principle provides the user of the management accounting
information to apply the skills and knowledge gained from the casual relationship using
reasoning about the past and future outcomes for optimizing efforts (Hald and Thrane,
2016).
Comparison between management and financial accounting
Basis for comparison Management Accounting Financial Accounting
Users This information is used by the
internal management usually
managers.
This information is for the
external user like shareholders,
customers, creditors,
government etc.
Time period It uses the estimates for the
future which is used in
budgeting and decision
making.
It uses historical or past data to
draw some information.
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Content It uses both financial and non-
financial information.
It uses only financial
information.
Types of management accounting system
There are different types of management accounting systems and the most widely used
systems that can be implemented by Prime Furniture's are stated below.
Cost-accounting systems: This system is usually used by the manufacturing concerns
which aims at estimating the cost of production of products and services in which the
organization deals in It also helps in tracking inventory through different stages of production
(Cost Accounting Systems, 2019). This system is required to have an idea of real time situation
of organizational cost. On the basis of same firm used to make different decision in an cited firm.
There are two type of cost in generall that is direct cost and indirect cost.
Requirenment
 Cost accounting is required in the cited firm to make different decission regarding
reducing cost of the company in the long run. Cost accounting also help the company in determining the price of the company, as
organization used to determin the price of the company by adding profit margin to the
cost per unit in the market. Price = cost per unit + (CPU * mark-up %)
Benefits:
 Helps in measuring and improving efficiency by comparing and analyzing the
differences.
 It helps in reducing the price by eliminating activities which are unnecessary and do not
add any value.
Inventory management systems: This system aims at managing the inventory of the
organization which includes management of raw material, other components and finished
products. This system is capable of tracking inventory on real time basis. Inventory management
system require to track progress level of different type of product of an firm.
Requirement
Inventory management system in the cited firm used to determine the EOQ and JIT of the
organization. EOQ is the nember of the unit that company should add to the inventory with each
order in the cited firm to minimize the total cost of the inventory. JIT is the measuring tool of the
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same, in which material, goods and labor are schedule in the way that it used to replenished
exactly when needed in the production.
Benefits:
 It increases the accuracy of data analysis and helps in preventing out of stock and
wastage.
 It helps in keeping the warehouse well organized and helps in carefully tracking
inventory.
Job-costing systems: It is the system associated with collecting information about the cost
related to the specific production or job. This keeps track of cost with respect to the production
of a product which can be used in further business operation. This is required to track variety of
cost of materials used during different carrying out different job.
Benefits:
 It can be used as a basis for estimating similar jobs that can be undertaken in future.
 It helps in detecting defective work in relation to specific job and responsibility for the
same can be fixed (Jansen, 2018).
Price-optimizing systems: This model calculates how demand changes with the change in
price levels and the combination of this information with other cost and inventory information
helps in dealing with price. This system is essential for tracking pricing of the product.
Benefits:
 This reduces the manual work and helps team to invest their time in other value added
activities.
 By automating tasks, this system has helped in quick decisions (Honggowati and et.al.,
2017)..
Relevance, reliability and accuracy of information
The information provided should be relevant to the needs of the cited firm and should
also have reliability factor which refers to the authentication of the information based on certain
documentation or proofs (Mack, and Goretzki, 2017). The information provided should be
accurate and timely otherwise it may lead to wrong decisions making by the users. All the three
factors are important for the taking meaningful decision by the users.
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Presentation of information
Information should be presented in such a way that users of the information can
understand what it intends. It should include all the relevant information but the presentation of
which should be understandable.
Types of management accounting reports
 Budget reports: This report is prepared for measuring the performance of the
organization. These are prepared using previous experiences which helps in meeting with
changing circumstances. This help the company in measuring actual performance of
company with the predetermine budget of an company. This help the company in
determining which expenditure of company is too high, so that on the basis of same
different action can be taken in an cited firm.
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 Account receivable reports: This report is prepared when the company depends upon the
extending credit to the debtors. This helps in analyzing the collection process and bad
debts. This is one of the aging tool which is used by company in ascertaining the bill
which are due or overdue for the payment (Malina, 2018). This report is also known as
one of informational report as well, as it contain some sort of information about the
customer. Generally cited firm uses this report to synchronized the payment process in an
organization.
 Performance reports: This report presents the performance of the company as well as of
each employee. This helps in taking key decisions about the future of the company. This
report includes the performance indicator which need to be achieved by an organization.
On the basis of the actual performance that indicator are compare and variance are being
found out. This help the company and employee to plan the future activity more
efficiently to achieve the goal.
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 Cost reports: This type of management report used to contain the variety of cost
incurred by company in manufacturing product in an organization. On the basis of such
information manager in the firm used to plan the different activity in the organization to
reduce the cost of company in long run of company. As with the help of that company is
able to have a exact idea about the situation of company.
9

Critical evaluation of integration of management accounting in businesses
Management accounting system is interlinked with the different accounting reports of the
KEF Ltd. As management accounting report is used to provide quantitative and qualitative
information to the business. Management accounting system and reporting encompasses the
processes companies install to control and plan operations and the combination of both of this
helps KEF Ltd in making variety of different decision in the company. For example as Inventory
management used to create proper recording analysis in the organization, whereas inventory
report used to provide qualitative data such as factual position of the business.
LO 2
Calculate cost using appropriate technique of cost analysis
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Absorption costing
Cost per unit
year
Overall
cost
add:
indirect
production
cost
Total cost
of
production
1 30 25 55
2 30 23 53
3 30 24 54
Profitability statement as per absorption costing
year Sales
Less:
COGS GP
Less:
selling &
distributi
on
overhead
Less: adm
overhead
Less:
interest
expens
es
Total
expens
es NP
1
25200
0 152865 99135 5600 10100 1100 16800 82335
2
33300
0 242650 90350 7400 10100 1350 18850 71500
3
30600
0 199605
10639
5 7000 10100 1600 18700 87695
Assessment of COGS
year Production Sales
Closing
stock
1 3700 2800 900
2 4000 3700 300
3 3800 3400 400
year
Opening
stock
per
unit
Figures
(in £)
Add:
purchases
per
unit
Figures
(in £)
Less:
closing
stock
per
unit
Figures
(in £) COGS
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