Management Accounting Report for Nero Ltd

This report provides a comprehensive analysis of management accounting principles and their application to Nero Ltd. It covers the importance of management accounting in improving company performance, different types of management accounting systems, and their benefits. The report includes a detailed comparison of absorption and marginal costing methods, along with a reconciliation statement. It also explores various planning tools like break-even analysis, variance analysis, and ratio analysis. Furthermore, the report discusses the effectiveness of management accounting systems in dealing with financial problems, such as through ratio analysis and capital budgeting. The conclusion summarizes the key findings and emphasizes the importance of management accounting in enhancing business performance.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
1. Importance of management accounting in improving performance of the company..............3
2. Explain different kinds of management accounting systems...................................................5
3. Evaluate the benefits of management accounting systems......................................................7
4. a) Preparation of income statement on absorption and marginal costing................................8
b) Explain the differences in profit under two methods............................................................11
c) Reconciliation statement of profit or loss..............................................................................11
SECTION 2....................................................................................................................................12
PART A.........................................................................................................................................12
A budget is a forecast of what is expected to happen in future.................................................12
Compare and contrast three planning tools in management accounting...................................13
PART B..........................................................................................................................................13
Compare effectiveness of management accounting systems in dealing with financial problems
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
2

INTRODUCTION
The role of accounting has increases with the increasing demands of the existing business
entity in relation to the external market. The higher complexities will enhance the accounting
needs to record all kinds of transactions in the business properly. The accountant will ensure the
cost reduction by managing its existing financial resources. Nero ltd has been selected for this
project report who is responsible for reducing the obligations of the management by nurturing its
present skills and capabilities. This project report is all about defining various principles and the
importance of management accounting tools. The different tools are effectively explained in
order to apply in a business to gain competitive advantage. The higher preference is given to the
absorption and the marginal costing methods.
SECTION 1
1. Importance of management accounting in improving performance of the company
Nero Ltd has focuses on various aspects of their organization which will play an integral
role in improving the performance of the business entity. The business entity has emphasises on
two major factors such as financial and non-financial matters of the organization which is given
below:
3
NERO LTD
Financial
Aspects
Non-Financial
Aspects
Cost Financial
Risk
Revenue Quality Time
Service

Financial aspects
Cost- The management accounting principles are used by an entity in order to improve their
existing working conditions. The primary concern of management is to identify its costs in
relation to the sales and the revenue (Diánez-González and Camelo-Ordaz, 2016). The
management accounting will help in crafting cost reduction strategies to reduces cost which in
turn increases revenue of Nero Ltd.
Financial risk- ratio analysis is the tool of the management accounting which is used to assess
the financial performance of an entity. The future potential risks are identified by applying
various tools and techniques such as profitability, liquidity, efficiency and financial ratios by
analyzing its financial statements. This will help in internally audit of all the organizations to
avoid the external threat imposed by the rivals.
Revenue- Budgeting is the important tool used by an entity in order to forecast its future sales
and the revenue in relation to the existing facts and figures in improving their existing
performance. The sales budget prepared in advance will help in generating future market trends
and further risks created in the same market.
Non-financial aspects
Quality- The management accountant who are appointed to eliminate the existing costs incurred
by the business entity in order to reduce its existing market obligations. The application of total
quality management will be beneficial for the business in identifying the areas in a business
require further improvement will be rectified in advance to remove the causes in present.
Time- The timely delivery of goods and services will help the business to gain the trust and
loyalty among the variety of customers (McLaughlin, 2016). The management accounting
technique will be applied to reduce the time of business operations and its further delivery to
seek customers loyalty. The automation techniques has applied which checks the supporting
resources involved in the business operations in reducing its overall time.
Service- The providing of various products or services is essential in order to maintain the brand
image in the eyes of several customers (Sami, 2016). The service can-be improved by focuses on
the errors and deficient areas of a business which are creating barriers in the delivery of good
amount of services. The management accountant will estimate the total costs incurred by the
business on all the areas which further help an entity owner to curtail unnecessary expenses.
4

2. Explain different kinds of management accounting systems
Business report
It is one of the important tool used in the business of Nero Ltd who uses this kind of
management accounting tool whose major focus is on assessing the cost incurred by the business
(Stacchezzini, Melloni and Lai, 2016). The owner has prepared current time log project sheet in
which time are allotted to each and every report are considered in relation to the future business
projects. The owner will conduct internal and external analysis report which provides accurate
data regarding existing business performance. The projects are prioritized on the basis of time,
competition, external market trends. The time consumed by the employee in allotted project are
compared in relation to the standards set by an individual over the years.
Status reports
PROJECT
DETAILS
PROJECT
NAME
Nero Ltd project PROJECT
CODE
PROJECT
MANAGER
XXX TEAM
SIZE
1
REPORT
DATE
WEEK
BEGINNIN
G
7-Jan-2017 WEEK
ENDING
13-
Jan-
17
RELEASE
DETAILS
TOTAL
RELEASES
/ TASKS
PLANNED
2
TOTAL
RELEASES
/ TASKS
GIVEN (till
date)
PENDING
RELEASES
/ TASKS
NO. OF
RELEASES
/ TASKS
ON TIME
NO. OF
RELEASE
S/ TASKS
DELAYED
EFFORT
DETAILS
5

(current
week)
RESOURC
ES
PROJECT %
ALLOCATION
START
DATE
END
DATE
BILLABLE
HRS
NONB
ILLAB
LE
HRS
TO
H
John Training material
preparation
7-Jan-2017 8
Develop New
Template
8-Jan-2017 8
Update HR Site 9-Jan-2017 8
Visionary Site Update
& Check Work flow,
10-Jan-
2017
8
Infopedia backup 11-Jan-
2017
8
TOTAL 40.00
Total
Billable
Hours (till
date)
Total Non
billable
Hours (till
date)
40
Total
Entire
Project
Efforts
40
The status report prepared by an individual in order to ensure the proper functioning of
the project currently operated in an organization. The reports are prepared which cover all the
above information to be reviewed by the head of the project organizations.
Sales and expenses report
The handling of cost are the major concern of the top management who intended to
reduce their obligations by using different tools and techniques (Nishimura, 2016). The sales
enhancement is the major outcome of every business while conducting their business operation
with higher pace. The expenses are managed by keeping control over them by setting threshold
limit of expenditure in the business organizations. The Forecasting of sales will be conducted in
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relation to the number of customers held in the organization who will raises the level of sales and
the revenue in this business entity.
3. Evaluate the benefits of management accounting systems
There are various management accounting system reports which are explained by
defining its merits and demerits in relation to the management of Nero Ltd which is given below:
Business reports
The management accountant of Nero Ltd prepare various frameworks in order to match
its requirements with the internal and external needs and the expectations of the business. The
current business report has emphasises on two different aspects that is internal and external
analysis of the existing business entity (Martínez-Ferrero, Banerjee and García-Sánchez, 2016).
The internal analysis will be based on the current skills and capabilities of all the employees are
used as direct weapon against the external rivals. The external party's impact has reduces by
nurturing the capabilities of the entity. The comparative analysis will be conducted in which the
past projects are compared with the existing projects in terms of various key considerations.
Status reports
These kinds of reports are prepared to assess the effectiveness and efficiency of the
existing business projects taken by the business ion a particular year (McLaughlin, 2016). This
report has also act as one of the legal and accurate evidences that showcases that which projects
are completed by the business in year. The customer satisfaction can be increase by working
upon the weaknesses of an entity by identifying material misstatements in the statements. The
comparison can be done on the basis of these kinds of reports which is used as standard
guidelines which enhances the values of the business. The employee responsible for handling the
project will provide reasons for the short-coming or achieving the goals that offers specialization
to an entity as compared to its competitors.
Sales and expenses report
The management accountant held responsible for meeting all kinds of expenses by
preparing separate budget for different kinds of expenses (Sami, 2016). The different expenses
budget will produce good results in order to compensate the effect of external expenses on the
revenue earned by an entity. The expenses will be restricted in the business by reducing its
quantity which gradually reduces its impact in the near future. The current expectations of an
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entity is to meet the obligations of the society on the corporation to raises the level of profits.
The higher profit will bring higher satisfaction level among the customers and shareholders as
they get more returns in exchange of the amount invested by them.
4. a) Preparation of income statement on absorption and marginal costing
Table 1: Income statement under absorption costing
Particulars Quarter 1 Quarter 2
Sales 56000 64000
Production cost
Variable 44200 36400
Fixed 13600 11200
Total cost of sales 57800 47600
GP -1800 16400
Opening inventory 0 12000
Closing inventory 12000 4000
Selling and admin(fixed) 4200 4200
Total expenses 16200 3800
Unadjusted profit 14400 12600
Under/over absorbed 4000 -4000
Profit/Loss 18400 8600
8

Sales Profit
0
10000
20000
30000
40000
50000
60000
70000
56000
18400
64000
8600
Profit under absorption costing
Quarter 1
Quarter 2
Absorption costing is one of the tool used efficiently in the presentment of information
accurately in the management accounting tools. The current approach is widely used in
evaluating the value of inventory held in the business for long time in the business (McLaughlin,
2016). This method will consider all kinds of cost taken into account such as fixed and variable
cost in assessing the true figure of sales and the revenue. In the above case scenario, the Nero Ltd
has degenerate loss in the initial quarter and later on it shifted to the earning of profit. In this
situation the company has produces 4000 fewer units as compared with the standard sales units
of 60000. The under absorption of units will create burden for an entity as the expenses will
become higher in relation to the existing sales and the revenue generated by an entity.
Table 2: Income statement under marginal costing
Particular Quarter 1 Quarter 2
Sales 56000 64000
variable production cost 44200 36400
Total cost of sales 44200 36400
GP 11800 27600
9

Opening inventory 0 12000
Closing inventory 12000 4000
Fixed cost 4200 4200
Total expenses -16200 3800
Profit -4400 31400
Sales Profit
-10000
0
10000
20000
30000
40000
50000
60000
70000
56000
-4400
64000
31400
Income under marginal costing
Quarter 1
Quarter 2
Exponential (Quarter 2)
Marginal cost is also recognized with another name that is the variable costing which
emphasises on the variable costing in producing the sales and profit in the particular year (Uyar
and Gungormus, 2016). The situations of the business is not favorable in initial quarter as it
showing loss in the first quarter. The entity has generated higher amount of profit as it is over
absorbed its sales units in comparison to the budgeted output. The existing facts and figures are
not strong enough to meet the requirements of the business in relation to the sales achieved by an
enterprise in a particular quarter.
Table 3: Calculation of unit cost
Units cost 60000 units
10

Sales 1
variable 0.65
Fixed 0.2
Profit 0.15
b) Explain the differences in profit under two methods
The differences in the profit occurred due to the changes takes places in their overall
treatment of considering all kinds of records (Wu, Chen and Lee, 2016). The treatment of
absorption costing a marginal costing will create effect on the changes in the generation of profit.
The inventory level will determine generation of profit over the quarters in this business of Nero
Ltd. The increase or decrease in the level of inventory will affect the profit earned by an entity
in a year. The profit will be increases in the absorption costing when the level of inventory will
increase over the period.
The marginal costing has opposite effect in the profit generation but the treatment of the
information is totally based on the inventory (Bloomfield, Nelson and Soltes, 2016). The
generation of profit will be higher when the inventory will be decreases over the year. In the case
scenario of Nero Ltd, the inventories are decreases from 12000 in initial quarter to the 4000 in
next quarter. The reduction of the inventory will bring higher amount of profit over the years.
c) Reconciliation statement of profit or loss
Particulars Quarter 1 Quarter 2
Net income(absorption costing) -14000 8600
Fixed manufacturing overhead(Opening inventories) 0 12000
Fixed manufacturing overhead(closing inventories) 12000 4000
Net income -2000 600
The reconciliation statements has prepared in the internal business management of Nero
Ltd in which costs are ascertained in advance in relation to the sales and the revenue generated
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by an entity (McLaughlin, 2016). The entity will be able to produce good amount of results by
recording each and every information in the single statements. The reconciliation of profit
statements has been prepared in the business entity to ensure the accuracy of all facts and figures.
The effectiveness of the accounts are judged by measuring the performance of an entity in
relation with the existing facts and figures (Stacchezzini, Melloni and Lai, 2016). The
comparison can be done among the various accounts which will help in considering the external
matters in relation with the external entity. The generated profit can be relied by the business as
it is cross checked at every stage of the process. The business can be managed properly in order
to impose effective control on their existing entity in order to produce good results. The
standards are created well in the business concern whose primary aim is to ensure the capabilities
of all the employees who held responsible for achieving the desired aims and the targets of an
entity.
SECTION 2
PART A
A budget is a forecast of what is expected to happen in future
It is correct that budget is the forecast of the things that may likely happened in the future
(Martínez-Ferrero, Banerjee and García-Sánchez, 2016). It is very important make forecast about
future time period. This is because business past and future performance are interfaced in
relation to proper management and use of resources. If, forecast will not be made about future
then redundant use of resources will be made in the business. This will heavily put negative
impact on the firm cash flows. Thus, budget is prepared by the business firm and estimation
about likely business conditions are made and accordingly projections are made and optimum
utilization of resources is done in the business. There are many techniques of the forecast that
can be used to project values for the budget (Sami, 2016). Normally, business environment is
analyzed by the managers because cash inflow and outflow depends on the conditions that
business firm will face in the upcoming time period. If condition will favorable for the business
firm then sales will increase and expense values will be enhanced or vice versa. Thus, it is very
important to make estimation about the likely changes that may takes place in the business
conditions. Tools and methods can also be used by the firm to make relevant predictions. It can
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be said that there is great importance of the budgeting for the firms. By preparing a budget
effective utilization of cash and other resources can be made by the business firms (Gow,
Larcker and Reiss, 2016). For instance managers predict that sales will inclined downwards then
in order to prevent redundant use of cash in the business firm can plan to buy less amount of
inventory. By preparing such kind of plan blockage of cash in unused inventory of raw materials
can be prevented. Cash can be used elsewhere in the business which will lead to profit
maximization in the business. For the next year huge amount of cash can be generated by the
business firm.
Compare and contrast three planning tools in management accounting
The three management accounting planning tools that are usually used by the business
firms are break even, variance analysis and ratio analysis (Nishimura, 2016). All these three tools
are used for different purpose and none of them can be undermine in terms of their significance
for the managers. Break even analysis is used to compute the minimum number of units that firm
needs to sale in order to cover entire cost of production. Contrary to this, variance analysis
reflects the areas where extravagance is made and require improvement (Rikhardsson and Dull,
2016). Ratio analysis is used by the managers to evaluate firm from various sides. On
comparison of these tools it can be said that there is significant importance of all these three
methods. Break even analysis is the one of the most important effective tool for the managers
because by using same number of units that is necessary to sale in the market is determined. In
terms of earning of target profit number of units that must be sold can be determined on the basis
of results of break even analysis. Variance analysis clearly reflects areas where extra money is
spent. By taking action in relevant area overuse of money is controlled and saved (Rumens,
2016). Saved amount is invested in the business which enhance firm profitability. Ratio analysis
is also effective because it helps managers in making comparison of the business firm on yearly
basis in varied areas. Thus, areas where firm give poor performance can be easily identified by
the managers. By preparing and implementing suitable strategy weak domain can be made
strong. Thus, in this way all these three methods are effective for the business firm.
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PART B
Compare effectiveness of management accounting systems in dealing with financial problems
The management accounting principles and various tools and techniques are applied in a
business in relation to the prevention and detection of financial risks faced by an entity in a
particular year which is mentioned as below:
Ratio analysis: Ratio analysis is the one of the most important tool that help business firm in
dealing with the financial problems (Knights and Tinker, 2016). In the mentioned technique
varied sort of ratios can be computed like current ratio, debt equity and profitability ratios. On
the basis of results of the mentioned ratios areas where firm is facing financial problem can be
identified by the managers easily. Current ratio value is low then it means that firm have less
liquidity in its business. This means that company will not be able to pay its short term liability
in specific duration. Such kind of situation reflects that firm condition is critical and it needs to
improve its performance. By preparing suitable cash management strategy blockage of cash in
inventory can be prevented and financial problem can be removed from the business to great
extent. Thus, it can be said that management accounting is effective and help firm in removing
financial problem from the business.
Capital budgeting: Capital budgeting is the one of the most important method that is used to
measure the viability of the project (Chmelik, Musteen and Ahsan, 2016). In the capital
budgeting method first of all projections of cash flows are prepared. Projections are prepared in
respect to revenue and expenses in terms of raw material and other items that can be made in the
business. It is the management accounting records that help managers in making estimation
about cash flows that can occur in respect to the project. On the basis of these record's estimation
about fund requirement is made. Managers determine whether they will be able to arrange
required amount of finance for the proposed project. Thus, chances of occurrence of the financial
problem is eliminated at preliminary stage in respect to the project (Herremans and Nazari,
2016). It is clear that management accounting tools are effective in preventing financial problems
in the business organization.
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CONCLUSION
It can be summarized from the above project report that an entity are required to make
several decisions into business to enhance the current quality of the resources. The above report
has focuses on the qualitative aspects of the management accounting that leads an entity towards
the improvement of financial aspects of an organization. The budgeting has focused that
enhances the current skills and resources utilized by the business in a given time frame decided
by the corporation.
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REFERENCES
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and Experimental Accounting Research. Journal of Accounting Research. 54(2). pp.341-
395.
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International Social Ventures: An Exploratory Study. Journal of Social Entrepreneurship.
7(1). pp.74-100.
Diánez-González, J. P. and Camelo-Ordaz, C., 2016. How management team composition affects
academic spin-offs’ entrepreneurial orientation: the mediating role of conflict. The Journal
of Technology Transfer. 41(3). pp.530-557.
Gow, I. D., Larcker, D. F. and Reiss, P.C., 2016. Causal inference in accounting research.
Journal of Accounting Research. 54(2). pp.477-523.
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Knights, D. and Tinker, T. eds., 2016. Financial institutions and social transformations:
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responsibility as a strategic shield against costs of earnings management practices. Journal
of Business Ethics. 133(2). pp.305-324.
McLaughlin, T. A., 2016. Streetsmart financial basics for nonprofit managers. John Wiley &
Sons.
Nishimura, A., 2016. Uncertainty and Management Accounting: Opportunity, Profit Opportunity
and Profit. Asia-Pacific Management Accounting Journal. 6(1).
Rikhardsson, P. and Dull, R., 2016. An exploratory study of the adoption, application and
impacts of continuous auditing technologies in small businesses. International Journal of
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Rumens, N., 2016. American pragmatism and organization: issues and controversies. Routledge.
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