Comprehensive Management Accounting Report: SDK Jewellers Case Study

This report delves into the realm of management accounting, exploring its various facets through the lens of SDK Jewellers, a manufacturing company based in the UK. It commences with an introduction to management accounting, its significance in organizational decision-making, and its role in addressing future uncertainties. The report then dissects the management accounting system, differentiating between cost accounting, price optimization, inventory management, and job costing systems, and their respective benefits. A key section focuses on management accounting reporting, encompassing budget, account receivables, performance, and inventory reports. Furthermore, the report explores cost calculation techniques, planning tools, and budgetary control, alongside their advantages and disadvantages. The report also addresses the responses of the management accounting system to financial problems and their impact on organizational success. The report provides valuable insights into the practical application of management accounting principles within a real-world context, making it a useful resource for students and professionals alike. The report concludes with a discussion on the integration of management accounting and its reporting in driving organizational success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system and its types.......................................................................1
P2 Management accounting reporting and its types...................................................................3
M1 Benefits of management accounting system........................................................................4
D1 Integration of management accounting system and its reporting in organisational success. 5
TASK 2............................................................................................................................................5
P3 Calculation of cost using an appropriate techniques..............................................................5
M2 Various management accounting techniques.......................................................................7
D2 Data interpretation.................................................................................................................7
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of different planning tools used for budgetary control........8
M3 Uses and applications of planning tools for preparing and forecasting budgets..................9
TASK 4............................................................................................................................................9
P5: Responses of management accounting system to deal with financial problems..................9
M4: Management accounting lead to sustainable success in responding to financial problems
...................................................................................................................................................11
D3: Planning tools respond appropriately to resolve financial problems.................................11
CONCLUSION..............................................................................................................................11
REFERENCES ...............................................................................................................................1

INTRODUCTION
Management accounting is tool which is used by managers to determine organisational
goals and objectives. It helps to make financial and non financial decisions which is required to
deal with uncertainties that may occur in future. It is a process of recording business information
which is provided to the internal stakeholders of the company to gain their trust. In management
accounting various reports are generated to analyse the performance of the company. Its main
objective is to get the insider and actual information of the business so that weak areas are
identified and managers can plan for improvements in those areas (Abdelmoneim Mohamed and
Jones, 2014). SDK Jewellers is a manufacturing company and its headquarter is in UK.
This project report covers various topics such as management accounting system and its
reports, planning tools used in budgetary control, various costing techniques etc. Various
techniques to deal financial problem that an organisation have to face are also covered under this
report.
TASK 1
P1 Management accounting system and its types
Management accounting is the process examining financial data that facilitates the
strategic decision making process of managers. It helps to formulate policies that helps to lead
the organisation toward success. It direct the managers to perform various functions such as
planning, organising, controlling etc. Managers of SDK Jewellers use management accounting
system to determine customers needs and provide them such products that may fulfil their
demand. Stakeholders can get various information such as cash in the company, its total sales, its
account receivables and payables. The management of SDK Jewellers follow management
accounting system to maintain proper status of the company in the market. There are four types
of management accounting system, that are explained below:
 Cost accounting system: It is used by various companies to determine the actual cost
which is involved in manufacturing process. It is very useful for manufacturing
companies because it can provide the detailed information of cost of different
departments. It helps the managers to control the cost of production (AlMaryani and
Sadik, 2012). Management of SDK Jewellers use this system to analyse the cost of each
segment of Jewellery. The managers analyse the production activities with the help of
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this method. It is very beneficial for the management department, as it can provide
transparent information of cost which is used to minimise cost.
 Price optimisation system: It is mainly concerned with the pricing strategy of the
company. Managers use this system when they are looking for accurate price for their
products that can maximise profits as well as attract customers to fulfil their demand.
SDK Jewellers use this system while they want to analyse customers reaction toward
price changing strategy (Arjaliès and Mundy, 2013). The major objective of the managers
of SDK Jewellers, is to determine the best price for their products that will help to meet
their organisational goals and mission. It is very advantageous for the company because it
provides the ideas to set appropriate prices for the products.
 Inventory management system: It is used to track the products in supply chain of the
company. It is mainly concerned with the information of inventory which is may be in
warehouse or transportation (Bennett, Schaltegger and Zvezdov, 2013). Management of
SDK Jewellers use inventory management system to determine the quantity of the
inventory within the company. It is very important for the organisations like SDK
Jewellers, because it helps the managers and owners to keep a track record of inventory
whether it is, inside or outside of the company. It is very beneficial for the managers
because it provide the information of inventory. There are three types of inventory
management system, LIFO, FIFO, AVCO. LIFO stands for Last in first out, it is a
method which is used to evaluate the most recently received units first. FIFO stands for
first in first out, it is a method which is used to evaluate the earlier received units first.
AVCO stands for Average cost method, in this method units are recorded on weighted
average basis to calculate the cost of the units.
 Job costing system: It is concerned with the examination of cost which is involved in
the job that is performed by the company or its employees. It is mainly used when the
jobs are totally different from each other. Managers of SDK Jewellers use this system to
analyse cost of each task of the company. Job costing system helps the management of
SDK Jewellers to determine the manufacturing cost which in incurred in various jobs of
the organisation. Managers make decision to control the cost of the company if the cost is
comparatively higher then competitors (Bovens, Goodin and Schillemans, 2014). This
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reports is very important for the manufacturing companies because it helps to get the
exact information of cost involved in various jobs..
P2 Management accounting reporting and its types
Management accounting reporting system is a method of generating various management
reports that helps to analyse actual position and performance of the company. It provides various
information to the managers that helps them while decision making (Cardoni, 2012). It contain
information of budgets, owed amount by clients, performance of each employee and business,
inventory status, manufacturing process etc. These reports are prepared by the management
department of SDK Jewellers to make decisions, formulate strategies and policies, set
organisational as well as individuals goals that are based on above mentioned informations. It
facilitates the decision making process with the helps of various reports. Type of management
accounting reports are described below:
 Budget reports: These reports are mainly concerned with the comparison of forecasted
budgets and actual performance of the company. It helps the managers to identify budget
for each department and control them accordingly. Financial data is recorded in budget
reports, which is analysed by managers of the company to identify fields where the cost
can be controlled (Carlsson-Wall, Kraus, and Lind, 2015). The management of SDK
Jewellers design budget reports to identify that how the organisation is performing in
market with available resources. The managers try to find out the reason behind the
variation in actual and budgeted figures. These reports are very important for the business
because it helps the management to form strategies according to the requirement of the
company..
 Account receivables reports: These reports are mainly generated to analyse the owed
amount of clients. It is a tool that helps the managers to determine the actual receivables
of the company and to whom it relates (Fourie, M. L., Opperman, Scott and Kumar,
2015). Account receivables reports are formed by the managers of SDK Jewellers to get
the information of those customers who fails to pay their amount on due date of payment.
It helps to get detailed information of actual owed amount of various clients, hence it is
very important for every organisation. These reports are very important for the company
as well as its managers to determine the total receivables of the company.
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 Performance reports: It is generated to analyse the performance of company and
various individuals within the organisation. The main objective of these reports is to
determine the performance which helps to run business in effective way. It is very
important for every organisation to keep the idea to its business operations to ignore
future consequences (Hall, 2016). In SDK Jewellers performance reports are created to
analyse execution capability of business and its market image. It is a detailed document
that provides internal and confidential information of business operation and their
performances to the managers and stakeholders of the company. These reports are very
important for the business because it helps the managers to get the knowledge of
performance of each individual who is working in the organisation.
 Inventory and manufacturing reports: Inventory reports consists information of
inventory of an organisation and manufacturing reports are concerned with the process
of product manufacturing. It provides detailed information related to the stock which is
kept by the company to produce products (Leitner, 2013). These reports are generated by
the management of SDK Jewellers to keep the actual information related to the material
which is used to make jewellery. It also help the managers to reduce the waste in
manufacturing process by keeping information of actual inventory. It is very important
for the companies like SDK Jewellers because they have little inventory whose value is
very high.
M1 Benefits of management accounting system
Management accounting system Benefits
Cost accounting system  It is implemented to analyse and modify the
effectiveness of the company.
 It is very important for the company as it helps the
managers in strategic decision making.
Price optimisation system  It is used to record customers reaction toward price
changing strategy of the company.
 This system is essential for organisations because it
helps to set appropriate prices for the products that
can help to generate profits for the company and
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attract more customers.
Inventory management system  It helps to gather actual information of inventory.
 Helps to the managers by providing them idea, when
to order inventory for the business.
Job costing system  Helps to improve productivity of the company.
 It provides information of actual cost which is
involved in various jobs.
D1 Integration of management accounting system and its reporting in organisational success
Management accounting system and its reporting help the managers and stakeholder to
analyse performance and market image of the company. It contributes in organisational success
by preparing various reports that shows the actual and running condition of the company. It is
very important for the company to properly form management reports to achieve organisational
goals and to lead the organisation toward success. Managers of an organisation are concerned
with the improvements in various fields of the organisation to make the strategies successful that
are implemented by them. Account receivable reports helps the managers to determine the actual
receivables of the company from different clients which helps the managers to tighten the credit
policies. Performance reports help to analyse individual as well as organisational performance
which helps to improve efficiency of operations.
TASK 2
P3 Calculation of cost using an appropriate techniques
Cost: It is a monetary value of a product, it includes various expenses like material,
overheads, labour etc. It is an amount which is used to manufacture a particular unit. If a
company is willing to acquire more market share than it is suggested to the managers to set lower
cost for the product so that it will help to attract more and more customers for the company and
increase the market share (Schaltegger and Burritt, 2017).
SDK Jewellers is a company who deals in jewellery and a producer of different jewellery
items, it is mainly based in UK. If managers of the company want to maximise profits then they
should set lower costs as compare to their competitors. It will help the company to increase
profits and set a positive image in the mind of customers.
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Marginal costing: It is a costing technique which is used to analyse the increment or
decrement in cost because of extra production unit. The cost for additional unit of production is
known as marginal cost. These costs are variable costs that are related to labour and raw
material. In this technique the managers try to determine the actual cost of additional production
units (Shields, 2015).
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200 + 1200 + 1500 ) 5900
Net profit 17500
Absorption costing: It a costing method which is used by various companies to assure
that the cost involved in the production of various units are going to be absorbed from the sales
of same units. This methods is used by managers of SDK Jewellers to determine actual
manufacturing cost.
Calculation of net profit by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It is a method which is used to analyse break even point where
company earns a profit which is equal to the cost incurred in the production of the units. In this
situation company is earing no profits and bearing no loss. It is calculated with the help of fixed
cost, variable cost and total sales of the company.
A Total number of products sold:
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
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Fixed costs 6000
BEP in units 500
B. Calculation of break even point in accordnce to sales revenue:
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
C. Calculation to reach desired profits of 10000:
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is the difference of actual sales and BEP sales. It is very important
for businesses because it can thelp the management to predict that how much reduction in sales
will result in break even (Van der Meer-Kooistra and Vosselman, 2012).
D. Calculation of margin of safety when 800 units are sold:
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2 Various management accounting techniques
Management of SDK Jewellers use there types of management accounting techniques to
produce suitable financial reporting documents. These techniques are standard, marginal and
historical costing techniques. Standard costing technique is used to analyse the variation in actual
and forecasted budgets, that help to analyse actual performance of the company. Marginal
costing techniques is used to measure the increment or decrement in costs for producing extra
unit. In other words, it is used to analyse marginal cost that occur when company is producing
extra units. Historical costing technique is used to analyse actual amount of assets and liabilities
that are recorded in balance sheet.
D2 Data interpretation
As analysed from above calculations, managers of SDK Jewellers finds that marginal
costing technique is most relevant option for the company to determine net profits. While
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calculating net profits from marginal and absorption costing technique, it shows a difference of
£1825 in profits. Net profits from marginal costing technique are £17500 and from absorption
costing technique the profits are £15675. The break even sales of the company is £20000 when
the sales is 500 units. As SDK Jewellers is willing to earn a profit of £10000, to reach the profit
it has to sale 1333.33 units. If company is selling 800 units then the margin of safety will be 37.5
TASK 3
P4 Advantages and disadvantages of different planning tools used for budgetary control
Budgetary Control: It refers to how appropriately the managers utilize, monitor and
control the costs to run the business operations smoothly. Budgetary control help the managers to
compare actual figures and budgeted figures of the organsiation. There are various steps to
follow while preparing budgets of the company (an Helden and Uddin, 2016). Budgetary control
process involve setting objectives, measuring budget outcomes, preparing budget manuals and
forming budget commeetee. Managers of SDK Jewellers are liable to control the budgets of the
organisation because it helps to make plan and reserve funds for future risks or events that may
occur. Management of SDK Jewellers use three planning tools in budgetary control:
 Forecasting tools: As its names describes that these tools are concerned with forecasting
process of the company. It helps the managers to forecast future expenses such as
promotional expenses and, reserve fund for those expenses so that it help to ignore major
crisis that might occur in future. It helps the management to predict future events that are
based on past events and current trends.
Advantages Disadvantages
It helps to forecast future expenses. It is totally based on past data, hence its is not
fully reliable.
It helps the managers to reserves funds for
future expanses.
It is not possible to forecast future accurately.
 Contingency tools: These tools are mainly concerned with negative events that may
occur in future. It is used by managers of SDK Jewellers to determine any unfavourable
event that have posibility to happen. It helps the managers to pre plan for the events that
can affect the operational activities and execution process of the company.
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Advantages Disadvantages
Provides the idea of possible future events that
may affect the operations.
It is only useful at the time of contingency and
provide guidance to deal with the same.
It helps the managers to be ready to face
possible negative events in future.
The process of implementing these tools is
very complicated.
 Scenario tools: This tool is concerned with the identification and evaluation of possible
future events and than make a professional framework to explore those events. The
managers of SDK Jewellers make assumptions on the basis of past and current data for
upcoming events that impact on business environment. It is used in SDK Jewellers to
identify specific set of consequences that might happen in future.
Advantages Disadvantages
It help the mangers to identify critical issue
that may affect the operations of the company.
It is not useful for the small size companies
like SDK Jewellers.
It facilitates long term planning and decision
making process.
It is very difficult to implement this tool
because the market trends change rapidly.
M3 Uses and applications of planning tools for preparing and forecasting budgets
The managers of SDK Jewellers use three planning tools, that are forecasting,
contingency and scenario tools. These tools help the managers to forecast future events and
consequences. Planning tools are used to determine favourable and unfavourable events of
future. It also help the managers to be ready to face any kind of uncertainty in future. These tools
help while preparing and forecasting budgets because, they provides valuable informations to the
managers that help them to make decision according to the situations.
TASK 4
P5: Responses of management accounting system to deal with financial problems
Financial problems are related to lack of funds in company's activities or operations.
Many organisation are facing several financial issues like high debt level, insufficiency of funds,
improper money management, insolvency etc. in its operations. SDK jewellers is a small scale
company and wish to expand in future. So, for expansion company needs more finance. It is also
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suffering from financial issue like inadequacy of funds, large number of creditor and too much of
unnecessary expenses. These problems are discussed below in detail:
 Large number of creditors: Continuous credit sales lead to more credit customers. SDK
jewellers offer credit option to buyers but not able to recover the due amount.
 Inadequacy of funds: As company wants to expand but not have sufficient funds for
expansion. Therefore, they need finance in order to increase their capital.
 Unnecessary expenses: Marketing manager of SDK jewellers spent unnecessary on
promotional activities. It amount of expenses are more then revenue that negatively
impact on company's income.
Company follow key performance indicator, benchmarking and financial governance techniques
to deal with it's financial problems. These tools are explained below:
KPI(Key performance indicator): Company's performance is examine and measure
under this tool within a specific time period which assist in decision-making. SDK jewellers
evaluate its production and financial performance which negatively influence its operations.
Company is facing financial problem related to unnecessary spending over expenditure. SDK
jewellers use types of key performance indicators for resolving this issue (Wouters, and
Kirchberger, 2015).
 Leading KPI- In this tool organisation estimates future events and evaluate
changes at marketplace. SDK jewellers use leading indicator for identifying and
measuring unnecessary expense on promotion which are unrelated to present
period. Company control this expenditure and estimates related expense
accurately which assist in enhancing income.
 Lagging KPI- In this tool company increase its jewellery sales in way to generate
revenues. SDK jewellers use lagging indicator for measuring its output in order to
achieve success.
Benchmarking: This approach help in comparing company's performance with other
organisation in similar industry. Many companies are using this technique in order to increase
productivity and performance. SDK jewellers follow benchmarking to compare its performance
with competitors and resolve issue related to customers. Company set credit standards as its
successful competitor is using and recover due amount from creditor (What is Benchmarking,
2018).
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Financial governance: This technique assist in collecting, managing and controlling
financial information of an organisation. SDK jewellers follow financial governance in order to
respond on financial issue i.e. inadequacy of funds. Management prepare a report with detailed
information about it's performance, financial data, production and sales practices. This
information helps in attracting investors which improve company's financial status and resolve
the problem related to inadequacy of funds. This tool assist in future expansion of business.
SDK jewellers Airdri
Company follow KPI tool for resolving issue
related to spending on unnecessary expenses.
Company use benchmarking technique for
comparing its performance with competitors.
Benchmarking technique help in minimising
number of creditors by establishing credit
standards as successful competitor adopt.
It follow key performance technique for
measuring its employees performance in order
to generate revenue.
It use financial governance tool for increasing
the flow of funds in organisation.
Just in time technique is used for inventory
valuation.
M4: Management accounting lead to sustainable success in responding to financial problems
SDK jewellers faces financial problems such as unnecessary expenses, large number of
credit customers and inadequacy of funds impact on company's performance. Company follow
Key performance indicator for resolving problem related to unnecessary expenditures. It use
benchmarking technique for reducing its credit customers with the help of establishing credit
standards. At last, company follow financial governance tool for solving issue related to
insufficiency of funds. These three tools assist in improving company's financial problems.
D3: Planning tools respond appropriately to resolve financial problems
SDK jewellers use forecasting, contingency and scenario planning tools which assist in
resolving financial problems that might be occur in coming years. Company use forecasting tool
for estimating jewellery future demand in order to generate revenue. It also use scenario planning
tool for analysing market trends which effect on company's working. At last, company is using
contingency tool for evaluating uncertainties that occur in future and negatively impact on it's
operation.
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CONCLUSION
In above report, it is concluded that several management accounting systems such as
inventory management, price optimisation, cost accounting and job cost system and its reporting
are important for the organisation because it can help to evaluate performance of the company,
cost involved in the manufacturing process and it also help in strategic decision making.
Companies can use marginal and absorption costing technique to evaluate net operating profit.
Organisations can use planning tools like forecasting, contingency and scenario tool to deal
financial issues and also use them in budgetary control to forecast various future events.
Manufacturing companies can use three techniques to resolve fianncial problems. Those
techniques are benchmarking, key performance indicators and financial governance.
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Online
What is Benchmarking?. 2018. [Online]. Available through:
<https://study.com/academy/lesson/what-is-benchmarking-definition-types-process-
examples.html>