Analysis of Management Accounting for SDK Jewellers: Report

This report offers a detailed analysis of management accounting practices, focusing on SDK Jewellers, a UK-based SME. The report explores various management accounting systems, including inventory management, cost accounting, and job costing, and examines different reporting methods such as budget reports, accounts receivable reports, and inventory reports. It evaluates the benefits of these systems, such as increased efficiency, maximized profitability, and improved cash flow control. The analysis includes the integration of management accounting systems with reporting and planning tools like fixed budgets, operating budgets, and cash budgets. Additionally, the report presents income statements using marginal and absorption costing for May and June, providing insights for financial statement analysis and recommendations to management. The report aims to provide a comprehensive understanding of management accounting and its practical application within a business context.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Management accounting and different types of management accounting systems....................4
Different methods for management accounting reporting..........................................................5
Evaluation of benefits of management accounting system ........................................................6
Integration of management accounting system and management accounting reporting............7
Planning tools of management accounting.................................................................................8
TASK 2............................................................................................................................................8
Income statement using marginal costing and absorption costing for the month may and June.
.....................................................................................................................................................8
Analysing, Interpretation and Recommendation of the financial statements to the management
of the organisation.....................................................................................................................10
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting refers to identifying and analysing cost of business and
operations which helps the enterprise in preparing financial report for the internal users in
achieving financial goals. It is also known as cost accounting. Management accounting is really
important in terms of making decisions by the manager. It includes capital budgeting,
forecasting, costing of product etc. To understand the work and concept of management
accounting in business the report has taken SDK jewellers UK which is small medium enterprise
which deals in watches and jewellery and was founded in 1991. it is online watch retailer with
staff of 30-40 members. The report includes different management accounting systems and
different methods of accounting reporting. It shows pro and cons of management accounting
system and integration of management accounting and reporting in the organisation.
TASK 1
Part 1
Management accounting and different types of management accounting systems
Management accounting also known as cost accounting consists of analysing and
evaluating cost of business and its operations which helps the company in preparing financial
report for the internal users which helps in decision making process to achieve various goals set
by the company. It contains both monetary a well as non monetary information and has no fixed
format.
It helps the management in preparing financial strategies which uses budgets, job costing
techniques and sales forecast. This helps the business in knowing how the budget of the company
ned to be implemented and take care of the needs of shareholders as well as customers.
Management accounting helps the entrepreneur in maintaining profitability of then company as it
helps in determining the production level, overhead costs, objective of sales which can impact
profitability of the company (Warren and et.al, 2015).
Management accounting system and their essential requirement
Management accounting takes information for internal users and develop reports for the
purpose of decision making. This helps the company to run efficiently. Management accounting
system includes different systems that are required to carry operations in the organisation. these
are -

Inventory management system – It deals with stock and inventories of the business and
build a network to take care of stocked goods. The manufactures with the help of inventory
management system can specify shape and location of the goods that will be placed in the
company.
Cost accounting system- It is used to record production activity through inventory system
and helps the manufacturer in in tracking the flow of inventory. It continuously keeps the record
of the various stages of production. It helps the company in determination of profit and losses
and to find tout the cause of decrease and increase in profit and losses. It help the manufacturer
in doing correct valuation of inventory and helps them in making decision that hey need to
manufacture the stock or need to purchase from outside (Carlsson-Wall, 2015).
Job costing system- it helps in assigning cost to various job to estimate its standard and
actual performance. It helps the managers to calculate the profit of individual job and help them
in keeping track of individual performances.
Price optimization system- It helps the managers in finding out the price which customer
will pay willingly for their product. The company through this system make sure that they sell
their products at optimise profit and get decent profit.
Different methods for management accounting reporting
Management accounting report are the reports prepared for internal users which includes
budgeting decisions, cut cost etc. and give a sense and information about company's finances
and saves time and money of the company. It helps in providing all the information related to
finance to the managers which helps them in making decisions. The report can be prepared on
weekly, quarterly and monthly basis according to the need of information. The report need to be
understandable with good presentation. The information need to be accurate and understandable
by the users. The data and figures use din report have to be accurate and reliable and need to
have relevance for which it is being used (Smith, 2017). The report must be presented within the
specific time frame. The different methods of management accounting reporting are -
Budget report – it helps small business to analyse company's performance and help large
companies in analysing individual department's cost and performance. It helps the company in
estimating budget requirement and comparing actual cost with estimated cost. They also help the
manager and owners to use budget report in providing incentives to the employees working in

the company. The budget report may include fund that are meant for bonuses and incentives for
specific performances which can increase efficiency of employees and as well as company.
Account receivable report – The report helps in managing cash flow for companies who
extend credit to their customers. The report breaks customer balances on the basis of the time
period the customer have owned the money. They have separate columns to avoid confusion
which includes invoices of 30, 60, 90 days and more. This helps the manager in finding out the
problem of company regarding its collection process. It shows number of creditors that are not
paying their liability and helps the company in tighten its credit policies which help in smooth
operations of company.
Job cost report – These reports show expense for a specific job or assignment. They are
matched with estimated revenue which helps the company in evaluating job's profitability. This
helps business in identifying higher earning areas and help company in focusing on them rather
than wasting time and efforts on areas which are not generating revenues.
Inventory report – Companies who keep physical inventory with them keep inventory
report so that their manufacturing processes can be more efficient. It includes items like waste of
inventory, labour cost and also overhead costs. This report help mangers in comparing different
lines within the company to analyse the scope of improvement or to offer bonuses and incentives
to departments that are performing at its best. This increases the motivation of the employees in
the company and help them in increasing productivity (DeFranco, 2017).
Evaluation of benefits of management accounting system
SDK jewellers is the SME of UK that deals in selling watches and and diamonds based in
Reading. It was founded in 1991 and launched Watchshop.com in 2007 and gave tough
competition to its competitors. SDK now sell more than 1,00000 watches every year and focuses
on customer service an has tremendous increase in the sales and have 30 employees for
carrying out various operations. The different management accounting system benefit the form in
many ways which are -
Increase efficiency - Management accounting system has helped SDK jewellers in
increasing its efficiency in business operations as it maintains the inventory of the business and
provide information to the management in case there is inventory waste and help it in taking
relevant and rational decisions regarding budget of the company. As the employees of the

company are less it is easy to give them benefits and bonus which boosts morale and motivation
of the employees and increase their as well as efficiency of the company.
Maximise profitability – Using budgetary system, inventory system, job system of
management accounting maximise the profitability of the company as it reduces the burden of
the company and employees and saves time ad cost which give company economies of scale and
lead to increase in output production. The SDK jewellers has increased their ales in recent years
by adopting lot of management accounting system and now they can reduce their cost of product
to achieve super profits (Wong, 2018).
Simplify financial statements – To take different decisions the managers need technical
reports and interpretations which gives a basis of decision making and that is done by different
management accounting systems. Job costing system helps the manager in knowing the cost of
the particular job and the profit earned by that particular job and from this the manager can
allocate all the investment in department that is generating money. By simplifying financial
statement it helps the company in making decisions related to expansion sales etc.
Control cash flow – Cost accounting system helps the company in maintaining its cash
flows and helps company to know its cash position which helps the company in deciding its
future investments, budget forecasting and distributing employee's incentives and bonuses.
Critical business decisions – The management accounting system helps the manager of
SDK company in taking critical business decisions by analysing information presented by all the
systems which includes inventory decisions like inventory need to be manufacture in the
company or company should buy it from outside. Also helps in taking other decision like giving
bonus to the employees who perform better with the help of job costing system.
Integration of management accounting system and management accounting reporting
Management accounting system and management accounting reporting system when
integrated in the company has high installation cost and requires a lot of time. It requires huge
investment and also need to give training to the employees which involves high cost and time
too.
After integrating Management accounting system and management accounting reporting
system the operations of the company starts to work smoothly as it compiles complex data of the
company into simplest form which helps manager to understand all the relevant information and
make efficient decisions related to production, inventory, sales , promotion of the product.

Inventory management system helps the company and its mangers in analysing inventory
reports and help them deciding which inventory method to use for maximising profit. Job costing
management system is costly but it defines the job according to their profit and helps m,anger
understand their sick unit and profitable unit and present job costing report which gain helps the
company in increasing their sales and profit (Watson, 2015).
Part 2
Planning tools of management accounting
The planning tools helps the company in planing future goals and ways to achieve them
by creating efficient budget that can help the company in performing it financial functions
effectively. The different types of planning tools are -
Fixed budget – It is a budget plan used by the company which does not change through a
specific period and remain fixed. This helps management in planning expense and operations by
assuming sales and revenue of the company during that year. The cost estimation in this type of
budget is high and it is not effective in evaluating performances of cost centres (Remington,
2016).
Operating budget – Operating budget helps the company in estimating company's
expense, costs and income form the product they are manufacturing on quarterly or annually
basis. Operating budget takes past sales performance, trends in the industry and competition of
the company to estimate potential revenue and to help company in making decisions about new
product launch, adopting new technology etc.
Cash budget – This budget estimates cash inflows and outflows over a specific period to
help manger of the company in assessing tat they have efficient cash or not. If a company does
not have liquidity then company must raise its capital by introducing shares of the company or
by external borrowing and if company have enough cash, company neds to seek for investment
opportunities which can increase company's liquidity. It helps the company in taking production,
distribution and marketing related decisions based on cash availability.
TASK 2
Part-1
Income statement using marginal costing and absorption costing for the month may and June.
Income statement under Marginal costing

for the month ended May
Particulars Details Amount(£)
Sales revenue 300000*13 3900000
Direct material 450000
Direct labour 600000
1050000 1050000
Contribution 2850000
Fixed overhead costs 400000 400000
profit for the year 2450000
Income statement under absorption costing
for the month ended May
Particulars Details Amount(£)
Sales revenue 300000*13 3900000
Direct material 450000
Direct labour 600000
Fixed overhead costs 400000
1450000 1450000
Gross profit 2450000
distribution and administration cost 0 0
Net profit 2450000
Income statement under Marginal costing
for the month ended June
Particulars Details Amount(£)
Sales revenue 270000*13 3510000

Direct material 450000
Direct labour 600000
Closing Inventory (30000*13) -390000 1440000
Contribution 2070000
Fixed overhead costs 400000 400000
profit for the year 1670000
Income statement under absorption costing
for the month ended June
Particulars Details Amount(£)
Sales revenue 270000*13 3510000
Direct material 450000
Direct labour 600000
Fixed overhead costs 400000
Closing Inventory (30000*13) -390000
1840000 1840000
Gross profit 1670000
distribution and administration cost 0 0
Net profit 1670000
# Working notes:-
Closing stock= Total production of units-Number of units sold
=300000-270000
=30000
Each unit is sold for £13
30000*13=£390000
hence, closing stock = £390000
Part-2

Analysing, Interpretation and Recommendation of the financial statements to the management of
the organisation
There are many tools and techniques which are used in managing the accounting to present the
meaningful accounting information in such way that is highly profitable and effective for the
organisation. some techniques and tools which are used in the organisation for presenting the
meaningful accounting information are :
Financial analysis: the important data which is presented in the financial statements which
includes profit and loss account and Balance sheet re used to find the meaningful conclusions.
On the basis of these statements it is possible to understand and know about the efficiency of the
organisation, its performance and its management. The following techniques are used to find the
detailed information regarding the organization performance and their efficiency.
 Ratio analysis
 comparative statement and trend analysis
 cash flow analysis
 Fund flow analysis
These all are used to analyse and interpret the useful information from the company's financial
statements which helps the users of the statements in their further useful decision so that they can
make reliable and appropriate decisions based on the useful information generated from the
financial statements.
Budgetary control- these techniques is used to measure the performance of the activities of the
organisation and finding and measuring the variances by comparing the actual and projected
figures so that they can take alternative measures to find the reason and eliminate the deviations
to avoid the adverse deviations in the future. Budgetary control is considered to be the important
tool of management accounting which helps business to run in direction of the goal to avoid
unnecessary wastage of resources which ultimately helps in effective ad effective achievement of
organisational goal.
Cost accounting- this provide the different methods for costing which includes marginal costing,
differential cost analysis, standard costing, absorption costing etc. which plays crucial role in the
organisation in controlling the cost of the operations and other activities.
Interpretation of data of financial reports:

The above explained income statements of two different months that is of May and June
by using different method helps to interpret the useful information from the financial statements
which can be used further for decision making purpose by their users. The financial statement
can e prepared by using two different methods that is marginal costing method and another is
absorption costing method.
Marginal costing is basically the accounting system or method in which variable costs are
charged to the costs units and the fixed costs are written off of the particular period against the
contribution to ascertain the net profit. This method helps business organisation in ascertaining
the net profit so that they can act accordingly and make decisions for the future performance.
Marginal costing explains the analysis of costs into fixed and variable individually and semi
variable costs are also segregated into fixed and variable elements.
Absorption costing is the method of expensing all the costs associated with
manufacturing of the units to ascertain the gross profit. And the variable and fixed cost
associated with administration and distribution expense are further deducted to ascertain the net
profit. It does not only include the cost of materials and labour but it also includes both variable
and fixed manufacturing overheads costs. This also referred to a full costing. In the above
income statement it can be interpreted that in the month of May, company produces units of
300000 and sold the complete production with no remaining closing stock. The units were sold at
£13.
Under the marginal costing method the company having total production costs of
£1450000 which includes direct material, direct labour of which the total is £1050000 and this
direct variable costs is been deducted from the total sales revenue of £3900000 which resulting
in contribution of £2850000. Under the marginal costing the fixed cost is further deducted from
the contribution to ascertain the net profit fixed cost of £400000 is deducted from the
contribution. For the month of May net profit is ascertained as £2450000.which helps the
organisation in ascertaining the net profit of that accordingly decisions can be taken for further
changes required in the organisation or steps taken for the improvement ad controlling the cost of
production by maintaining good quality standards and using the resources optimally.
Under the absorption method fixed and variable costs associated with the manufacturing
and is completely deducted from total of sales revenue which leads in ascertaining the gross

profit of £2450000 and the company having no variable and fixed distribution overheads which
resulting in ascertaining the net profit of £2450000.
In the month of June the company having no opening stock as in month before all the production
is sold and I June they only sold 2700000 units and left with 30000 units closing stock which is
used in ascertaining the profit of the £1670000 under the marginal costing where fixed cost is
deducted from contribution and under absorption costing net profit of £1670000 is earned as
there is no fixed and variable distribution and administration expenses.
From the above interpretation it can be interpreted that in the month of May the company
s earning higher net profit under both the methods as thy are not leaving with the closing stock
and all the units produced a sold which help them in ascertaining the greater amount of net profit.
It can be recommend to the management of the organisation that they should take
necessary steps which helps in producing the amount of units which are actually required that is
they must match the supply with the demand so to prevent organisation from closing stock and
earning less profit. If the measurable amount of units are produced to match by taking budgetary
control a stool to avoid wastage of resources and to eliminate additional closing stock that the
company will able to earn higher amount of net profit which further leads in the achievement of
their organisational goal.
CONCLUSION
From the above report it can be concluded that there are various type if management
accounting systems which can be used I organisation to ascertain the actual financial position of
the business. The report also explained about the different management accounting reports which
helps in maintaining and managing the transactions effectively so that useful financial
information ca be generated and communicated top the users.
The report also concluded about the interrelationship of management accounting system
and reports which leads to efficient management of the financial transactions and working of the
business. Income statement, its evaluation and interpretation also made in the above report which
will help the business to ascertain the appropriate and reliable results which will further helps
them in making useful decisions for the future growth and success.

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Management accounting 2018. [Online]. Available through :
<https://www.ignitespot.com/managerial-accounting-reports>