Management Accounting Report

This report on management accounting for Unicorn Ltd. explores various systems and techniques used to enhance decision-making and profitability. It covers essential requirements, methods of reporting, and the impact of different costing techniques, including absorption and marginal costing. The report also discusses planning tools for budgetary control and how organizations adapt their management accounting systems to address financial challenges.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P1 Explain Management Accounting and essential requirements of different types of
management accounting systems................................................................................................1
P2 Different methods used for management accounting reporting.............................................3
TASK 2............................................................................................................................................4
P3 Ascertaining net profit using absorption and marginal costing.............................................4
TASK 3............................................................................................................................................6
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control.........................................................................................................................................6
TASK 4............................................................................................................................................8
P5 Comparing how organisations are adapting management accounting systems to respond to
financial problems.......................................................................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INDEX OF TABLES
Table 1: Income statement using marginal costing method.............................................................4
Table 2: Income statement using absorption method......................................................................5

INTRODUCTION
Management accounting can be defined as a profession which involves identifying,
analysing, interpreting and evaluating information and data to take timely decisions and assist the
management in formulation and implementation of strategies to achieve organisational goals. For
the current study, the chosen firm is Unicorn Limited which works in the field of retail sector
with the net worth of 4102 GBP and also working with less than 50 employees. Management
accounting helps to play an important role and this report states that how organisations use
management accounting systems and techniques in order to achieve success and to survive in the
market. In this current report, different types of management accounting systems have been used
which includes inventory management, job costing, prize optimizing system etc. it also includes
various accounting techniques to ascertain the costs incurred by the chosen company and
analysed by the income statements which includes marginal costing and absorption costing
techniques. It also considers use of planning tools for budgetary control and also comparing how
organisations adapt management accounting systems.
TASK 1
P1 Explain Management Accounting and essential requirements of different types of
management accounting systems
Management accounting focuses on deriving information which is available for the
business for decision-making and this information help the managers to ensure that no decisions
in this organization should be delayed because it will in turn affect the productivity of an
organisation. It aims at providing accurate and timely information required by the managers to
make short term decisions (Chenhall., 2015). Management accounting with the help of activity
based costing which helps the managers to decide what to produce, how much to spend on the
product produced etc.
Management accounting involves various types of management accounting systems
which includes cost accounting system, inventory management system, prize optimization
system etc.
Cost accounting system:
it is a management accounting system used by organizations so as to estimate the cost of
products which are produced by the firm for analysing profitability. It helps in forecasting the
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accurate costs associated with the products to understand which products are profitable or not. It
includes various other systems namely job order costing, batch costing and process costing.
Inventory management system
Inventory management accounting system deals with the practice of controlling and
checking the level of inventory in the organization. It helps the managers in ascertaining the level
and also ensures that when is the order to be placed, reorder level, carrying cost, ordering cost
etc. It helps the organization in maintaining sufficient amount of inventory so as to increase sales
as well as attract customers. It further helps the firm to reduce the wastage of inventory and helps
to keep a record of the stock in order to enhance firm's profitability. Inventory management
accounting system mainly focuses on avoiding stock out problem which helps the managers to
properly manage it and also helps in minimizing losses, damage and wastage of stock.
Job costing systems
this system mainly focuses on the work done by each department. It doesn't focuses on
the entire job rather it considers each and every department as a single output. Costs are allocated
and separated as per the work done by each department. This system aims at assigning
manufacturing costs to individual job or batches of production. Here, the products produced are
basically customized and standardised that is as per the specifications of the customers and here
the products are produced only for one customer. Therefore, different systems are required to
allocate costs to an individual job or a batch of production.
Price-optimization accounting systems
This system is basically used in order to know that how customers respond to different
prices for products and services offered by the company. It is often used by the managers of the
organisation in order to ascertain different prices and also setting prices which would help them
to meet their desired objectives. It also enables the managers to calculate how demand varies by
adapting different prices for its products and services. Therefore, price optimization system is
used to evaluate different prices for its products and services.
Unicorn Ltd. Uses different types of management accounting system described above to
analyse and regularly monitor the effects of decisions taken by the managers in order to enhance
the profitability of the company.
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P2 Different methods used for management accounting reporting
There are different types of management accounting reports which are considered by the
firms in order to keep a track record of inventories, account receivable ageing, performance of
the organisation etc. These reports help the small business managers to regularly monitor the
performance of the company and these reports are prepared very often whenever they are needed
in an accounting period. Management accounting reports includes:
Job costing reports:
These reports are mainly used by the managers of an organisation in order to analyse
carious costs associated with the products and services. These reports help in determining the
areas which are considered as higher earning areas so that company can give due attention to
other areas instead of wasting time and money. It helps the mangers to analyse costs while the
project is in the progress so that managers can correct the areas. These reports helps in
comparing the estimated costs with the revenue so as to analyse and ascertain the profitability of
the firm.
Inventory and manufacturing reports
These reports are used by the companies in making their manufacturing process as well
as maintaining the level of inventory efficiently (Zimmerman., 2011.) Inventory management
reports are used to control and monitor the level of inventory and also helps in identifying what
level should be maintained, when is the order to be placed and in what quantity etc. these reports
include costs such as carrying costs, ordering costs, cost per unit of the products, overhead costs
etc. this further helps managers in comparing different assembly lines in order to provide extra
incentives to the departments who are best performing.
Accounts Receivable Ageing reports
These reports are considered as a very useful and an important tool for managing the cash
inflows within the organisation in context of providing products and services on credit to its
customers. Account receivable ageing reports analyse the customers according to their balances
that for how much period they have owed. These reports also include period of how long the
credit is given to its customers and for this separate column for invoices is also included that are
30n days late, 60 days late or 90 days late. Management use this report to analyse the problems
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in the company's collection process and it also helps the managers to regularly monitor their old
debts so as to check whether to strictly implement collection policies.
Operating budget reports
These reports help the business managers to analyse the performance of an organisation
as a whole and helps in comparing the actual budget with the standard budget set for various
departments to ensure the efficiency of the work. These reports helps in controlling the costs of
the products. Managers set the estimated budget on the basis of the actual expenses incurred and
if the manager feels that if a particular department is over budget or under budget, then they may
identify such areas as well as factors and which may help them to make accurate budget in the
future period. Managers use these reports to provide bonuses to the workers or employees as
these reports specify which worker is able to meet the budgeted output or not.
Performance reports
These reports help the managers in analysing the performance of various departments or
an organisation as a whole. It helps the company in undertaking profitability analysis for
segments, departments as well as organisation as a whole. It helps the business in taking
corrective actions for the low earning areas to reduce wastage of time and improve profitability
and efficiency of the company.
TASK 2
P3 Ascertaining net profit using absorption and marginal costing
Table 1: Income statement using marginal costing method
Income statement using marginal
costing
Particulars Amount
Sales (600*35) 21000
Less: Variable cost of sales
(13*700) 9100
Less: closing stock (100*13) 1300 7800
Gross profit 13200
Less: Other costs
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Fixed production overheads 2000
Administration costs 700
Selling costs 600
Sales overheads 600 3900
Net profit 9300
Table 2: Income statement using absorption method
Income statement using
Absorption costing
Particulars Amount
Sales (600*35) 21000
Less: costs of production
(16*700) 11200
Less: closing stock (100*16) 1600 9600
Less: over absorbed fixed
overheads
100
Cost of production 9500
Gross profit 11500
Less: Other costs
Administration costs 700
Selling costs 600
Sales overheads 600 1900
Net profit 9600
From the above prepared income statements as per marginal as well as absorption costing
, it can be seen that cost per unit ascertained under marginal as well as absorption costing came
out to be 13 and 16 GBP and total cost of production calculated as 7800 and 9600 GBP.
Therefore, the main reason for the difference in the net profits under both the techniques is that
marginal costing considers only variable cost in calculation of net profit whereas absorption
costing covers fixed as well variable overheads in ascertaining net profit. Due to this, inventory
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valuation has also been affected which have been calculated as 1300 and 1600 GBP which is
greater in case of absorption costing. In the absorption costing, it showed a decline in the amount
of gross profit whereas in marginal costing it showed an increase in the gross profit that is 13200
GBP.
Difference between marginal and absorption costing
Marginal costing can be defined as technique to ascertain total cost of production for
decision-making whereas absorption costing can be defined as allocation of total costs to each
cost department to calculate total cost of production.
 In marginal costing, variable cost is regarded as product costs while fixed charges are
known as period costs but under absorption costing, both variable and fixed are
considered as product costs and both are included to calculate cost of production.
 Under marginal costing, variations in the opening and closing inventories affects the cost
per unit but in absorption costing variations in the opening and closing shares affects cost
per unit.
TASK 3
P4 Advantages and disadvantages of different types of planning tools used for budgetary control
There are various types of planning tools used for budgetary control which are described
below:
Top-down budgeting
Top-down budgeting always initiates at the top level of the organisation which is handed
over to the lower level. In this budgeting, top management of the company prepares the budget
for the department and passes it down to the lower management (Ajibolade., 2010)
Its main advantage is that it saves time of the lower level management as budget is
prepared and constructed by top management and in this, lower level workers are not involved
instead they are more involved in operations rather than planning for strategies in the
organisation. It also helps the staff to gain accountability. Whenever staff is given a budget
which is prepared by the top management workers they are able to make financial decisions
which results in accountability of staff.
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Its disadvantages includes that the budget is prepared by the managers who do not have
knowledge of the regular day to day operations therefore there is no accuracy of the budget and it
may lead certain problems for the lower level management.
Bottom-up budgeting
It starts at the bottom of the organisation. In this budgeting, budget is created by the
lower level management and then it is presented in front of the top managers in order to take
approval for the same. And then the top management will either approve it or return it to the
lower management for some changes.
Unicorn uses this type of budgeting as lower management of the organisation creates the
budget based on the specific requirements of each department and then it is presented to the
managers of top management. Manager of various departments are very much aware of the
number of resources, labour, capital etc.
But its drawback is that lower level managers may not be highly experienced and skilled
in preparing budgets therefore, it may not be feasible and accurate and they may not be
experienced in making overall strategic plan of the organisation.
Zero-based budgeting
This type of budgeting initiates with the zero base and then the expenses are added as and
when they are incurred. There is no base for planning this type of budget as it does not consider
previous year's budget or previous year's performance.
Some departments of Unicorn Ltd. Uses zero based budgeting because it helps the
managers to glance at the expenses and also helps the mangers in justifying the expenses. It does
not consider the past year's budgets therefore it does not rely on forecasting expenses. Actual
expenses are recorded by the managers (Fullerton., 2014. )
Its disadvantages include that it has no opening balance or closing balance and it is based
on the needs of particular time. It is a very time consuming process to prepare zero based
budgeting as all the managers have to look for the alternatives. Therefore, it can be considered as
costly too.
Flexible Budgeting
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Flexible budget is more used by the today's organisations as it allows managers to change
it any time when they need to. Its advantages include that it allows managers to compare their
actual production to their expected or standard production. For example, if a company's budget is
for 5000 units but only 4000 units are produced actually then they can adjust their budget
according to the actual production. When the flexible budget is prepared managers can easily
predetermine their costs as well as units which can be produced.
But its major drawback is that it requires regular monitoring on the budget. Sometimes,
managers lacks information and preparing flexible budget needs relevant information. Further, it
is considered very complex to make flexible budget and needs an expertise and knowledge to
make flexible budget.
TASK 4
P5 Comparing how organisations are adapting management accounting systems to respond to
financial problems
In case of Unicorn, to achieve sustainable success in the long run is considered as the
main aim as it makes optimum utilization of resources in the best possible manner at a minimum
cost. It uses various planning tools and techniques to reduces various financial problems.
Therefore, it uses different management accounting techniques to ascertain the profitability of an
organisation as a whole.
For reducing occurred financial issues in Unicom, management accounting systems play
effective role using tools as financial, cost accounting, inventory management system etc. In this
regard, following tools are to be used for managing entire business operations and financial
development as:
Financial problems:
Different monetary issues are occurred due to imbalanced production and distribution of
goods. As well, lack of required fund and inefficient money remains unable to adopt new
technologies and implementation in business activities (Richie, 2013). However, these issues can
be solved out by using following tools as: Benchmarking: It is competitive approach that is related with presenting market position
and competitiveness of Unicom. Therefore, actual financial and other positions of the
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entity can be identified by which further ideas are generated (Chenhall and Moers,
2015). It is helpful to improve economic position and management of all business
activities properly. Key performance indicators (KPI): Under this approach, performance's key indicators
are analysed that shows reasons behind occurred financial problems. In this regard,
different strategies are implemented for improving quality services and development of
entity financially. Therefore, using key performance indicators are able to reduce
economic issues and increasing profitability of the organisation.
 Budgetary targets: Through this method, identification of financial issues is done that
leads to create forecasting and implementing decision making (Fullerton, Kennedy and
Widener, 2014). In this regard, variety of ideas are created for improving quality services
and economic growth of Unicom. Hence, setting targets and preparing budget for further
business activities.
Financial governance:
In consideration of governance, all business operations can be managed properly.
However, by taking financial aid from government, economic issues of Unicomm can be reduced
effectively.
These are used for decision-making and for evaluating overall efficiency of Unicorn Ltd.
There are various tools used for reducing financial problems arising in the organisation are:
Budgeting:
It is a technique used for achieving financial success in the organisation. This technique
is mainly used by the companies in order to compare the actual expenses with the standards set
by the Unicorn Ltd. It helps the managers in controlling the spending in the areas which does not
require that many funds rather look towards the key areas for more investment. It helps the
organisation in increasing wealth to achieve success and to survive in the market to attract more
and more customers.
Budgetary control:
This is another tool used by the Unicorn Ltd. to respond to the financial problems. This
technique is used to inculcate coordination among the departments of the organisation. It
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anticipates needs and requirements of the future and according to it the budget is prepared to take
accurate decisions in the organisation. It is a process to set financial goals and it enables the
managers to compare actual results with the expected results and adjust the performance as and
when it is needed. It also helps the top managers to determine the key areas which require due
attention (Baldvinsdottir, G ., 2010. )
Investment decisions:
These decisions are taken by the Unicorn Ltd. In order to evaluate the efficiency and
effectiveness of the organisation and also ensure that whether they are in process or they are
completed. These are the tools and techniques used to determine the organisation's long term
investments which include machinery, plants, new products etc. Projects must be properly
evaluated to enhance development in the organisation. This helps in reducing the financial
problems to achieve success in the market.
Standard costing and analysis of cost variances:
Standard costing is another tool which helps the managers in comparing actual costs with
the standard costs and enables managers in controlling various costs which are related to
manufacturing activities. It involves anticipation of costs for all activities within the organisation.
There are certain areas where it is very difficult to collect actual costs therefore, standard costs
are used to estimate the actual costs. Standard costing is used by the organisation to know what
are reasons of deviation from the actual costs. Deviations are analysed to improve effectiveness
and efficiency in the Unicorn Ltd.
Cost variances are analysed to compare actual costs with the standard costs and the
variations are again analysed to correct them by taking appropriate action. Various types of cost
variances are considered such as material cost variance, labour cost variances, yield variance etc.
Ratio analysis:
Ratio analysis is used to evaluate the performance of the company and it enables the
managers in taking decisions. Ratios are the instruments and a tool to evaluate performance,
liquidity, solvency as well as profitability of an organisation. The trend of ratios are studied
overtime and then the financial statements are analysed according to the trend.
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CONCLUSION
The above mentioned report said that management accounting is an integral part of an
organisation as well as it explains about management accounting systems as well. It greatly
assisted the Management accounting officer of Unicorn Ltd. to create an understanding about
various types of management accounting system used by the organisation as well as management
accounting reports considered which enable managers in analysing the costs allocated to each
department, prepare budgets, maintaining inventory etc. different techniques have been used by
Unicorn Ltd. Like budgeting, Ratio analysis, standard costing, analysis of cost variances etc. to
respond to the financial problems arising in the above mentioned organisation which in turn
helps the managers in decision-making and enhancing profitability of business. This report also
considered marginal costing and absorption costing techniques to evaluate the profitability of
Unicorn Ltd.
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REFERENCES
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Popesko, B., 2010. Activity-based costing application methodology for manufacturing industries.
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<http://www.cpaireland.ie/docs/default-source/Students/F2-Mgmt-Accounting/
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