Financial Analysis and Management Accounting Report: Unit 5 Overview

This report provides a comprehensive overview of management accounting, encompassing various systems, techniques, and tools. It begins by defining management accounting and differentiating it from financial accounting, followed by a discussion of different management accounting systems such as inventory management, cost management, and price optimization. The report then explores different types of management accounting reports, including cost reports, budget reports, and status reports, highlighting the importance of accurate information. Furthermore, it delves into the application of marginal and absorption costing techniques, providing detailed calculations and analysis. Break-even point and margin of safety analysis are also presented. Finally, the report examines the benefits and limitations of various budgetary and planning tools, such as activity-based budgeting and capital budgeting, offering insights into their practical application for resolving financial issues within a business context. The report also includes financial statements, break-even analysis, and reconciliation statements.

Unit 5 – Management
Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
Part 1..........................................................................................................................................3
Different type of management accounting system.................................................................3
Different sort of management accounting report...................................................................4
Part 2..........................................................................................................................................5
Application of different types of management accounting techniques..................................5
Part 3..........................................................................................................................................9
Explaining benefits and the limitation of different budgetary or planning tools...................9
Management accounting and planning tools for resolving the financial issues...................11
CONCLUSION........................................................................................................................14
REFERENCES.........................................................................................................................15

INTRODUCTION
Management accounting, managers use the provisions of accounting information in order
to better inform themselves before they decide matters within their organizations (Schmidt,
2017). These report highlights the explanation about the variety of different type of
management accounting system, after that report highlights the variety of different type of
report and marginal and absorption costing calculation. After that report conclude different
kind of budget and comparison between different companies adopting management
accounting system
Part 1
Different type of management accounting system
Management Accounting is the branch of accounting which looks at providing different
information to the manager in regards of the internal and external performance of the
business and on the basis of the same different decision are being taken in the organization.
Difference between Management Accounting and Financial accounting
Basis Financial accounting Management accounting
Meaning Financial accounting is
regarded as a accounting
which is prepared for the
external audience, it is
generally used to show the
current position of the
company in the market.
Management accounting is generally
prepared for the internal usage of the
company, these generally used to provide
the manager with the issue and on the
basis of same different decision are being
taken by manager.
Time period Financial accounting is
generally constructed for the
once in the year.
Management accounting is generally
constructed 3-4 times a year
Purpose Financial accounting is
targeted to achieve aim and
objective of business.
Management accounting is made to solve
the current issue which is being faced by
organization.
Different types of management accounting system are as follows:

Inventory management system: Inventory management system is the combination
of technology which used to monitor and oversees the variety of activity related to
management of inventory in the organization. Inventory management system consider
looking at amount of product left in the organization and amount of raw material or
unfinished product into the production etc. These management accounting system in the
organization used to help the company in managing the delivery of the product on timely
basis (Besuglov and Crasselt, 2020).
Cost management system: Cost management system is generally a type of
management accounting system which used to define as a potential cost which will be require
to be invested by the individual or organization in the market to produce the different product
of the company in the long run, Cost management system in the organization used to help the
company in understanding the cost of different product, also it used to play a vital role in the
organization in term of setting of the price of different product of the company in the market
in the wider scope.
Price optimization management accounting system: It is another type of
management accounting system, these is the type of the system which used to differ in a way
that how price of the product generally used to vary due to change in the demand and supply
of variety of the product in the market (Din and Habibullah, 2017). These sort of the
management accounting system in the organization used to help the organization in setting up
of the price of the product in the market and also help the organization in planning variety of
different type of the activity of the organization in the market.
Different sort of management accounting report
Management accounting reports are generally define as a document which generally
used to assist the manager in getting better understanding in regards of different position of
the business. Reports generally used to include the variety of different sort of data related to
different activity of the business, Some of the management accounting reports are as follows:
Cost Report: It is the king of report which used to identify the different sort of the
cost and variety of charges which are related to the production of the product in the market.
Cost report generally used to include the variety of costs which are generally incurred by the
date of its incurring. Also cost report estimate the amount of the cost which will need to be
incurred by the organization to carry out different operation of business.

Budget Report: Budget report is define as a type of report which used to determine
the amount of finance which will be require by the different department in the organization to
carry out respective activity of their department in the organization (Li, 2019). These type of
report in the organization also can help the company in finding out the variation in current
expenditure and expenditure which was expected by the organization.
Status report: It is another type of the report which is generally used by different sort
of manager to make variety of decision in the organization. Status report of the organization
used to show the manager with the production insight as it shows that on which segment of
the customer does the company can work in a given period time and how it can be beneficial
for the company in the long run.
Importance of having viable and accurate information
It is prime responsibility of all the organization to provide valid and viable
information to all the manager in the organization, as manager in the organization used to
make the variety of the decision on the basis of the same in the organization (Michiyasu and
Kojiro, 2019). As any wrong information provided to the manager will impact the efficiency
of variety of operation carried out. These will impact the overall quality of variety of decision
which are made in the organization.
Relationship between Management accounting system and accounting report
Management accounting system and management accounting report in the
organization used to share a positive relationship in between them in the market. As it has
been identified that management accounting system used to provide the qualitative
information to the manager at the same time different management report in the organization
used to provide the evidence to the Qualitative information and on the basis of same different
decision are taken in the organization.
Part 2
Application of different types of management accounting techniques
The MA strategies are helpful for the business association with the end goal of adequately
assessing their strategic approaches so as to direct cost control which prompts cost saving. There are
different strategies that are being used by the organizations, two mostly utilized methods are
expressed beneath.
Marginal costing

This method is utilized by the business organization to dissect the connection between the
cost, volume of products manufactured and the benefit on account difference in the adjustment in the
activity level (Levinson, 2019). In this, the cost of the product is tracked utilizing variable cost only
and disregards the fixed costs. It considers just the direct cost as the cost of the product. It decides the
correct production level with least expense.
Absorption costing
It includes fixed and variable expense in the cost of manufacturing which prompts direct
effect of it on the benefits or the profits (Collis and Hussey, 2017). The variable cost continues the
same as before however the fixed cost varies according to the quantity of units of items.
Income statement as per Marginal Costing
Particulars April May
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (6000*5) 30000
20000 30000
Add:
Opening Stock 0 (2000/6000*30000) 10000
Less:
Closing Stock (2000/6000*30000) 10000 (3000/6000*30000) 15000
10000 25000
Contribution 46000 45000
Fixed manufacturing overheads 18000 18000
Fixed Non-Manufacturing Cost 5000 5000
Net Income 23000 22000
Income statement as per Absorption Costing
Particulars January February
Sales Revenue (4000*14) 56000 (5000*14) 70000
Marginal Cost of Sales
Variable Production cost (4000*5) 20000 (6000*5) 30000
Fixed manufacturing overheads 18000 18000
38000 48000
Add:
Opening Stock 0 16000
Less:
Closing Stock (2000/6000*48000) 16000 (3000/6000*48000) 24000
22000 40000

Gross profit 34000 30000
Fixed Non-Manufacturing Cost 5000 5000
Net Income 29000 25000
Reconciliation statement
April May
Profit as under marginal costing 23000 22000
Add: Under absorption of fixed manufacturing cost 6000 3000
Profit as under absorption costing 29000 25000
Analysis and interpretation:
The profit derived under marginal costing method is less in respect to that of absorption
costing because it only accounts for variable cost while calculating the cost of production. Therefore,
it is better to use absorption method which also utilized for financial reporting purpose as well.
Break even point and margin of safety analysis
Budgeted production 20000 packs
Sales revenue (20000*60) 1200000
Less: Variable costs
Materials (20000*20) 400000
Labour (20000*14) 280000
Other variable cost (20000*12) 240000
Variable administration and selling (20000*3) 60000
980000
Contribution 220000
Less: Fixed cost
Fixed cost 80000
Fixed administration and selling 60000
140000
Net profit 80000
Contribution margin per unit 60-(20+14+12+3) 11
Contribution margin (11/60) 18%
Total fixed cost 140000
Break even point (in units) 12727
Break even point (in amount) 763636

Current sales in units 20000
Break even sales in units 12727
Margin of safety (in units) (20000-12727) 7273
Current sales 1200000
Break even sales 763636
Margin of safety (in amount) (1200000-763636) 436364
Units Sold
Sales
Revenues
Variable
Costs Fixed Costs Total Cost
Operating
Profit
0 0 0 1,40,000 1,40,000 -1,40,000
3181 1,90,909 1,55,909 1,40,000 2,95,909 -1,05,000
6363 3,81,818 3,11,818 1,40,000 4,51,818 -70,000
9545 5,72,727 4,67,727 1,40,000 6,07,727 -35,000
12727 7,63,636 6,23,636 1,40,000 7,63,636 0
15909 9,54,545 7,79,545 1,40,000 9,19,545 35,000
19090 11,45,455 9,35,455 1,40,000 10,75,455 70,000
22272 13,36,364 10,91,364 1,40,000 12,31,364 1,05,000
25454 15,27,273 12,47,273 1,40,000 13,87,273 1,40,000
28636 17,18,182 14,03,182 1,40,000 15,43,182 1,75,000

Part 3
Explaining benefits and the limitation of different budgetary or planning tools
Budgeting plan is the statement which gives total insights concerning the assessed
income and usage of the same in the business for a particular period. It aids effective
distribution of the money related resources of the various business related activities. The
different apparatuses that AJ and Sons can use in budgetary control are discussed about
underneath.
Activity Based Budgeting
This is another type of planning strategy wherein the business association prepares
budget which depends on the exercises undertaken by the association. It depends on the
0 3 1 8 1 6 3 6 3 9 5 4 5 1 2 7 2 7 1 5 9 0 9 1 9 0 9 0 2 2 2 7 2 2 5 4 5 4 2 8 6 3 6
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
Unit sales break even analysis
Units Sold Sales Revenues Total Cost
Break even point (in units) 12727
Break even point (in amount) 763636

estimation made in regard to the assets to be utilized and assigned alongside the level of
income it will generate. It doesn't consider the earlier year's spending plan to set up the
current year's financial plan (Altundemira and Goksu, 2016). This budgetary tool helps in
analysing the expenses and costs connected to the different business activities which are
being involved in the production procedure. The activity based planning helps in recognizing
the error in the production framework which results into analysing the expenses and the
wastages all the while with the goal that appropriate moves can be made so as to deal with the
circumstance. This tool will help AJ and Sons in determining the problem areas in the production
framework so that it can work on avoiding the unwanted expenditure and wastages.
Advantages:
 This budgetary method is basic and simple to actualize in the association as it does
not require much time and efforts.
 This apparatus gives assistance to the association in deciding any error in the
manufacturing activities and the procedure too.
 It doesn't consider earlier year budget which lessens the chances of mistakes.
Disadvantages:
 It requires profoundly proficient work force with pertinent abilities and information.
 This apparatus is costly with the main goal of execution in the business organization.
Capital budget
The capital budget plan is set up by the business association which helps in meeting
the capital resource necessities of the business. These benefits are helpful in the
manufacturing procedure of the organization (Fehrenbacher, Kaplan and Moulang, 2020). It
additionally includes the total investigation of the investment with the assistance of the
capital planning methods which helps in deciding the feasibility of the investment plan and
other capital projects. For example, a budget includes forecasted income from the investment
plans and it also represent the profits attached to it, makes it effective for taking decisions on
capital expenditure.
Advantages:
 This budget assists in determining the degree of risk and its impact over the business. It supports in taking better choices as it involves all the possible elements.

 It helps in executing satisfactory control over the expenditure as it helps with
maintaining a strategic distance from the circumstance of under-investing and over-
investing.
Disadvantages:
 It considers just long term capital plans which are mostly irreversible in nature.
 Inadequate investment in the venture may cause issue for the business as it is hard to
expand it as it is unbending in nature.
Operational budget
This financial plan is identified with the operational activities of the organization. It
gives an expected measure of income and costs. This budgeting plan gives a help to the
association for properly distributing the financial resources inside the association (Holzer and
Schoenfeld, 2019). For instance, if the operational spending plan is made it will give help to
the management of the AJ and Sons in meeting up the operational necessity of the business so
as to run the business successfully. This will result into better administration of the monetary
assets as everything will be according to the budget which will maintain a strategic distance
from undesirable use and expenditure.
Advantages:
 It is basic and effectively understandable by the individual having enthusiasm and
interest for it.
 It gives support with timely and effective allocation of the business resources. This financial plan can be used by the association for practicing control over the
operational expense as per the goals.
Disadvantages:
 This spending plan is reliant upon the previous year budget which increases the
chances of making mistakes.
 The estimation can't be done accurately which prompts taking incorrect decision.
Management accounting and planning tools for resolving the financial issues
It is very important for the business organization for determining the areas which is
having a huge impact over the performance of the business. Therefore, it becomes essential
for the business organization for implementing various strategies which will result into
enhancing the performance level of the organization. Some of the crucial strategies are
defined below.

Benchmarking
It is characterized as the procedure which is utilized by business organizations for
estimating performance of the business activities, processes, procedures, administrations or
workers. It helps in distinguishing whether the business has accomplished the budgetary
outcomes according to the set targets. It helps in distinguishing the zones where the result
was not achieved at that level. Zones are broken down for knowing the principle reasons
which are influencing the exhibition of business (Torun and et.al, 2018). Utilizing this tool,
the management of AJ and Sons take measures and steps which are required for upgrading the
position of business. Utilizing this device organizations are accomplishing the ideal objective
of the association. Some of the time it is considered as a one time process however in real it is
a nonstop procedure as the association continues assessing the all the part of the business
again so as to present further improvement in it, which will help in exploiting and defeat the
budgetary issues it come across.
Balanced score card
Balanced score card is the metric utilized to monitor and measure the strategic
performance of the business. This is utilized for distinguishing and improving the internal
functional activities of the business along with the resulting outcomes of the procedures. This
is utilized for estimating and giving input to the associations (Harvey and Sotardi, 2018). This
tool helps in identifying the distinction and performance gap from past outcomes assembled
by the organization. This is utilized by the business for adjusting business exercises and
guaranteeing that objectives are accomplished by viably managing its business assets.
Utilizing benchmarking the management prioritize the items, costs and other activities as per
their significance for the business. Therefore, the balanced score card will assist the AJ and
Sons in identifying the issues in its internal business processes and function so that remedial actions
can eb put in place to mitigate the financial issues it causes.
Key performance indicators
Key performance indicators (KPIs) is the estimating instrument which is being
utilized by the business association to decide how the association is performing as for the set
goals or targets. To actualize KPI there are 5 stages to be followed by the association. The
initial step is building up objectives and targets which the organization needs to accomplish
(Salin Gustafsson and Frost, 2018). After which the business sets up certain critical
achievement factors dependent on the objectives and targets. At that point the KPIs are set
from critical achievement factors. In the fourth stage, information is gathered over the various