Management Accounting Report: Costing Methods and Financial Issues

This report provides a comprehensive analysis of management accounting principles and their application within RL Maynard Ltd., a property construction and development company. The report covers various aspects of management accounting, including different systems like price optimization, job costing, cost accounting, and inventory management, along with a comparison between financial and management accounting. It explores different types of management accounting reports such as accounts receivable, budget, inventory, and cost accounting reports, and discusses the benefits of cost accounting and inventory management systems. The report also delves into the integration of management reporting and accounting, and analyzes costing methods such as absorption and marginal costing, including variance analysis and valuation of closing stock using LIFO. Furthermore, it addresses financial issues and provides a performance indicator or KPI approach.

Management
Accounting
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Table of Content
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INTRODUCTION
Management accounting is a provision of financial information and advice to an business
with the purpose of using within an organisation for their own development. It is based on the
financial information recorded under final accounts such as income statement, balance sheet etc.
Thus, taking support from financial department to provide them accurate information about
company’s actual financial position so that corrective actions can be made accordingly for
achieving financial stability of an organisation. The present report is based on RL Maynard
which is engaged in property construction and development. The report brief discusses the
concept of managerial accounting in addition with their different kind of systems and its benefits
to an organisation. Along with this, there are different costing methods such as marginal and
absorption which can be adopted by company according to their mission and objectives. The
report also provides sufficient information about the planning tools to control budget and usage
of management accounting system in resolving financial issues of an organisation.
TASK 1
P1
Management accounting is an activity of formulating an effective decisions and suitable plans by
taking support from the financial information available under financial reports such as profit and
loss a/c, Balance sheet, cash flow statement etc. Moreover through implementing effective
accounting system an organisation take effective decision that helps them to formulate effective
plans and policies for the operations and activities (Baiman, 2014). In context of RL Maynard
Ltd., management accounting system helps them to manage all kind of functions and activities. It
is based on several methods which are mention as follow:
Price optimisation system- This type of accounting system help an organisation to develop
effective framework that helps to regulate and decide the price of services and products. Along
with this type of accounting system is important for organisation as it help to determine the
accurate price of product and services at an equal level. It is beneficial for customers as well as
the organisation because they both are agreed at similar price for exchanging the products and
services (Chapman, 2011).
Job costing system- This system helps RL Maynard to calculate their total cost of different
activities that is performed by different departments of the organisation. It helps them to
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calculate the price of each service or product on individual’s basis. This system is most suitable
for those organisation which are providing wide range of products or services in the market. RL
Maynard Ltd. uses this accounting system to determine proper estimation of cost that is created
by them for its services and products (Dai and et. al., 2017).
Cost accounting system- This kind of accounting system is formulated for calculating total
cost of the organisation that is endure by them for performing different activities. This
accounting system helps the organisation to evaluate cost of each unit that is manufactured by
them. Along with these it helps RL Maynard Ltd. to evaluate the cost that is actually earned by
them with the expected cost that it decided by management. Moreover it also helps them to
calculate their overall cost so on this basis they are able to evaluate their profitability easily.
Inventory management system- This accounting system helps an organisation to manage
and organise the inventories which includes raw material, closing and opening stock etc. The
main function of this system is track the amount of raw material that is present in the warehouse
of the organisation. Along with this it also help RL Maynard Ltd. to monitor the quantity of
finished that is present in the organisation. It results that they can effective decisions that relates
with the order of raw material and supply of finished as they both impacts on production process
(Christ and Burritt, 2013).
Difference between financial and management accounting
Basis Management accounting Financial accounting
Meaning This system helps an
organisation to collect
relevant details that helps
them to formulate effective
plan and policy for the
organisation.
This system is used by
organisation to prepare
accounts for the organisation.
it helps them to ensure their
financial position in the
market.
User It includes the internal
authorities of the organisation
that are responsible for
formulate effective plans and
policy.
The parties which present
outside an organisation are
included in this such as
investor, banks and other
financial institution etc.
Time focus Management accounting is Financial accounting is based
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done for future purpose. and done form historical
purpose.
P2.
Management accounting report includes that information which is related with the actual
performance of different operation that is performed by the organisation. Usually organisation
takes their financial decisions on this basis management accounting report. This helps them to
formulate effective strategy in order to perform their activities effectively. Several types of
management accounting report are mention as follow:
Accounts receivable report- This type of report record the data and information about the
debtors of RL Maynard Ltd. which impacts directly on their profits. At it is directly relates with
the credit deal of the organisation. Moreover, it also helps finance departments to record the
transaction whose payment are pending. Debtors whose payment are still not made then
management take some steps to recover the unpaid amount due to which there is again increase
in their profits. At last it helps management to develop effective and strict policy so organisation
reduces some amount of risk from credit transaction.
Budget report- This report helps an organisation to find out the estimated cost and actual
income of different operations. On the bases of budget report organisation measured the actual
outcome of their income and expenditure with predicted cost. This helps them to estimate the
price for upcoming years. In context of RL Maynard Ltd. budget reports helps them to measure
their actual performance (Goetsch and Davis, 2014).
Inventory report- This document provides the details about current position of inventory
which helps them to fulfil the need of their target customers (Management Accounting Report,
2017). It helps them to create loyal customer for the organisation. RL Maynard Ltd. prepares
such report to maintain the particular level of inventory in order to maintain the required level of
inventory that helps to complete their daily routines. This reduces inventory management cost
through which positive impacts are generated in the organisation.
Cost accounting report- This type of accounting report contained detailed information
about the total cost of the organisation. It takes place in all types of operations that is performed
by the organisation. which determines that this report helps them to calculate the cost either it is
fixed or variable. Example- RL Maynard Ltd. uses this cost accounting system in order to record
the expenses before the sale of product and the income after selling it to customers (Gray 2015).
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M1.
Management accounting system provides several types of benefits for the organisation. this
helps them to attain their goals with efficiency and effectiveness. Some of the benefits for
management accounting system are as follow:
Benefits of cost accounting system:
 This system helps RL Maynard Ltd. to decide the price of their products or services
through analysing the investment that is used to manufacture their products or services.
 This helps management to determine the unnecessary cost that is incurred while
performing business operations. It helps them to formulate effective plans in future for
organisation (Jack, Davison and Craig, 2013).
Evaluation: This system helps them to improve their overall organisational performance as it
will help RL Maynard to identify their future cost. Also, it will assist them that how they can
monitor and maintaining their cost according to their expectation. With the help of this system
they can compare their actual cost with estimated cost and find the reasons behind these
differences easily. This will help them to save their extra cost so they able to maintain their
profitability.
Advantage of inventory management system:
 This helps RL Maynard Ltd. to fulfil the needs or demand of their loyal customers within
minimum time period through monitoring the stock of inventory.
 It helps an organisation to reduce the cost of their inventory storage cost through ordering
the raw material whenever it is required.
Evaluation: This system is very helpful for the organisation as it will help them to maintain
their inventory in an appropriated manner. It will assist production department to produce
products according to the demand so they does not have to face the problem of extra inventory
storage and out fashion stock.
D1
In context of RL Maynard Ltd. the integration between management reporting and
management accounting are two essential aspect that helps financial department to take effective
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decision for the organisation. Further it also helps an organisation to attain their desired goals
within specified period. Example- To maintain the record of transaction that daily take place in
the organisation are essential to record. Therefore, managers store the essential data that help in
future to take correct decisions. It is possible only if they manage and inter-relate between
function and accounting of them. Like inventory management helps them to minimize the cost of
their production.
TASK 2
P3
Cost: It is the amount of money that is used to gain something or provide something in
order to get huge return in future time period. It is calculated by the manager so as to fix prices
for its goods and services that will ensure them to recover invested cost with profit margin. It
consists of two methods which are given as under:
Absorption costing: It is utilized to distinguish the cost which related to the creation
procedure and compute for every unit item. It isn't just incorporate the expense of products sold
yet it additionally incorporates the assembling overheads possibly it is fixed or variable. Both
cost incorporated into this costing strategy in view of that it is called full costing technique. This
costing strategy incorporate the different cost which required at the season of item, for example,
direct material, direct work, variable generation overheads and fixed overhead. Moreover it
incorporate the fixed and variable selling and authoritative cost (Lerch and Gotsch, 2014).
Marginal costing: It is known as variable cost that includes product cost and fixed expense
consider as period cost. It is costing procedure where variable expense per unit change as
indicated by the adjustment underway yet fixed expense is as yet the equivalent. In this costing
strategy, cost are isolated into two sections initial one is variable expense and second one is fixed
cost (Marginal Costing Method, 2019).
Using different costing method such as absorption & marginal costing accounting manager
will able to calculate net profitability of company in following way:
Calculation of profit using marginal costing:
Income statement under Marginal costing method for month of May & June
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Calculation of profit using absorption costing
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Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
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05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
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Interpretation: Applying LIFO method calculates closing units 3.75 whereas applying
AVCO method, the closing units decreases to 3.45. It facilitate managers to determine cost
which makes easy for them to make an effective decision. Among these two methods, RL
Maynard should prefer AVCO method to adopt as it provides them less cost in comparison with
LIFO.
M2
Management accounting techniques are important to make the budgetary reports and
proclamations. Organizations need to plan monetary archives like Balance sheet, P&L and so
forth with the utilization of bookkeeping strategies and devices. This is the reason, since
bookkeeping instruments give budgetary information which are required to get ready monetary
reports. RL Maynard Ltd. gets ready budget summaries with the assistance of various
bookkeeping instruments and strategies on the grounds that monetary information which is
required for owning budgetary expressions winds up accessible from the executives bookkeeping
device.
D2
Accounts receivable report- This type of report record the data and information about the
debtors of RL Maynard Ltd. which impacts directly on their profits. At it is directly relates with
the credit deal of the organisation. Moreover, it also helps finance departments to record the
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