Management Accounting Report: Sewport Financial Analysis & Planning

This report delves into the realm of management accounting, emphasizing its crucial role in organizational decision-making and financial performance enhancement, specifically within the context of Sewport. It explores the core principles, diverse types of management accounting systems such as cost accounting and inventory management, and their seamless integration into business operations. The report critically evaluates the advantages of these systems and their reporting mechanisms within organizational processes, alongside the benefits of price optimization systems. Furthermore, it presents calculations and analyses related to financial statements and planning tools, including budgets, using the example of Nero Ltd. The report also highlights the significance of management accounting in addressing financial challenges and achieving sustainable success, offering valuable insights for students seeking a comprehensive understanding of this essential field. The report also encompasses the importance of management accounting in dealing with financial problems and achieving sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1 and LO 2.................................................................................................................................1
1. Importance of management accounting for decision making process of company in
improving financial performance................................................................................................1
2. Different types of management accounting systems used in reporting and its integration in
business operations......................................................................................................................3
3. Critically evaluating the benefits of management accounting system and MA reporting with
organizational process ................................................................................................................4
4. Calculation of income statements...........................................................................................6
LO 3...............................................................................................................................................10
Comparing and analysing of different planning tools used in management accounting of Nero
Ltd.............................................................................................................................................10
LO 4...............................................................................................................................................12
Importance of management accounting in dealing financial problems and achieving
sustainable success....................................................................................................................12
CONCLUSIONS............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is method which used by managers for the provision of
accounting information which helps in developing effective information for the maximization of
profit for entity. This present report provides an information related to management accounting
in context of company Sewport. In this report an explanation is to be provided on management
accounting and its importance on decision making process with types of management accounting
with its integration in business. Further, in this report calculations with the explanation of
different planning tools of budget is explained with view of Nero ltd. and importance of
management accounting in solving financial problems of the organisations.
LO 1 and LO 2
1. Importance of management accounting for decision making process of company in improving
financial performance
Management accounting is the process which is known for identifying, measuring,
analysing, interpreting and for communicating information of organisations to achieve overall
business goals (Importance of Management Accounting, 2018). It overall helps managers of
Sewport organisation to clarify the decision problems, specifying criteria and identifying
alternatives by which decision making model developed and to collect data which set an
alternative. This overall will lead to develop effective strategies and policies for improvement of
organisation.
Management accountant is the tool which is used to design and implement accounting
information system so that effective production, marketing and financial decision will get
developed to get better business operations. Another importance of management accounting is to
protect future of firm by developing effective competitive strategies for organisation.
Management accounting used by business organisation's for knowing overall amount of
money which has been spent in developing business operations. It is also used by management
just to analyse availability of resources which needs to develop for improving capabilities of
organisations (Kaplan and Atkinson, 2015). Therefore, not only managers used management
accounting but it is also important for stakeholders which helps in developing effective policies.
Importance of management accounting in decision making is as follows-
Analysing expenses and revenue:
1

Revenue refers to money which is earned by company by their business operations. More
emphasis of company is to reduce their expenses and to increase its overall revenue because
revenue refers to profitability of company. Expenses of the company include salaries, rent,
payments and cost which incurred for developing effective production in company. Therefore,
management accounting helps managers in getting accurate figures of revenues and expenses.
This analysis of revenue and expenses helps managers in developing effective strategies for
reducing expenses and for generating better revenues.
Creating Budgets and Forecasting Ideas for growth:
Once analysis is done regarding revenue and expenses, role of management accounting is
to develop effective budget for forecasting business projects and operations with in organisation.
This development of budget will overall helps management in achieving long term growth and
profitability of organisation from business market. Management accounting provides accurate
figures and data's which overall helps in developing effective strategic policies. Policies are
developed by comparing previous year performance which result in getting effective sustainable
growth of the company (Otley, 2016).
Development of confidential information:
For the development of effective strategies, accounting managers will guide decision
makers of company regarding the raw data's and numbers for implementing changes in
organisation. This analysis of raw data, helps management in developing effective actionable
policies. Information generated in management accounting are provided to users of the company
which overall helps upper management in taking company in profitable situation which overall
result in developing competitive advantage of company in business market.
Helps in understanding performance variances:
Management accounting used by managers for developing variances which helps
managers on predicting goals which needs to achieved for developing better operations of
organisation. Therefore, role of management accounting is to analyse techniques which overall
helps management in building positive variance in achieving sustainable growth of the
organisation.
2

These are the importance of management accounting which analyse resources and
strategies by which effective decisions will get developed for improving performance of
organisation. Specific data's are provided by management accountant for developing decision in
areas which needs to get improve in achieving future goals of the company (Fullerton, Kennedy
and Widener, 2014).
2. Different types of management accounting systems used in reporting and its integration in
business operations
Management accounting system is process which is used in decision making, devising
planning with emphasis on controlling objects of organisation. Management accounting report is
used as tools in understanding business operations of the organisation. Sewport is an enterprise
which will use this management accounting system for integrating effective business operations.
Different techniques of management accounting are used by accountant of organisation which
outline requirement of resources which needs to develop in improving financial capabilities of
organisation. Its techniques are as follows-
Cost accounting system: it is the system used by manufacturers which helps in recording
production activities of organisation using perpetual inventory system. This accounting system
used in organisation to measure the cost of products which provide sufficient profitability,
inventory valuation and cost control. This cost accounting system helps organisation in
evaluating product which is more profitable. This only possible when company will able to
measure correct cost of products. There are two cost accounting system that product costing and
job order costing (Höglund and et.al., 2016).
Job order costing helps Sewport organisations in accumulating manufacturing cost for
each job of the organisation. Entities which apply this type of costing evaluation are generally
ones which are engaged in the production of unique and special orders. For example:- event
management company are the one which used this costing technique in accumulating
manufacturing cost of organisation.
Process costing is the another cost accounting techniques which accumulate
manufacturing cost which is separate from each process of the Sewport company. This method is
generally appropriate for products whose productions are generally innovated in different
departments of organisation.
3

Inventory management system: it is the method which used to measure which is used to
oversee the flow of inventory which comes and out from organisation. In this type of system,
management will ensure to keep right inventory at right place and at the right time by which
effective business operations will get developed in an entity. This system helps in developing
effective capabilities by which customers demand will get fulfilled in a proper delivery of time.
Sewport company generally follows inventory management systems are the one which
are engaged in retail business, service delivery and also in companies which track their produced
assets (Laudon and Laudon, 2016). These techniques used by organisation in providing their
services to customers in proper time. LIFO and FIFO method is also used in this system. LIFO
method is the assumption in which last item which purchase is sold first. FIFO method is the
assumption regarding first in first out means first purchased goods are sold first.
Price Optimization system: it is the process which is used by managers of organisation to
find that price of products which customers are willing to pay in business market. This is known
as effective tool for management accounting in deciding prices of the products of organisation.
This method used to calculate demand which varies at different price levels. This is the method
used to target customers of the market which overall helps in producing profitability in the
organisation.
Companies which follows price optimization model are the one which are engaged in
providing diversifies products among customers of business market. All these systems are used
by managers reporting and in integration in business operation is useful so that effective
strategies get developed in achieving future goals of Sewport organisation.
3. Critically evaluating the benefits of management accounting system and MA reporting with
organizational process
 Importance of management accounting system
Management accounting system is important at all levels of management accounting. Above
discussed three management accounting systems are cost accounting system, price optimization
system and inventory management system. Its importance are as follows-
Methods Advantages disadvantages
Cost accounting system  Cost accounting
appreciated by mangers
of the company
 Cost accounting
method differ from one
organisation to another
4

because it adopts
changes which needs to
be developed.
 It is the crucial element
of management
accounting which
guide to set prices of
products and resources.
by which sometimes
cost get manifest.
Price optimization system  This system helps in
generating right price
of the products with
gaining a clear view.
 It is the method which
fixes the effective price
of products which
customers are willing
to pay.
 Main disadvantage of
this method is that it
does not allow any
changes of products,
once prices has been
developed (Weygandt,
Kimmel and Kieso,
2015).
Inventory management system  This technique helps
organisation in
achieving efficiency
and productivity of
business operation by
providing availability
of inventory in
organisation.
 This method also
minimise cost and
maximise sales and
profits of the
organisation.
 Major disadvantage of
this technique is that it
require high cost
implementation for
developing availability
of products in right
time.
5

 Management accounting reporting within organisational process
Different types of management accounting report that helps management in analysing business
performance are as follows-
Budget Report:
This report present the most fundamental report of the managerial accounting which helps
business owners to understand and control cost of the enterprises. Sewport organisation used
budget report in evaluating incurred expenses of previous year. By analysing this expenses
company will able to develop estimate budget for the assessment year. This report is integrated
within Sewport organisation in developing effective estimated budget for the development of
production and services in organisation (Goetsch and Davis, 2014).
Accounts receivable aging report:
This is the another report of management accounting which represents crucial element for each
type of businesses. This technique offers credit to customers which overall provides overview
regarding credit policies which overall align company regarding consumers repayment
capabilities.
Integration of this report is useful because it provides company a snapshot of money that
is outstanding and due by the customers of organisations. This report helps Sewport organisation
in identifying customers which have fallen regarding payment of company.
Job Cost Report:
It is the report which measure total cost accrued which implemented in presenting single project
of the company. Therefore, this report helps leaders in evaluating profitability of specific types
of job projects and business operations of the company.
Integration of this report is beneficial for the Sewport company in its business operations
in developing specify job in company for the effective development of business operations.
Inventory and Manufacturing report:
Entities which engage in producing physical products and in manufacturing valuable products
will present this type of report in its organisation. This report centralize data's of inventory cost,
labour and other forms of overhead by which are used in the manufacturing of products and
services (Labro and Hemmer, 2017).
6

Integration if this report is important in business operation because it represents
information related to manufacturing of products and services in Sewport organisation.
4. Calculation of income statements
Profit & Loss Statement using Absorption Costing
(Quarter 1)
particulars £ £
sales 66000 1 66000
Cost of goods sold:
Variable cost 78000 0.65 50700
Add: fixed cost 78000 0.2 15600
Total production
cost
66300
Add: opening stock 0
Total stock
available for sale
66300
Less: closing stock 12000 0.85 10200
Cost of goods sold: 56100
GROSS PROFIT 9900
Less: under
absorption of fixed
overhead
16000 15600 400
Less: selling and
admin cost
5200
NET PROFIT 4300
Profit & Loss Statement using Absorption Costing
7

(Quarter 2)
particulars £ £
sales 74000 1 74000
Cost of goods sold:
Variable cost 66000 0.65 42900
Add: fixed cost 66000 0.2 13200
Total production
cost
56100
Add: opening stock 12000 0.85 10200
Total stock
available for sale
66300
Less: closing stock 4000 0.85 3400
Cost of goods sold: 62900
GROSS PROFIT 11100
Less: under
absorption of fixed
overhead
16000 13200 2800
Less: selling and
admin cost
5200
NET PROFIT 3100
Profit & Loss Statement using Marginal Costing
(Quarter 1)
particulars £ £
sales 66000 1 66000
8

Production cost:
Variable cost 78000 0.65 50700
Add: opening stock 0
Total stock
available for sale
50700
Less: closing stock 12000 0.65 7800
Cost of goods sold: 42900
Contribution
margin
23100
Less: fixed
manufacturing
overhead
16000 13200 16000
Less: selling and
admin cost
5200
NET PROFIT 19000
Profit & Loss Statement using Marginal Costing
(Quarter 2)
particulars £ £
sales 74000 1 74000
Production cost:
Variable cost 66000 0.65 42900
Add: opening stock 1200 0.65 7800
Total stock
available for sale
50700
9

Less: closing stock 4000 0.65 2600
Cost of goods sold: 48100
Contribution
margin
25900
Less: fixed
manufacturing
overhead
16000 13200 16000
Less: selling and
admin cost
5200
NET PROFIT 4700
Reconciliation of Profit
Quarter 1 Quarter 2
Particulars £ £
Profit under
absorption
costing
4300 3100
Stock
Adjustment:
Opening stock 0 12000
Less: closing
stock
12000 4000
12000 8000
Fixed overhead
rate
0.2 -2400 0.2 1600
10