Management Accounting Report: Sollatek Company Analysis and Strategies

This report, prepared for the General Manager, delves into management accounting principles, focusing on their application within Sollatek, a company specializing in electrical and electronic equipment protection. The report examines various aspects of management accounting, including different types of requirements and reporting methods, such as cash basis, accrual basis, and hybrid basis accounting. It explores costing techniques, including traditional cost accounting, lean accounting, and throughput accounting, and their impact on cost reduction and profit maximization. The report also analyzes the advantages and disadvantages of planning tools used for budgetary control, emphasizing their role in financial statement preparation and resource allocation. Furthermore, it discusses how management accounting systems are adopted by organizations to achieve sustainable success, providing a comprehensive overview of the subject matter with practical insights and recommendations for Sollatek's management.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
P1 Management accounting and their different types of requirements.......................................4
P2 different methods used for management accounting reporting..............................................5
M1 Benefits of accounting system..............................................................................................7
D1 Evaluating management accounting system.........................................................................7
TASK 2............................................................................................................................................8
P3 Find out the cost by using techniques and make income statement with marginal and
absorption cost............................................................................................................................8
M 2 Two major accounting techniques of Sollatek. ..................................................................9
D.2 Financial report for interpretation of data of cited company.............................................10
TASK 3..........................................................................................................................................10
P4 Advantages and Disadvantages of the planning tools used for budgetary control .............10
M3 Planning tools in forecasting budget..................................................................................13
D 3 Appropriate planning tool for accounting to solve financial problems..............................13
P5 Management accounting system are adopted by the organisation.......................................14
M.4 Management accounting can lead organisations to sustainable success...........................16
CONCLUSION.............................................................................................................................16
REFERENCES..............................................................................................................................18

Report
From: Management Accounting Officer
To: General Manager
Subject: To write a report to GM covering management accountings and system together with
different costing techniques and reporting to enable the organization implement them.

INTRODUCTION
Management accounting is that process where it helps the organisation in analysing,
identifying, presenting and recording the financial information which is used by the managers for
planning and decision-making. It is concerned with providing the more helpful reports and
information to internal users so that they can manage and monitor all the activities which has
been perform by the employees. Management accounting comprises with the tool of accounting
methods, techniques, methods which are assist with the organisation in maximising the profits
and to minimise the risk (Baldvinsdottir, Mitchell and Nørreklit, 2010). Through accounting
system, the managers will get the essential and accurate data in which they can run the
organisation objectives. Management accounting is also termed as cost accounting or financial
accounting. With the use of management accounting the organisation can measure their actual
performance in terms of financial and take more appropriate actions to make sturdy position in
global competitive market. The present report is based on Sollatek company which deals in the
product of to protect the electrical and electronic equipments. This company is also manufacture
in tyres and valves. The main aim of this company is that to protect the electrical equipments
against the unstable and unreliable voltage. In this project different type of management
accounting is discussed. Further the advantages and disadvantages of planning tools is also
discussed.
TASK 1
P1 Management accounting and their different types of requirements
Management accounting is the combination of finance, accounting and management in
which skills of business techniques are need to be add in value of business (Luft and Shields,
2010). Management accounting collaborate all information such as cash flow, revenue or
outstanding debts which are changing the reports time to time and give the statistic information.
The managers of Sollatek company helps the managers to work across the business, not just in
finance, but they have to advise also to other managers on the basis of what is the financial
implication of decisions which are taken the higher authority. Through this they can monitor the
risk and make appropriate strategies to accomplish with the targets. Management accounting is
also a that source where is analyse and communicate the relevant financial and non-financial
information to generate high amount of profits (Van Helden and Northcott, 2010). Management

accounting is an effective planning tool in which the managers can make proper financial
statements to utilise the best resource in appropriate manner. It provides the appropriate data and
information, through it will recover the efficiency and effectiveness of organisation. The
managers have to take the advice from expertise in which they can implement and formulate the
appropriate strategies to reduce the cost and increase the per unit of profits. To analyse the
proper results of the company in terms of finance then it is significant to properly understand the
concept (Weißenberger and Angelkort, 2011). Along with this they have to do proper evaluation
as well as interpretation of the resources and funds which are investing by the company to
maximise the profits. It helps the managers to devise the plan and take alternative solutions to
make strong position in market. The funds which are utilising by the company should have to
make proper records.
There are many type of management accounting which can be used by the managers of
Sollatek. These accounting system are traditional cost accounting, through put accounting, lean
accounting and transfer pricing. While using these accounting system the employees of company
can reduce the cost of products and increase the profits. In Lean accounting, it is the most
revolutionary technique in terms of management accounting system. Through this method the
company make the strategy to reduce the cost by eliminating the waste. The accountants of
Sollatek is providing the immediate financial information for making the decision in appropriate
manner which will measure the profitability of company (What are the Different Types of
Management Accounting Systems?, 2017). If there is any excess in the cost, then these are treated
as waste and it is cut from the system which bases on the information.
In traditional cost accounting, the managers can keep the record that how they are
allocating the costs relating to materials and labours and overhead. In this the managers can use
job order or process costing methods. In process costing method, the cost is allocated on the
basis to produce the large number of homogeneous products. On other side in job order, this
method can be used when managers are using large projects where all the cost can be easily
traceable to individual projects.
In throughput accounting the accountants are mainly focus on the to identify the
constraints in organisation (Macintosh and Quattrone, 2010). Constraints include where the
insufficient level of materials, labours and overheads are facilitating. Reducing the constraints

with the use throughput accounting it increase the production volume and thereby reduce the cost
of individual products of per unit. This method is work with the traditional job process or order.
In last transfer pricing, this method is when Sollatek transfer the goods from one
department to another department and through this cost of goods are increasing. The products are
transform from every departments and it add a small portion of cost in to the products.
There is some advantage of management accounting which also give benefit to
organisation.
 It is flexible in nature and therefore it can be prepared at any point of time i.e. monthly or
weekly basis.
 It increases the efficiency of operation of company and for this everything is to be done
in systematic way.
 With the help of using accounting budgetary control and capital budgeting tool company
can easily reduce both capital and operating expenditure. Through this company can
easily reduce the price and generate more profits.
Cost accounting system is framework which is using by firm to estimate their cost of
products for doing inventory valuation, analysing profitability and control the cost. Two type of
cost accounting are there; job order costing and process costing.
Job costing, it is best suited for those situation where organisation is producing goods
and services and these are depended upon the receipts of customer order. Through this method
company can identified cost which will incurred on every occupation.
Inventory management system, it is an ongoing process where organisation need to
discuss that how much stock is needed to store. Companies are managing their inventory on daily
basis and it is important for them to create different ways in which they resolve inventory
management challenges by finding appropriate solution.
Price optimisation, this help to organisation in setting out the best price for products
because there are many small enterprises which are facing difficulties in deciding the value of
goods and services which are offering by them.
P2 different methods used for management accounting reporting
Management accounting is the concept which is eligible across the business. This
accounting is management their finance, budget, financial decision etc. With the help of
management accounting the sollatek company provide financial or non-financial decision to their

managers. Sollatek company helps in decision making of finance, come through the performance
of the employees and in the implementation (Macintosh and Quattrone, 2010). Sollatek company
prepare the management report and prepare the financial report with the help of management
accounting.
There are basically three methods which can be used by sollatek company for
management accounting reports. They are-
1 Cash basis- The first method of management accounting is the cash basis method. Cash
basis method always explain the income and expense level. Income always shown at the receipts
level but the expense is shown on the paid level. Sollatek company always keep their expanses
on cash basis or their financial accounting. In cash basis or in financial accounting the sollatek
company pay the money/salary to their employees by the cheque. Credit card and with the help
of bank transaction etc (Ward, 2012). Cash method is usually simple implementation and it is
utilized by the medium or small businesses and single ownership.
Restrictions on using the cash basis method-
. Private service organisation or companies always instrument to use the cash accounting
system.
. cash basis accounting is make simple and more appropriate taxable income.
. Small businesses pet the average annual income.
2 Accrual basis- The second method of the management accounting is the accrual basis
method. This method used by the sollatek company. Sollatek company display their expanses
with the help of income of statement. The accrual basis method also determine that how much
profit are earned in a year. It is not generating on the basis of cash but always generate on the
basis of revenue. This method contests the expenses with revenues. When the cash is received or
earned in that time all the revenues are reported on the income statement. For example: if the
sollatek company start accounting service and provide some accounting services but the payment
is not received on time from the client then there will be deviation in income statement. The
accrual accounting is the income statement that measure the earnings of the company at the
specific time of period (Bodie,2013). There are many expenses related to the company like heat
expanses, light expanses, miscellaneous expenses and other expenses. They all expenses bear by
the all companies and they show in the income statement of their company. That why they record

their expenses with their revenues. The accrual basis method required for matching the principles
of the accounting. That's why it is the useful method of management accounting report.
3 Hybrid basis- The last method of accounting is the hybrid accounting. Generally, the
businesses use the cash and accrual method of management accounting but some businesses are
use this method with the help of stock. Sollatek company use the accrual method for the stock
and for its sales but some businesses use the cash basis method foe the income statement. The
hybrid method of accounting is used for the small inventory businesses. When we are selecting
the hybrid method of accounting in that case we will follow some points about the company.
They are-
. Infrastructure of the company
. Expertise in tax deduction
. Environment of the company.
Below mention are different methods which can be used by Sollatek company for
maintain their management accounting reports;
Inventory control planning – With the help of this reporting system company can easily
find out the issues which is related with stock management. As mentioned firm is facing issue
regarding the overstock which is also increasing cost of their overall business. If there is an
under-stocking, it can become threat for organisation in losing their customers because at same
point of time they are not fulfilling the needs of customers.
Performance reporting – In modern era, it become essential for organisation to perform
various task. As this report will help to entity in analysing their current performance with last
year and resolve many issues which are facing by them. Along with this, company has also to
review the performance of employee on continuous basis because they are most important part
for organisation who is helping in accomplishing with goals and objectives.
Account receivable reporting – In this, organisation is providing goods on credit to their
permanent customers. This report will help to organisation in finding out that who is not paying
due amount on time period. Along with this, account report can be made on monthly, daily or
weekly basis.
Variable analysis reporting – Two type of expenditure are made by company i.e.
variable and fixed. If Sollatek company will focus on only variable expenses, then entity can

only attain short term goals. But while using this report, it can bring stability in business and firm
can achieve their major goals with in time period.
M1 Benefits of accounting system
There are many different types of management accounting system which is using by
Sollatek company to attain the objective in appropriate manner. It also helps to decrease the cost
per unit while increasing the profits (Renz, 2016). These accounting system give advantage to
company in terms of to allocate the cost in appropriate manner. Through these it will improve the
efficiency of products and maintain the strong position in market. It also helps the managers to
take relevant decisions from the data to improve the efficiency of mechanise of products. As
there are different applications of management accounting which needs to be apply by
organisation so that they can maintain the cost of production in appropriate manner.
D1 Evaluating management accounting system
As per the view of Nandan (2010), it is reserved that Sollatek is manufacturing company
and they use proper tools and techniques of management accounting system which helps them to
reduce the cost of products and services. Through management accounting the managers can
make appropriate decision from the available data or information. Along with this, it also
measures the performance of company at the end of year so that they can attain the goals and
objectives in easy manner.
TASK 2
P3 Find out the cost by using techniques and make income statement with marginal and
absorption cost.
Absorption costing: it is the method of calculating the cost incurred in producing and sum
of variable cost and manufacturing cost of variable and fixed cost of the units is said to be the
absorption costing (Garrison and et. al., 2010). It includes two types of cost one is the direct cost
which includes direct labour, direct material and variable manufacturing overhead. while the
another is indirect cost which include fixed manufacturing expenses that are used in the
production process.
On the basis of the function, cost is divided into selling and administration and
production of the units. There are mainly based on three methods:
1. job costing:

2. process costing:
3. ABC (activity based costing):
Marginal costing: It a type of accounting system in which all the variable cost is included in the
cost unit and fixed cost are written off in against the aggregate contribution (Lukka and Modell,
2010). In the marginal cost the product related cost is based on the variable cost but the fixed
cost is based on the cost of period.
Difference between the absorption costing and the marginal costing.
Absorption costing Marginal costing

1. appropriate total cost is determined through
the absorption costing.
2. In this costing both the fixed and variable cost
are taken into consideration.
3. The overheads are categories as a selling and
administration and production cost.
4. due to fixed cost inclusion the profitability of
the company gets affected.
5. under this absorption cost per unit is affected
by the variation in the profit of the company.
6.it highlight the net profit per unit.
7. the data cost is shown in the absorption
costing is in the conventional way.
1.The cost of production decision is taken with
the marginal costing.
2. under this costing variable cost is said to be
the product cost while fixed cost are said to be
periodic cost.
3. The fixed and variable cost are classified as
the overhead
4. profit volume ratio is the best way to measure
the marginal cost of the company
(Baldvinsdottir, Mitchell and Nørreklit, 2010).
5. while in the marginal cost the cost per unit is
not affected by the variation in the profit of the
company as an output.
6. it highlight contribution per unit.
7.the data cost is the total outline of the
contribution of each product in the marginal
costing.
In the above questions given in we can see the differences in the outcome in the revenue of the
income statements with the help of the two costing method of accounting. absorption costing
fixed cost of output is shown as a cost of production. Whereas the in the marginal cost it is
clearly ignored (Weißenberger and Angelkort, 2011). It is based on the budgeted level of output
of the company but the difference is that the fixed overhead remains almost the same in both the
situation.
M 2 Two major accounting techniques of Sollatek.
Cost volume profit analysis
Cost volume profit analysis helps in identifying the breakeven point of cited company it means
this analysis shows the Sollatek situation where there is no loss and no profit. Basically cost
volume is that situation where variable cost and fixed cost are constant it means there is no
movement in any other cost due to which a company meet the breakeven point.
Absorption cost

Absorption cost is a kind of accounting tools in which all the production cost of Sollatek are
covered it means that all the related cost which occurred while production process is absorbed by
absorption cost. Mainly this cost explains the effect of other manufacturing cost on the fixed and
variable cost.
Absorption costing is better for organisation because it gives advantage to firm in
increasing their net profit. If net profit of company is good, then it became easy for them to
predict their future expenses and give remuneration to directors or anyone in appropriate manner.
D.2 Financial report for interpretation of data of cited company
Financial reports are those reports which are essential for a company to analyse its
financial conditions. It refers to those reports and statements which assist the cited company to
maintain different forms of data. With this, Sollatek company can present and in interpret the
data of their company in a presentable and attractive manner. Also, it has been said that it helps
the cited company to make and frame correct and accurate decisions for their business
organization (Soin and Collier, 2013). Also, from the financial reports of the company, the
investors can also come to know about the situation and position of company. It helps the
investors to decide whether they can invest in their company or not. It depicts the financial status
of the company.
TASK 3
P4 Advantages and Disadvantages of the planning tools used for budgetary control
Advantages of planning tools used for budgetary control- there are many advantages of
the planning tools which is used for the budgetary control. They are-
1. Determine planning
2. Proper communication
3. Control
4. Co-ordination
5. Maximisation of the profit
6. Forecasting credit needs
1. Determine provision- The budget always defined activity of the company. When the
company going to prepare their budget in first they will provision for that budget because budget