Management Accounting for Financial Problem Solving at NERO Ltd

This report delves into the core concepts of management accounting, exploring various systems, costing approaches, and budgetary control methods. It begins by defining management accounting and its different types, such as job costing and cost accounting systems. The report then examines methods used in management accounting reports, including accounts receivable alignment, job cost reports, and performance reports, all crucial for informed decision-making. A key section focuses on cost analysis techniques, comparing absorption costing and marginal costing through detailed calculations and income statements for NERO Ltd. Furthermore, the report evaluates the benefits of management accounting systems and assesses the impact of these systems and reporting within organizational processes. Finally, it explores planning tools for budgetary control and how organizations like NERO Ltd can leverage management accounting to address financial challenges and achieve success.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Define management accounting and different type of management accounting system.......1
P2 Explain various methods used for management accounting report.......................................3
M 1 Benefits of management accounting system and their application .....................................4
D1 Evaluate management accounting systems and reporting within organisational process ...4
TASK 2............................................................................................................................................4
P3 Calculate costs using techniques of cost analysis to prepare an income statement...............4
M 2 Range of management accounting techniques and produce financial report .....................8
D 2 Planning tools for accounting in respond to solving financial problems lead to success . . .8
TASK 3............................................................................................................................................8
P4 Explain the pros and cons of various kinds of planning tools used for budgetary control ...8
M 3 Examine use of various planning tools and their prepared application for budget ..........10
TASK 4..........................................................................................................................................10
P5 Organisations adopting management accounting system to respond financial problems....10
M 4 Respond to financial problem, accounting can lead organisation to success ...................12
CONCLUSION .............................................................................................................................12
.......................................................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
In the enterprises there are various objectives which is set by the organization and they
have to be attain all of them in order to meet the goals and target. There are several procedure
which will be interpreted such as measurement, identification, analysation of respective data,
interpretation and many more. There are more structured data which will be gathered with the
support of several tools (Macintosh and Quattrone, 2010). So through that they can use and help
to the management in the process of decision making. This assignment is going to present
various system, costing approaches and budgetary control along with appropriate understanding.
TASK 1
P1 Define management accounting and different type of management accounting system
Basically, management accounting is one of the important system it includes taxation
accounting, financial, managerial and internal auditing of company (Management accounting,
2017). This method can be used for identifying and collecting actual and reliable information
about organisation. It helps to take corrective and appropriate decision in the context of
enterprise. Management accounting has several objectives, which can explain such as:
 It helps in interpretation of financial information and data
 It aids in controlling and managing performance of organisation
 It can be used for solving strategic business problems in effective and efficient manner.
Additionally, different type of management accounting system can be used for identify
issues and gathering actual information such as follows:
 Job costing: A job costing system can be known as a process of collecting information
about costs within specific job task and production (Baldvinsdottir, Mitchell and
Nørreklit, 2010). Additionally, gathered data can be used to submit cost information to
customers while preparing a contract. This system can be accumulate different type of
informations such as follows:
1. Direct material
2. Direct labour
3. Overhead costs
 Cost accounting system: This system can also known as product costing system it can be
used by every organisation to estimate and identify cost and charges of products and
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goods for profitability evaluation, cost management and so more. In the context of this
system, cost allocation of company's services and products which is based on traditional
costing system. With the help of this, effectively will set and allocate cost of services as
well as will take corrective decision. Basically, there are two type of cost accounting
system such as:
1. Job order costing
2. Process costing
 Inventory management system: Basically, inventory shows a company's stock level of
products, goods, material and so more. With the help of inventory management system
can easy to identify and determine actual position or status of company's stock. Inventory
can be used while working in a company, in a production process of products and
services sold to customers as per their requirements. Apart from this, inventory
management system considered the use of software, barcode printers, scanner,
techniques, mobile systems and so more (Lukka and Modell, 2010). It helps to manage
and control inventory of company in a appropriate manner. Therefore, inventory
management system has several functions such as:
1. Prepare effective purchases orders
2. Received, managed, relocate, control, adjust inventory of the company
3. Develop appropriate sales orders
4. Pick, pack and shipped at right place and on right time.
 Price optimization: Mainly this system is a mathematical tool or technique it helps to
calculate, how demand can changed at different level of product's price. After that, on the
basis of collected information company can manage cost and inventory in effective
manner due to organisation's profit level will improve. Furthermore, in this system three
factors are included such as:
1. Pricing strategies and methods
2. Value of goods to both buyer and seller
3. Approaches that manage and control all contents which impacting on company's
profitability.
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P2 Explain various methods used for management accounting report
Management accounting report refers to, it is a final part of collected information also it
can be known as a final picture of organisation which represent how business is performing and
operating their work. In every organisation it is necessary to be produced accounting report on
the quarterly basis, because with the help of this effectively will analyse and evaluate the actual
financial status or position of NERO Ltd company (Parker, 2012).
Apart from this, there are different type of reports that helps for protecting a business
firm in effective and efficient manner. Therefore, management accounting report helps in
decision making, planning and performance management system. With the help of company's
accounting statement, will significantly identify the actual position and status of firm also can
determine financial strength of organisation. Basically, there are different type of management
accounting reports but their working style and system different from each other. Due to, NERO
Ltd. can use various methods for preparing report in systematic manner such as follows: Accounts receivable align report: Basically, this report is co-related with credit offers
which is provided by the company to customers. This report can be known as a perfect
overview of credit balance of the organisation which is categorised as per the age of
consumers. Apart from this, accounting receivable align report aids to maintain and
control credit polices of organisation in effective and efficient manner. Job cost report: This report provide a overview of total cost which is accrued in a signal
project. With the help of this, systematically analyse and compare with actual cost to
expected revenue of project. This report helps to company because while using this
statement effectively determine and evaluate actual profitability level of specific job. In
this addition, with the help of this report will identify which types of jobs are profitable
for organisation (Renz, 2016).
 Inventory and manufacturing report: Some companies are provides physical products
and goods to customers as per their requirements. But specially those products and
services are manufacturing with low fault tolerance, their a effective report or statement
is valuable for company. Because it helps to centralised the data and information, which
is related to inventory cost, labour and other things. All these contents are included in
manufacturing process of products. With the help of this report, company can manage
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and control manufacturing cost of products as well as collect reliable information about
producing products and goods which produced for consumers.
 Performance report: Basically, every business firms are using budget for identifying
actual expenditure and revenue of their organisation. On that basis will be prepared a
effective performance report which should be prepared in every year on the basis of
monthly or quarterly. With the help of performance report of company, managers will
make a effective plan for future requirements in manufacturing process in effective and
efficient manner.
M 1 Benefits of management accounting system and their application
There are the several advantages of the Gethsemane accounting which help in developing
their organisational vision and targets by measuring their goals and objectives. It reduces the
costs which is somewhere advantageous for there management accounting. They decrease their
expenditure of there operation of business which is important in accomplishing their economic
resources (Cinquini and Tenucci, 2010).
D1 Evaluate management accounting systems and reporting within organisational process
There is the utilization of the management accounting in the enterprise so they can
accomplish better interpretation of their demands and needs of the customers. There are several
tools which control their operational business which the aid of accounting. The relevant cost
analysis determine their report functional activity which assist to take their relevant cost in
decision in various business operations.
TASK 2
P3 Calculate costs using techniques of cost analysis to prepare an income statement
In the context of cost analysis, NERO Ltd. can be used different type of methods or
techniques such as follows: Absorption costing: This method can be define actual manufacturing cost which
absorbed by units manufactured. As well as, absorption costing approach related to the
cost of finished unity of stock. In includes direct material, direct labour, fixed and
variable manufacturing overheads. In other words, it is method which is related with the
final product cost. With the help of this, effectively analyse and identify actual cost in
producing products, sales, profit and loss of selected organisation. Apart from this, it
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helps to define actual financial status or position in effective and efficient manner
(Fullerton, Kennedy and Widener, 2013).
 Marginal costing: This costing of an item can be also known as variable cost. Basically,
marginal costing of a product is a sum of direct martial, direct labour, direct expenses and
production cost. Due to, while increasing production level of products consequently
improve level of variable cost. Marginal costing of an organisation can be avoid when
items were not produced. Because it is co-related with manufacturing level of products
and goods.
Basis Absorption costing Marginal costing
Cost recognition In this method, various cost
can be view as product cost
while fixed cost consider as
period price.
In which foxed and variable
cost considered as product
cost.
Categorisation of overheads Fixed and variable Manufacturing, administration,
selling and distribution etc.
Highlights Contribution per unit of item Net profit of unit
Statement of profit and loss using absorption costing
Quarter 1
No. Of units ￡/unit ￡ ￡
Sales 66.000 1 66.000
Less: Cost of sales
Opening Stock 0 0.85 0
Production cost 78.000 0.85 66.300
66.300
Closing stock (12.000) 0.85 (10.200) (56.100)
Gross profit 9900
Less: Other Expenses
Selling &Administration costs (5.200)
Net Profit 4700
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Less: Under absorption (2.800)
Reconciled profit 1900
Quarter2
No. Of
units
￡/unit ￡ ￡
Sales 74.000 1 74.000
LESS: Cost of sales
Opening stock 12.000 0.85 10.200
Production 66.000 0.85 56.100
66.300
Closing Stock (4.000) 0.85 (3.400) (62.900)
Gross profit 11100
LESS: Other Expenses
Selling &Administration costs (5.200)
Profit 5900
Compution of profit and loss using marginal costing
Quarter 1
No. Of units ￡/unit ￡ ￡
Sales 66.000 1 66.000
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LESS: Cost of sales
Opening inventory 0 0.65 0
Cost of Production 78.000 0.65 50.700
50.700
closing inventory 12.000 0.65 (7.800) (42.900)
Contribution 23100
LESS: fixed costs (16.000)
Less: selling &administration (5.200)
Profit 1900
Quarter 2
No. Of units ￡/unit ￡ ￡
Sales 74.000 1 74.000
Less: Cost of sales
Opening inventory 12.000 0.65 7.800
Cost of Production 66.000 0.65 42.900
50.700
closing inventory 4.000 0.65 2.600 (48.100)
Contribution 25900
Less -Fixed costs (1.600)
Less -selling &administration (5.200)
Profit 4700
b) Because of the treatement of the fixed cost in the above used method a chnages are seen. The
profit incurred from the abosrption costing becasue of over and under absorption costing. It is
explained here.
WORKING NOTE:
For quarter 1
Absorbed overheads =(66.000×￡0.20)=13.200 = Total fixed cost=16.000
Under absorption (2.800)
For quarter 2
Absorbed overheads =(74000×￡0.20)=14,800 : Total fixed cost=16.000

Under absorption(1.200)
c) Reconciliation statements.
It is prepared in order to determine the profit for the company through using both the
costing methods:
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Particular Q1 Q2
Profit under absorption 4.700 5900
(2.800) (1200)
Profits under marginal 1.900 4700
From the above used costing method for cited company, it is getting various outcomes.
Because if the organization is using absorption costing then the are getting a net profit at 66000
is 4700 and 11200. As well as if they are using marginal costing they are receiving a profit of
1900 and 4700. So the one which is providing maximum profit with minimum cost are need to
be selected by the company.
M 2 Range of management accounting techniques and produce financial report
There are tools and techniques of the accounting management which defines their
company's external as well as internal approach of the data collection. The financial planning is
refers to the advance requires and financial statements of an enterprises. This kind f planning
involve their log as well as short term financial activities which is linked with the organisation.
D 2 Planning tools for accounting in respond to solving financial problems lead to success
There are several report which aid to accomplish financial report with help of the
organization in their enterprise. Their enterprise take best decision making in the operating their
other business activities. The income statements help to elaborate their company's expenses
along with the net profit (Vaivio and Sirén, 2010).
TASK 3
P4 Explain the pros and cons of various kinds of planning tools used for budgetary control
Budgets are usually prepare by the top authority of the organisation due to the operations
which will be managed to regulate. There is the expense which have to make for their specific
task and also figure out by using various management conduction activities. There are the
various advantages as well as disadvantages of the budgetary control some of them are as
follows:-
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