A Comprehensive Report on Management Accounting for KEF Limited

This report provides a comprehensive analysis of management accounting practices, specifically focusing on their application within KEF Limited, a manufacturing company. The report delves into various management accounting systems, including cost accounting, price optimization, job costing, and process costing. It also examines different reporting methods such as cost accounting reports, budget reports, inventory reports, and performance reports. Furthermore, the report explores the application of absorption and marginal costing methods, as well as planning tools like budgeting, including short-term, long-term, and sales/promotional budgets. The report also discusses Activity Based Costing (ABC), Life Cycle Costing, and Target Costing methods. Finally, the report highlights the role of management accounting systems in resolving financial issues within the company, providing a holistic overview of financial management strategies.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Different types of management accounting system...............................................................3
P2. Different method of management accounting reporting........................................................4
TASK 2............................................................................................................................................6
P3. Income statements by absorption and marginal costing method...........................................6
TASK 3............................................................................................................................................2
P4. Planning tools in management accounting system................................................................2
TASK 4............................................................................................................................................4
P5. Management accounting systems in solving the financial issues..........................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Management accounting is a systematic process of gathering, reviewing and interpreting
the financial and non financial information in the context of internal decision making of the
organisation (Strauß and Zecher, 2013). In addition, on the basis of this accounting system,
companies make their policies and plan for future activities. In the project report, KEF limited
company is selected that is operated in the manufacture sector. As well as in the project report
different types of management accounting systems and management accounting reporting are
mentioned. Along with different kind of planning tools are also described as well as role of
management accounting systems in the context of financial problem of companies.
Purpose of management accounting- The purpose of this accounting system is to helping to the
managers so that they can take internal decisions as well as can make further policies and plans.
TASK 1.
P1. Different types of management accounting system.
Cost accounting system: It is also refereed as product costing system that helps the firm
to estimate the expenditure incurred on product as well as profitability analyses (Mahesha and
Akash, 2013). It is basically a framework used by KFE limited which is a manufacturing firm to
record its day to day production activity. Such system plays an essential role to track the
inventory flow at the different production stages. Further, this system helps the selected firm to
track the raw material and convert it into finished good within real time. Thus, as the material
passes from one operation to the other cost accounting system helps to update the process via
electronic platform.
Price optimisation system: It is one of the significant kinds of management accounting
system. This is used to determine the price of the product based on the mathematical analyses
that helps to anticipate which price helps to meet the maximum level of profitability. The
response of customer differ with the price as well as channel of distribution so price optimisation
system plays valuable role to sustain the profitability of firm. In relation to KEF limited company
determine the price based on the cost incurred on production as well as response of customer.
Job costing system: This system helps the firm to accumulate overall manufacturing cost
to produce certain output. It can help KEF limited company when the firm produces variety of

item each item has its unique cost and are different from each other. Hence, it include different
types of head which are explained below: Direct material cost: The role of Job costing system is to track the overall cost of
material which is used by the KEF firm to produce the god as well as scrapped material
while performing job.
 Direct labour cost: Job costing system within respected firm is also used to track the the
labour cost during the manufacturing process.
Therefore, job costing system carried the valuable data as well as information that help
KEF limited company to keep a track on its cost.
Process costing system- It is a kind of accounting system which is related to the
computing the cost in different stage of manufacturing process (Leitner, 2013). Due to this
companies can evaluate which activities are consuming high cost. In the aspect of KEF limited
company, this accounting system can be beneficial because on the basis of it, they can calculate
and get the information about different manufacturing activities cost.
P2. Different method of management accounting reporting.
Cost Accounting Report: Cost accounting is a process of keeping records, classification,
allocation, summarizing and analysing the costs associated with particular task or production.
Cost accounting reports are analysis variances between estimated and actual costs in order to
help management in managing and controlling cost and cost related activities. This report
contains summary of all the cost related budgets and costing techniques used by any
organization. KEF Limited prepares cost accounting report because this report helps the
management to improve efficiency and profitability of the company. They are capable to analyse
the productivity of activities, fix the prices, reduction of costs, control over the problems and
making effective decisions with the help of cost accounting reports. It provides reasonable
solutions to the problems in order to achieve the decided goals of the company.
Budget Report: Organizations prepares budgets for specific time period with the help of
estimations (Beske, 2012). Actual outcomes may be vary from the budgeted outcomes. Budget
report is used to analyse the variance between budgeted or standard results and actual results.
These variances may be favourable or adverse in nature. Budget reports provides a efficiency

and effectiveness record of the operations have been done in the organization to the management
of KEF Limited. With help of this report, the management is able to analyse reasons behind
variances. Required remedial steps or controlling procedure are followed by the management for
adverse variances. Management of the firm is also able to find the errors in the structure of
budget or calculation mistakes in the estimations. Budget is also get modified with help of
budget reports by the organization.
Inventory Report: Inventory report is a record of goods or products provided by an
organization for the purpose of sale. Inventory is the major source of revenue in any firm and
effective track record of inventory is must for every organization. An inventory report contains
all information about raw material, work in progress, finished goods available in warehouse and
showrooms, goods sent on delivery or consignment, goods returned by customers, expired or
outdated goods, etc. In KEF Limited, inventory report assists the management to maintain
required stock of raw material for production, degree of WIP and availability of finish goods.
The management is able to resolve queries of customers quickly with the help of this report. By
preparing inventory report, the management saves its time, energy, space and money which can
be used in other productive activities.
Performance Report: Performance report is an analysis of the efficiency and
effectiveness of any activity or person (Mussnig, 2013). This report compares the set
measurements and actual results derived by any individual. Performance report may be prepared
for anyone or anything to understand its productivity or usefulness. Some performance indicators
are mentioned in this report that shows success of efforts done by particular person or activity.
Management of KEF Limited prepares performance report for every major operation and
employee working within the firm. This report is used by the management to set measurements
and benchmarks for employees as well as operations. It assist in managing and controlling
progress and power of the workforce of the firm. This report also provide the assistance in
improving performance or quality of the products which alternatively creates happy customer
base. This statement is helpful in confidently communicating with external stakeholders of the
firm.

TASK 2.
P3. Income statements by absorption and marginal costing method.
Absorption costing method- It is a kind of technique which is related to considering the
fixed cost and variable cost as the unit cost (Trucco, 2015).
Advantage-The main advantage of this costing system is that it consider both the cost as
the product cost.
Disadvantage- The drawback of this costing system is that it consist complexity.
Marginal costing method- It is type of costing technique which consider fixed cost as
period cost and variable cost as product cost.
Comparative evaluation- Both the costs have different from each other. In general terms, the
absorption costing method is suitable for the companies. This is why because it considers both
the costs in an equal manner.
Statement of profit for the period ending June using marginal costing:

Activity Based Costing (ABC): Activity based costing is a method to assign direct and
indirect overheads first to the activity or department which is real cause of that overhead and
then to the activity or product which actually needs that overhead. KEF ltd. which is
loudspeaker manufacturing company may use this method of costing to calculate costs of
different particular products which are originally related to them. This cost accounting method
provides some benefits to the company because it is different from traditional absorption and
marginal costing methods in so many aspects such as:
Absorption costing allot all the fix cost equally while marginal costing only allots
variable overheads to units produced in the firm but ABC method traces the cost centres for
different activities and assigns only that overheads which are related to a particular product.
Life Cycle Costing: Life cycle costing is a method of calculating cost of an asset by the
age of that asset (Chandar, Collier and Miranti, 2012). It includes not only purchase price of the
asset but also other expenses that are necessary to run or operate that asset. This method suggests
KEF ltd. that company should consider installation charges, operational overheads, depreciation
and scrape value for the whole life estimated to evaluate the effective cost of that asset. This
costing technique is different from marginal and absorption costing because:
Traditional absorption and marginal costing methods does not represent a fair value of
assets and estimation and decision making for the future get ineffective while life cycle costing
provides even minor information about expenses and revenue that can be created by the asset
which helps in making decisions accurate and effective.
Target Costing: Target costing is a technique of costing that derives the effective cost of
any product or service by removing the profit margin from the selling price during its life cycle.
It follows a process for reducing and re-evaluating the cost which includes research on
competitive market and customer requirements, creating marketing strategies and customise
products and defining selling price and desired profit. Target costing can assist the KEF ltd. In
achieve productivity and profitability because it has some some moderate features that make it
different and better from absorption and marginal costing which are:
Absorption coating only helps in providing costs allocation to particular units and
marginal costing method only consider previous values and information to allocate various
overheads while target costing assists the organization in deciding selling price and also help in
deriving required profit.
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TASK 3.
P4. Planning tools in management accounting system.
Budgeting: It is a process that involves a systematic plan to disbursement of money. It is
a financial plan of income and expenditure of a certain period of time that shows planned sales
revenue, expenses, assets and resources of the an organisation. KEF manufacturing is using the
budgeting method to identifying the resources and allocation of these activities.
Types of budget:
Short term budget: It is a tool for planning of one month or a year period of time for
administration of income and expanses. It forecasts and estimates the accurate data to helps
management in error detection. KEF uses this budget to know the requirements of fund to
operating day to day activities. For Example cash budget is prepared for short term period to
know the short term capital to dealing with daily expenditure.
Long term: This budget derives a period of three to five years and more and this budgets
includes the matter of senior management to make annual budgets, predetermines the long term
policy and coordinate them with the goal and object of the business. KEF is using the this budget
to determine the long term investment, marketing research, fund requirements for annual
production. For example Production budget.
Sales and promotional Budget: It is a budget that allows fix fund to advertising the
products and goods of a company (Sedevich Fons, 2016). This budget is certain cost associated
to maintaining the brand name. KEF uses this budget to promoting its goods with the help of
digital presentation of the brands. So they can decide the product recognition among the
customer.
Cash Budget: It is projection of estimated summery of cash inflow and outflow over a
particular time of period. KEF is monitoring the cash flow of company by tracking the
records of book of accounts. This budget determine the cash sufficiency in the business, its easy
to make decision for the managers to plan the short term activities with availability of fund. For
example- petty cash is a collection of fund that certain the short term expenditure.
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Budgetary control: It is Internal planning tool of the management accounting that
compare the budget projection and actual data during a specific period of time. It express
checklist of future earning and expenditure of the business. KEF Ltd manager initiate this report
to verify the actual operational activities is matching with this report. Company uses this
reporting to analyse the variances between actual and standard data and make right decision in
business.
Advantage:
It allow to management to conduct business activities with well planned budget control with
effective utilisation of the resources.
Disadvantage:
Its impossible to acquire the budgeted target on estimation basis with rapid changes of tech-
based condition.
Flexible Budget: It is a budget that can adjusted with the alteration of the volume of sales. The
budget cost may vary with sales value.
Advantage:
KEF Ltd uses this budget to handle better situation for the challenges in differenced volume at
production.
Disadvantage:
This budget is little more confusing to figure out the timely changes to manage this budget.
Rolling Budget:
It is constant updated budget to adjoin a new budget period when recent budget period is over. It
is extension model of budget that describes more then one period.
Advantage:
It is based on revised or upgraded budgeting assumption that help to KEF Ltd to revised the long
term plan.
Disadvantage:
It is not producing more result for the organisation then other budget do.
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Zero based budget: It is the budget process process to creating budget from null without using
the prior budget or spending figure (Horton, Wanderley, 2016). KEF Ltd's Manager are build the
budget from ground level explaining every penny they want to spend.
Advantages:
It allocates the resource based on efficiency and requirement rather than on budget history. It
improves the organisation performance and operating efficiency by examining future
expenditures.
Disadvantage:
To implicating a zero based budget require special training to persons that is time consuming and
costly. It may harm the brand image of KEF Ltd as it is require new estimated data.
TASK 4.
P5. Management accounting systems in solving the financial issues.
The management accounting system is helpful in solving the financial issues of different
kind of organisations which are mentioned below:
Public company- Public company is a kind of company that can issue their share in
general public to get the fund. For example the BBC is a British corporation whose ownership is
government. The company is facing the financial issue which is mentioned below:
Financial issue:
Spending more then income- This company is facing the issue of spending more then the
income and due to this their expenditures are increasing.
Solution:
The above mentioned issue can be resolve by applying the cost accounting technique. It
is a kind of technique which helps minimising the overall cost. If they will apply it then their
financial problem will be resolve.
Private company- This is a kind of company that do not issue their share in public as
well as these companies does not owned by the government. Such as the John Lewis is a private
company whose ownership is not under government.
Financial issue-
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Unequal cash flow- This is a kind of issue in which company's cash flow does not match.
In other words cash inflow does not match with the cash outflow.
Solution:
On the basis of their financial issue, they are required to apply the price optimisation
system. This is why because it helps in determining the prices of products and services. If they
will apply this technique their sell will increase as well as revenues will grow that leads to
increasing in cash inflow.
Charities: The charities are kind of organisation who are being operated by group of
person to serve the people without expectation of profit (Ji,2017). Like the Marie Curie
company is a charity organisation who is facing the financial issues.
Financial issue-
Lack of working capital- It is a kind of issue in which company do not have enough cash
to operate their day to day activities. The above company faces the same issue.
Solution-
The company can resolve their issues by reducing their expenses and it can be possible if
they will implement the cost accounting system. It can help in reducing and controlling the
expenses effectively. Thus their issue can be resolved.
Non profit organisation- These are the organisation whose aim to help the poor and
needed people. Their aim is not to earn the profit like other companies. The Oxfam is a non
profit organisation who face different financial issue.
Financial issue-
Lack of fund management- This is a kind of issue in which company gets unable
to manage their funds. Due to this their expenditures increase.
Solution-
This company's financial issue can be manage if they will apply the cost accounting
system. This is why because it can help in managing the costs and incomes separately. So they
can be able to manage their funds easily.
Types of financial issues:
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 Receivables payment period- It is a kind of issue in which company gets unable to
receive the debt amount from the debtors (Moore, 2014). Due to delay company face
many issues.
Solution- This problem can be resolved by the working capital management. In this companies
can manage their liquidity for day to day activities. So due to late receivable of payment
companies will not effect if they will manage their working capital.
 Finance cost and financing option- This is a type of financial in which companies cost
increase due to investing into multi-pal activities.
Solution- The companies can solve their financial issue by deciding the financing option
effectively. It can be done by analysing each and every alternative. After that choosing the best
option.
 Debt vs Equity- Debts are the liabilities for the companies which are needed to be paid.
Equity is the capital which is helpful in paying the debts.
The company pays dividend on the basis of the level of equity which they have.
Investment appraisal- It is a kind of technique which is being used to choose the best investment.
The KEF limited company use the NPV method for choosing the investments. This techniques is
a kind of techniques in which investment is chosen on the basis of difference between the net
cash inflows and outflows.
CONCLUSION
From above project report it can be concluded that management accounting is a
beneficial accounting system for internal management of organisation. In the project report,
different accounting systems such as cost accounting, price optimisation etc. are concluded.
Along with the different accounting reports are also prepared. As well as with the use of
marginal and absorption costing technique income statements are also prepared. Apart from it
advantages and disadvantages of planning tools such as flexible budget, rolling budget are
concluded and in the last part of report use of management accounting system is mentioned in
solving the financial issues.
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REFERENCES
Books and journals:
Strauß, E. and Zecher, C., 2013. Management control systems: a review. Journal of Management
Control. 23(4). pp.233-268.
Mahesha, V. and Akash, S.B., 2013. Management Accounting Benefits: ERP
Environment. SCMS Journal of Indian Management. 10(3).
Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of
Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
Beske, P., 2012. Dynamic capabilities and sustainable supply chain management. International
Journal of Physical Distribution & Logistics Management. 42(4). pp.372-387.
Mussnig, W., 2013. Von der Kostenrechnung zum Management Accounting. Springer-Verlag.
Trucco, S., 2015. Financial accounting: development paths and alignment to management
accounting in the Italian context. Springer.
Chandar, N., Collier, D. and Miranti, P., 2012. Graph standardization and management
accounting at AT&T during the 1920s. Accounting History. 17(1). pp.35-62.
Sedevich Fons, L. A., 2012. Integration of quality cost and accounting practices. The TQM
Journal. 24(4). pp.338-351.
Horton, K. E. and de Araujo Wanderley, C., 2018. Identity conflict and the paradox of embedded
agency in the management accounting profession: adding a new piece to the theoretical
jigsaw. Management Accounting Research. 38. pp.39-50.
Ji, X. D., 2017. Development of accounting and auditing systems in China. Routledge.
Moore, M .H., 2014. Public value accounting: Establishing the philosophical basis. Public
Administration Review. 74(4). pp.465-477.
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