Management Accounting Systems and Financial Performance Report

This report provides a comprehensive analysis of management accounting systems and their applications, focusing on their importance in decision-making and performance evaluation within organizations. The report examines various management accounting systems, including cost accounting, inventory management, and job costing, and explores the significance of financial and non-financial reporting. It delves into the advantages and disadvantages of different planning tools and the methods used to address financial problems. Additionally, the report discusses costing methods like absorption and marginal costing, and their roles in evaluating an organization's net profit. The case studies of Unicorn Grocery and Nero Ltd. are used to illustrate the practical application of these concepts. The report concludes by highlighting the importance of management accounting systems in strategic, performance, and risk management, emphasizing their contribution to improved decision-making and overall organizational success. The report is designed to provide a clear understanding of management accounting principles, their applications, and their impact on financial performance.

Management Accounting
systems and its Applications

Table of Contents
INTRODUCTION...........................................................................................................................3
Section1 ...........................................................................................................................................3
P1. Management accounting and its importance on decision making and performance of
Unicorn Grocery ....................................................................................................................3
P2. Different types of management accounting systems which are used for reporting.........6
P3: Various costing method using evaluating net profit of an organization..........................7
SECTION 2....................................................................................................................................11
PART 1..........................................................................................................................................11
P4: Advantages and disadvantages of using planning tools.................................................11
PART B..........................................................................................................................................12
P5: Various financial problems and measure to resolve those issues..................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
.......................................................................................................................................................14

INTRODUCTION
It is a process which includes the preparation of different reports and accounts which
provides financial and non financial information timely. Such accounting systems have huge
importance for managers to manage their day to day operations and effectively take their short
term decisions. It is totally different from financial accounting which includes the preparation of
annual reports for external stakeholders. On other hand, management accounting systems
provides the reports for internal stakeholders of organisation to improve their performance and
enhance their decision making power. Such accounts and reports helps in strategic, performance
and risk management (Nerger and et. al., 2015).
Present report is segmented into parts section one and two. Section one includes
description of different management accounting systems and reports and their importance for
organisation. Also, about the use of absorption and marginal costing techniques in preparation of
profit and loss account. Unicorn Grocery is medium size organisation which is located in
England. Under, section two Nero Ltd. Is software organisation known for its CD/DVD etc. Here

describe about, different planning tools and their advantages and disadvantages and accounting
methods which helps to deal with financial problems.
Section1
P1. Management accounting and its importance on decision making and performance of Unicorn
Grocery
Management accounting: It includes the use of provisions of accounting which helps in
preparation of different accounts and reports which enhance the decision making power of
internal management of organisation. Large numbers of aids is provided by such systems like
appraisal of current performance, planning, monitoring, controlling etc. All such functions helps
in accomplishment of the organisational targets.
Different accounting reports which provides financial and non financial information are
job cost report, accounts receivable report, inventory management report etc. All such
accounting systems helps in improvement of understanding among all the department of
organisation. It provides chance in front of the management to grab future opportunities. The
requirement behind the implementation of such accounting systems is strategic, performance and
risk management.
Importance of management accounting
There are large number of benefits which are derived by the management of organisation
through implementation of accounting and reporting systems. It helps in improvement of
decision making and overall performance of organisation. Some other importance of these
systems are mentioned below:
 Determination of Aim: Different accounting methods provides the information
regarding the function of different departments. It provides the opportunity regarding
determination of targets and goals for different departments. It helps in providence of
direction to their employees and improves their performance (Onyon, Stannard and
Ridgard, Synchronoss Technologies 2014).
 Preparation of Plan: Success of organisation is depends upon continuous planning
about the future actions. Application of these system helps in anticipation of issues on the
basis of past performance. Such information is used to make future strategies and plans
regarding removal of such problems.

 Measurement of performance: Use of accounting method like budgetary control and
standard costing helps in measurement of the performance of different departments and
organisation. Standard costing helps in determination of standard cost and control actual
cost which is incurred by organisation. It contributes in identification of deviations and
issues. Other method which is used, budgetary control which helps in measurement of the
performance of each and every employee of organisation.
 Increase in efficiency: Providence of goals and targets for each and every employee of
organisation helps in improvement of the performance of overall organisation. It helps in
comparison of actual performance of employees as per such goals and provide solutions
in removal of such deviations.
Difference between management and financial accounting
Management Accounting Financial Accounting
Such accounts and reports and made for
internal parties to enhance their decision
making and performance.
Under this accounting annual reports are
prepared for external stakeholders to provide
the information regarding performance of
organisation
Such reports are prepared for future time
period and helps in planning, monitoring and
controlling
These reports are prepared on the basis of
historical data
It helps in measurement of financial and
operational performance
It helps only helps in measurement of financial
data
Such reports are based on the specific areas of
business which helps in development of the
different departments of organisation.
These reports depicts the information about
overall financial performance of organisation.
Types of accounting system
There are many types of accounting systems which are implemented by the management
of Unicorn Grocery. Different accounting systems have their different functions in an
organisation. Such different accounting methods are named as cost accounting system, inventory

management system, price optimisation, job costing system etc. Importance and functions of
such different accounting methods are mentioned below:
 Price optimisation: It is effective system which helps in identification of the perception
of customers regarding the prices which are changed by organisation for their different
products. Further, such information is used regarding optimisation of price for different
concepts like operating cost, stock and historical value and sales.
 Cost accounting system: It is effective accounting system which helps in determination
of total cost which is incurred by organisation during production of their products. It
helps in reduction of inappropriate costs and expenses to improve their profitability. It
provides the opportunity to become cost efficient (Simkin, Norman and Rose, 2014).
 Inventory management system: It includes the process of oversight of assets and stocks
of organisation. This system helps in effective management of inventories in organisation
and allocation to different departments. EOQ and ABC is effective inventory control
techniques which provides the information regarding time period when need to give order
for stock.
 Job costing system: This system is used regarding identification of the cost which is
incurred in performance of particular job in organisation. It provides opportunity
regarding effective allocation of direct material and labour. It is most useful method for
such organisation which manufactures different kind of products.
P2. Different types of management accounting systems which are used for reporting
Reports: Reports are considered as document which contains the information regarding
different aspects in graphic, tabular form, periodic, recurring, regular basis. Such reports are
prepared for specific period of time, events, occurrences or subjects which helps in
communication of information in oral and written form. Unicorn Grocery uses such report
regarding collection of information from various departments. The different sources which are
used for collection of information are investing, financial, operational etc. Such reports provides
the information to the internal and external parties of organisation and improves their decision
making. The different reports which are prepared by organisation are performance report,
Accounts receivable report, Inventory management report, operational budget report etc.
One of the crucial report which provides the financial information is profit and loss
account. This report provides the information regarding income and loss incurred by organisation

during given financial period. It helps in minimisation of expenses which are not relevant for
business functions. There is large importance of such reports in preparation of the budgets and
standards which provides direction to employees.
Importance of reporting systems
Such reporting system helps to gather the trust and confidence of internal and stake
holders. Good relation with employees and clients helps in accomplishment of their different
objectives. The major benefits which are derived by organisation are defined below:
 Improved decision making: Different reports provides various information regarding,
debtors, creditors, income, expenses etc. Such collected information is further used by the
management to take appropriate decisions which helps in improvement of the
performance (Smith, 2017).
 Reduction of loss: Reports are also used for anticipation of future issues and losses
which helps in development of contingent provisions. Such provisions helps to bear the
losses and improve their profitability.
 Large financial returns: Reporting provides the information regarding the lack of skills
and knowledge among the employees. It also provides the information regarding the
issues which present at workplace and negatively effects their working. It contributes in
development of effective training programmes which improves their skills and
performance. Ultimately, it has positive impact upon the overall financial performance of
organisation.
Different types of reporting
Different types of reporting systems and their function in Unicorn grocery is defined
below:
 Performance report: The major function of this report is to provide the actual position
of organisation in market. Past information of company is compared with actual
performance which helps in determination of current situation. It helps to understand the
actual trends which are persist in market and optimum utilisation of resources.
 Inventory management report: There is huge importance of this report in optimum
utilisation of resources. This system helps in maintenance of sufficient amount of stock in
organisation. EOQ is the effective method which helps in maintaining the effective
records of stock (Stair and Reynolds, 2013).

 Accounts receivable report: It is important report which depicts the information
regarding the amount which is due from debtors. It helps in formulation of effective
policies and credit strategies which contributes in recovery of amount within stipulated
period of time. It helps in effective management of debtors.
 Operational budget report: It helps in identification of the expenses which are incurred
by organisation in production of their particular products. Estimation of profitability ratio
is done in easy manner regarding their future operations.
P3: Various costing method using evaluating net profit of an organization
During the time of production the main aspects which a company need to be taken into
consideration is about the total cost. Because it is the one that can increase maximum burden
over the company. For the purpose of buying valuable resources costs is more effective aspects.
It is the amount of money invested by the company in order to get something. These costs can be
applicable to make payment of various things such as labour, raw material and other overhead
expenses. The main objectives of company's like Unicorn grocery in order to increase efficiency
of an organisation as well as every department those are working for the same motive. It is the
primary motive of managers to make proper analyses of total costs and expenses those are
invested by an organisation over the production of an additional units. These are making huge
impacts on the cash flows generated during the period of time. These costs are required to be
manage and control in order to enhance productivity of an organisation (Bennett and James,
2017).
These costs are required to be control in more quick time because it would create
maximum burden over the company as well as customers. They would not be able to buy if these
costs are more from their budgets. This will leads to face adverse impacts over the productivity
and reputation of at the same time. In respects of facing any critical situation, managers needs to
measure company's cash flows statements in order to reduce extra costs during the time. For this
purpose, there are various types of costing methods which can helpful in analysing total net
profitability of the company. Some of them are mentioned underneath:
Absorption costing: It is related with that costs which is charged over the all
manufacturing factors. These costs would consists of both variable and fixed costs either directly
of indirectly (Galliers and Leidner, 2014). It influence every costs that makes huge impacts on

the products. These are generally those costs which is applicable in the production of closing
units of direct labour, material and overhead expenses.
Marginal costs: These said to be that costs those are incurred by the company with the
production of one additional units. It does not considered fixed costs but only variable costs of
are taken into account. These costs does not use fixed costs because of which these are known as
period costs.
Comparison:
Absorption costing Marginal costing
In this particular costing method all
manufacturing related costs are utilised under
this.
Under this costing, only those costs to
inventory's are incurred were single units are
developed.
During the production of products, both fixed
and variable costs are taken in consideration.
In order to evaluate stock of the company by
using only variable costs.
The profitability would happens to be low by
using effective costing systems.
From each units of sales profits can be appear
at higher costs.
Gross margin is calculated in respect to
evaluated total profitability of the company.
To determine contribution margin net
profitability can be determine.
This costing techniques is not useful for
decision making.
Marginal costs are more effectively helpful in
future decision.
Statement of profit and loss using marginal costing
Quarter 1
No. Of units ￡/unit ￡ ￡
Sales value 66000 1 66000
Cost of sales
Opening inventory 0 0.65 0
Add: Production 78000 0.65 50700
50700
Less: closing inventory 12000 0.65 -7800 -42900

Contribution 23100
Less: fixed costs -16000
Less: selling
&administration -5200
Profit 1900
Quarter 2
No. Of units ￡/unit ￡ ￡
Sales 74000 1 74000
Cost of sales
Opening inventory 12000 0.65 7800
Add: Production 66000 0.65 42900
50700
Less: closing inventory 4000 0.65 2600 -48100
Contribution 25900
Less:Fixed costs -1600
Less: selling
&administration -5200
Profit 4700
Statement of profit and
loss using absorption
costing
Quarter 1
No. Of units ￡/unit ￡ ￡
Sales value 66000 1 66000
Less: Cost of sales
Less: Opening inventory 0 0.85 0
Add: Production 78000 0.85 66300
Less: closing inventory -12000 0.85 -10200 -56100
Gross profit 9900

Expenses
Selling &Administration
costs -5200
Profit 4700
Less: Under absorption -2800
Profit reconciled 1900
Quarter2
No. Of units ￡/unit ￡ ￡
Sales value 74000 1 74000
Cost of sales
Opening inventory 12000 0.85 10200
Add: Production 66000 0.85 56100
66300
Less: closing inventory -4000 0.85 -3400 -62900
Gross profit 11100
Expenses
Selling &Administration
costs -5200
Profit 5900
(b): Analysing variations in the gains
From the above computation of net profits, it has been seen that both the costing
techniques are delivering separate difference. These will be arises because of fixed costs
adjustments (Haimes, 2015). The same would be mentioned underneath:
In the Initial quarters:
Overhead Absorbed: 66000*0.20 = 13,200
Fixed cost= 16,000
Under absorption: 2,800.
For 2nd quarter:

Total Absorption expenditure: 74000*0.20= 14,800
FC= 16000
Absorption = -1200
c): Reconciliation statements
It would be done by analysing crucial differences those are arises in a project plan those
are helpful in reducing impacts over the company.
Particular Q1 Q2
Profit under absorption 4700 5900
Profits under marginal 1900 4700
Total -2800 -1200
SECTION 2
PART 1
P4: Advantages and disadvantages of using planning tools
It has been seen that planning is the utmost important aspects of every business
organisation. They used to make arrangement of vital requirements that are helpful in order to
evaluate core activities of any particular areas of Nero Ltd. In relation to this, manager required
to determine various statements that are generally helpful in generating positive results for the
company (Holsapple, 2013). Every long and short-term problems can easily be determine by
using appropriate techniques and tools those are related with budgetary planning. For this
purpose, managers uses to prepare budget in accordance to manage the costs and expenditure
that are going to be incurred during the period of time. It would be examine as those activity
which is perform for the purpose of increasing maximum profit and return.
A budget is known as perfect estimation of company's total costs and expenses those are
going to be incurred during the time of production process. There are some specific factors that
are affecting the performance of company's performance and guide to make appropriate decision-
making. This would be operating at the most crucial ways to attain every possible task that are
been set by firms. In this context, there are various planning tools those are associated with the
betterment of an organisation (Hoye and et. al., 2015). Some of them are discuss underneath: