Management Accounting Concepts, Techniques, and Financial Reporting

This report analyzes management accounting concepts and techniques, focusing on their application in decision-making, particularly within the context of Connect Catering services. It covers various management accounting systems, including price optimization, inventory management, job costing, and cost accounting, outlining their essential requirements and benefits. The report explains different management accounting reporting methods, such as inventory management reports and performance reports, and integrates these with the accounting systems. It delves into specific accounting techniques like marginal and absorption costing, providing examples of income statements. Additionally, the report explores planning tools in management accounting, evaluating their use in forecasting and budgeting, and addresses how management accounting systems can adapt to and resolve financial problems within an organization. The report also includes calculations for break-even points, margin of safety and cost analysis.

Management Accounting
Concepts and Techniques
for Decision Makers

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Essential requirements of different types of management accounting systems....................1
P2: Explain different methods used for management accounting reporting...............................2
M1 Benefits of management accounting systems.......................................................................3
D1 Integration of management accounting system and reporting process.................................4
TASK 2............................................................................................................................................4
P3: Range of management accounting techniques......................................................................4
M2 Application of range of management accounting techniques to prepare financial reports...9
D2 Financial reports to apply and interpret data for a range of business activities..................10
TASK 3..........................................................................................................................................10
P4: Explaining the use of planning tools in management accounting......................................10
Evaluate different planning tools and implement at the time of developing forecasting budgets
...................................................................................................................................................12
TASK 4..........................................................................................................................................12
P5: Adapting management accounting systems to respond to financial problems...................12
Analysis of the way in which management accounting can help organisation to lead
sustainable success....................................................................................................................14
Use different planning tools to resolve financial problems of the organization.......................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is defined different concepts and methods that require for
effective planning and selecting from among alternative business activities. It is important aspect
which is used for formulation and application of strategy in the context of organisation success
(Abernethy and Wallis, 2019). This report based on Pearl chartered accountant which is UK's
best accountancy firm. It is providing consultancy services to different types of customers in
regard of accounting tax and growth strategies. A new client Connect Catering services has
approached to firm to advise on the introduction of management accounting system. In this
report consist of various kinds of management accounting systems and their essential
requirements. Along with calculate cost of company by absorption and marginal costing. At the
end of the report define different types of financial problems of company that respond by
management accounting systems.
TASK 1
P1: Essential requirements of different types of management accounting systems
Management Accounting: It is a accounting method that used by the every type of
entity to analysis their strategies and apply as per the requirement. This method supports in
decision making procedure and enhance profitability in positive manner. Through this method
concentrate on financial as well as non financial information for different activities.
Management accounting system: This system is utilised by the business entity to
determine the actual performance of business entity. It provides directions to all internal
stakeholders to analysis profitability of business that supports to increase performance of whole
business. In Connect catering service, managers use this system to track each department
information and analysis future challenges. There are defined different types of MA system in
the context of Connect catering service (Atrill and Lindley,eds., 2019).
Price optimization system: It is most important system which is used by the business
entity to set effective price structure of each product so it helps to attract large number of
customers in regard business activities. Such as, Connect Catering used this system to set menu
and mention price of each food product as per the requirement. The management of company
conduct research about other restaurants and determine their food items prices. Accordingly
company set price of their food product to it helps to attract more customers. As a result they try
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to accomplish long term business objective like profit as well as sales maximisation. This system
is essential require to set effective price structure and determine the response of clients on
different prices.
Inventory management system: It is most important system which is used by the
manufacturing organisation to track raw material at different stages. Through this system
analysis inventory process at each level and proper utilise of resources as per the manufacturing
procedure. The essential requirement of this system to checking and determining of entire
business supply chain, buying to production to end sales activities. As a result it helps in
effective decision making procedure (Babajani,Barzideh and Khonaka, 2018).
Job costing system: Every organisation conduct various activities that analysis by the job
order costing system. This system utilised by business to categorised different task after that
track the record of business procedure. In connect Catering manager use this system to operating
various activities as per the specification of various customers. It is essential for business in order
to direct management in regard of price product and job separately. With the help of this
manager can determine profitability and recognise specific job that are not beneficial for entity
so higher profits could be generated in future.
Cost Accounting system: It is a type of management accounting system which is using
by the entity for predication of costs of items and service occur in entity. Such as, Connect
catering service use this system to calculate actual cost of each cost after the manufacturing then
add profitability for generating profitability. The essential requirement of the system to
determine cost of each item and estimate future activities accordingly.
P2: Explain different methods used for management accounting reporting
Management accounting reports: It is a document that prepared by the organisation to
record different activities of various department. Along with it helps to determine financial
information and operations that helps in decision making procedure. Such as, Connect Catering
service prepare such reports to maintain good performance and enhance profitability of business.
In the context of Connect Catering prepare different types of management report to present every
department depth information in proper manner. On the basis of these reports company take right
decision (Babajani, Barzideh and Khonaka, 2018).
Inventory management reports: Such kind of report prepared by the business entity to
record all the raw material usage because it helps to production department to supply all
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materials on time. Along with it is keeping eyes on the utilisation of raw materials to conduct
different business operations. It is beneficial for the business to determine the status of stock in
factory whether it is in transit or in warehouse. This report prepare by the Connect Catering
service to record all food ingredients require to baking food and supply on time to clients without
any delay.
Accounts receivable agin report: It is a periodic report that classified into organisation's
accounts receivable as per the length of time an invoice has been outstanding. Connect catering
service is used this report to analysis of financial health or organisation's clients. In this report
presents how many collection require to collected slower than normal (Bedford and Speklé,
2018).
Performance report: Most of the organisations can use this report to analysis the
performance of business and employees in proper manner. It is beneficial for business to
measure the performance each employee and provide them task as per the ability. Along with it
helps to achieve business their set goals and objectives in particular period of time. Moreover, it
is utilised for market image and image of business.
Budget Report: This report prepare by every type of business entity in order to forecast
and estimate future conditions. In this report mention all the expenses and income that face by
the company in future and help to analysis future targets. Connect Catering service prepare this
report for senior manager to present estimated budget that helps in investment decision making
procedure.
M1 Benefits of management accounting systems
There are discussing various kinds of management accounting systems which are used by
Connect Catering services in order to carry out benefits of each system that are mentioned
below:
System Uses Benefits
Cost accounting
system
This system uses by the company
to analysis cost of different
products that sale out by the
organization.
It it beneficial for Connect
Catering to analysis the actual
cost and calculate actual
profitability of business.
Inventory
management system
It is utilized by business entity to
analysis all the records of
This system beneficial for entity
to track stock at different stages
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inventory that used at
manufacturing procedure.
and understand how much stock
require for manufacturing
different products.
Job costing system It is using to determine cost of
each job that conduct in different
task and present all business
activities (Eaton, Grenier and
Layman, 2019).
This system advantageous for
entity to determine cost of jobs
which are presenting as per the
description of clients.
Price optimization
system It helps to set a particular price
structure of different products that
sale out by the entity.
It is mot beneficial system for
Connect Catering because it
supports manager to meet
expectations and set price after
the proper research in market.
D1 Integration of management accounting system and reporting process
In Connect Catering service prepare different types of systems as well as reports to
analysis actual position of the business at market place. Company prepare price optimization
system to set price of all the products that sell out by the business. On the other side prepare
performance report in which define the performance of business entity in proper manner and take
right decision for the growth and development in proper manner.
TASK 2
P3: Range of management accounting techniques
Marginal costing: This method is applied by the business to assess marginal cost and
focus on the variable and fixed cost of business entity. For the calculation of costing consist of
direct material, labour and expenditure which is variable part of overheads that focus on time of
calculation. For the preparation of income statement in Connect catering service use this method
for right decision making (Heinicke, 2018).
Absorption costing: It is a costing method which is covering direct material, labour and
fixed as well as variable overhead which is part of manufacturing cost. It is most important
method that utilise by the inventory in large manner and covers fixed and variable cost.
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Preparation of income statements:
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Fixed Manufacturing Overhead per unit 6 5
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Income statement under absorption costing
Particulars April may
Sales 16000 16000
Less: Cost of sales (2000*10) (2000*9) 20000 18000
Fixed Manufacturing Overhead 15000 15000
Variable Manufacturing cost (2500*4) (3000*4) 10000 12000
Closing stock (500*10) (1500*9) 5000 13500
Opening stock (500*9) 0 5000
Gross loss -4000 -2000
Less: Fixed Non-Manufacturing Cost -4000 -4000
Net loss -8000 -6000
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Particulars April May
Sales 16000 16000
Less: Marginal cost of sales 8000 8000
Variable Manufacturing cost (2500*4) (3000*4) 10000 12000
Closing stock (500*4) (1500*4) 2000 6000
Opening stock 0 2000
Contribution 8000 8000
Less: Fixed Manufacturing Overhead 15000 15000
Less: Fixed Non-Manufacturing Cost 4000 4000
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Net loss -11000 -13500
Reconciliation statement:
Particulars April May
Net loss under absorption costing -8000 -6000
Less: Closing stock -3000 -7500
Net loss under marginal costing -11000 -13500
Working Notes
Marginal Cost of sales
Particulars April may
Opening Inventory 0 500
Add: Cost of production 10000 12000
Less: Closing inventory 2000 6000
8000 8000
2 a)
1. Fixed and variable costs
Fixed costs:
Activity Amount
Manager’s Salary 5000
Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000
£12000
Variable cost:
Activity Amount
Direct material costs per Pizza 3.50
Direct labour costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£5.50
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2. Break-even point in units and in sales value
BEP (In units): Fixed cost/contribution per unit
Contribution per unit: Selling Price-Variable cost per unit
= 9.50-5.50
= 4.00
BEP: 12000/4
= 3000 Units
BEP (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/selling price*100
= 4/9.50*100
= 42.10%
BEP (In revenues) = 12000/42.10%
= £ 28503
4. Margin of Safety at sales of 3500 Pizzas
Margin of safety= Sales units - BEP in Units
= 3500-3000
= 500 Units
5. Effect on BEP in units and in sales value, in case of increase in manager's salary to
£6,000
If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New BEP (In units): 13000/4
3250 Units
New BEP (In revenues): 13000/42.10%
= £30878
2 b Preparation of graph:
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
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Total Fixed CostCompanies prepare cost
budget which is used to find variance in
actual cost incurred and budgeted target. Cost
budgets shall be flexible enough to
incorporate changes in targets as and when
they arise.
12000
BEP point 28503
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M2 Application of range of management accounting techniques to prepare financial reports
The manager of the Connect catering use different methods for the costing to create
income statement in appropriate manner. All of them are as follow:
 Standard costing: This method is utilised for analysis differences between standard and
actual cost of business entity. If business entity is facing higher standard cost in compare
of actual cost after that outcomes consider in favourable manner. On the other side actual
figures are more then budgeted so it will consider in adverse manner in an entity (Hoque,
2018).
 Normal Costing: It is utilised for deviation of the cost. All the productions cost are
considering on real value. According to this method Predict value of labour, material and
overheads are recorded in the accounting books.
 Historical costing: This technique presents that all the assets and liabilities are utilised
by the organisation at historical cost and recorded in original cost in the accounting books
of connect catering service. With the help of such costing technique compare actual and
market value and presents actual position of business in front of managers.
D2 Financial reports to apply and interpret data for a range of business activities
As per the above calculation it is analysing that from the Absorption and marginal costing
method get different results. According to absorption get 8000 and 11000 loss in the month of
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