Management Accounting Project: Analysis of Costing Systems & Reports

This project report delves into the realm of management accounting, focusing on its application within a medium-sized UK manufacturing company, Roberts Metal Packaging. The report explores various aspects of management accounting, including cost accounting systems, job costing, and inventory management, highlighting their essential requirements and benefits. It examines different methods for management accounting reporting, such as budget reports, account receivable reports, cost managerial accounting reports, and performance reports, detailing their advantages and applicability within an organization. The report further evaluates the integration of management accounting systems and reporting within organizational processes, emphasizing the interrelation between cost accounting and budget reports. The project also includes calculations and analysis of financial statements within variable costing, as well as marginal and absorption costing under income statements, providing a comprehensive overview of management accounting practices and their impact on business decision-making.

PROJECT

TABLE OF CONTENTS
TABLE OF CONTENTS.................................................................................................................1
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
Part 1...........................................................................................................................................2
Part 2...........................................................................................................................................7
TASK 2............................................................................................................................................8
Part 1...........................................................................................................................................8
Part 2...........................................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
1

INTRODUCTION
Management accounting is a tool of accounting which is prepared for the internal users
for executing critical decision making in business (Dyckman and Zeff, 2015). This report will lay
focus on medium sized manufacturing company of UK which is Roberts Metal Packaging. This
company provides metal packaging such as aluminium jars, lids, bottles, screw tops to clients of
Fast moving consumer goods. Roberts Metal Packaging employs 75 employees in their company
which holds plant of 30,000 square foot. This report will lay emphasis on management
accounting and essential requirement of management accounting of certain types like cost
account system, job costing system, etc.
The report will determine about methods which will be use by management accounting
reporting. These reports depict performance of company and their operations like budget report,
cost managerial accounting report, etc. Benefits of different system of management accounting
and their applicability in context of organisation will also be discussed. The evaluation of
management accounting system and management accounting reporting will be elaborated in this
report for integration of organisational process. Three different planning tools will be focused
which is used in management accounting. Portfolio of calculation along with financial
statements within variable costing will be calculated in this report. Marginal and absorption
costing under income statement will be disclose in the report.
TASK 1
Part 1
A. About management accounting and their essential requirements of different types of
management accounting.
Management accounting – The accounts prepared under management accounting is for
providing help to internal management of a company to analyse financial statements which
further assist them in executing decision making for a longer period in business (Parker and
Northcott, 2016). This concept enables effective planning for selecting the best alternative
activities for an organisation. Management accounting not only helps in decision making process
but also they help in controlling activities and performance evaluation.
Financial accounting – The financial accounting is different from management
accounting because it is prepared for the purpose of satisfying interest of external users like
2

creditors, shareholders, etc (Correa and Larrinaga, 2015). The concept of financial accounting is
an accounting branch which track transactions of business.
The different types of management accounting system and their essential requirements
will be expressed as follows :
Cost accounting system – The cost accounting system is adopted by many firms in order
to estimate their products cost and profitability. This system assists companies by making track
of their raw materials till they are converted into finished goods. The company Roberts Metal
Packaging also used this accounting system to analyse their cost of inventories as well as
profitability. Also, the Roberts Metal Packaging company by executing accounting entry from
the beginning of purchasing of raw material till final production. Company in order to aligning
cost accounting credits immediately purchase of raw material and debit goods in progress. There
are certain types of cost which considers in cost accounting system. They are :
Direct cost is related with production of products and services in a company. Along with
it, this cost includes all the labour cost as well as distribution cost within it as these cost are
highly associated with production process (Nakajima, Kimura and Wagner, 2015). Also,
production cost is considers in this accounting system. The another cost which is considers in
cost accounting system is accounting standard cost. This cost is evaluated by figuring out the
difference within budgeted and actual cost. This cost compares estimated performance of a
business with the planned ones. The variance observed under this cost is the difference which
need to be cover for equating actual with budgeted.
Inventory management system – This system uses supply chain of business as a tracking
element. In inventory management system all the activities which are part of inventories are
included such as warehousing, shipping, retail, production, etc. Inventory management system
enables supervision of stock and inventories. They use three methods for the management of
inventory which is FIFO, LIFO and Weighted Average. The acronym of FIFO is First in first
out. As the name suggest, the inventories of business is valued at very first inventory and
recorded first. Like wise, LIFO is Last in first out (Farrell and Gallagher, 2015) . This method
of inventory management is concerned with last inventory which is arrived at company is to be
valued and recorded at first while Weighted average method is different from all. This includes
average production cost in which they assume valuation of inventories simultaneously.
3

Job costing systems – The method of job costing is a procedure which is followed at the
time of information accumulation. The production cost along with cost of service is associated
with this system. The direct labour, direct material and overhead are kinds in which job costing
system can be executed in business entity. This system brings accuracy within business to
estimate system of company.
Thus, all this management accounting system is essential for the smooth functioning of
the company.
B. Different methods for management accounting reporting.
The management accounting reports are generated through period of book keeping and
accounting. These reports are use for regulating, planning, performance measurement and
decision making. By the help of these report, the managers in the company able to highlight
certain pattern and also convert them in useful information. The methods in which management
accounting reports is prepared are budget report, account receivable report, cost managerial
accounting report and performance report.
Budget report – This kind of reports are essential for every business entity as it assists
them in measuring their performance. Different department within a company prepared this
report individually to manage their activities and investment. This helps them in managing
functions of different department in a particular manner with aligned budget. The budget report
is helpful in an organisation for comparison and performing according to planned budget. Also,
the businesses by identifying the variance takes corrective measures for eliminate deviations
within it. Along with it, this budget also considers expenses and income in accordance with
budget prepared. This report is useful for internal interest users of business like owners,
employees, managers, etc. because they are responsible for investment and other operating
expenses within businesses.
Some advantages of budget report in context of business entity are as follows :
 This report enables investors to decide about their investment which is wholly based on
performance of business.
 The budget report provides aid in executing corrective actions for the deviations.
 Budget report is a tool which is used to measure business financial performance. Also, it is helpful in ascertaining risk in organisation and also prepare the company for
any future financial uncertainty.
4

Account receivable report – The report of account receivable relies on credit extension
within businesses. The credit amount offer to customers for a specific time given to customer’s
is recorded in account receivable report. This provide assist to managers of company to identify
defaulters which can increase their balance amount which they offer on credit. Defaulters are
those which have the least possibility of repayment of amount for the product they purchased.
The account receivable report is helpful for business personnel in ascertaining defaulters for the
adaption in their credit policy (Ahmad, 2017). Also, this report provides aid to managers in
changing existing credit policies and reform new ones by comprehending the whole report.
Benefits which account receivable report offers are as follows :
 The account receivable report helps managers in determining period of collection from
creditors.
 Also, the internal users of company is able to make decisions regarding credit extension
for making changes in different strategies. This report is helpful in company to decide the appropriate credit policy and mode of
restructuring for them.
Cost managerial accounting report – This report is associated with cost of raw materials,
labour, overheads, and any other additional cost. The cost managerial accounting report provide
capacity of cost price realisation with that of selling price. Under this report, the margins of cost
are estimated and monitored by depicted a clear picture which went into procurement of
company. This report provides an exact comprehension on expenses which is important for
optimization in better way for the resources in all the department.
Some advantages of cost managerial report will be depicted as :
 This report enables control among cost of products and services in efficient and effective
manner. The cost managerial accounting report help company in evaluating income as well as
expense of company by taking actions which lead to business development and growth.
Performance report – This report is appropriate for company in analysis and
reassessment of performance of company. The members of staff working in company be a part of
appraisals and promotions according to proper analysis of this report by department head. This
report is mainly prepared in large organisation because it is not possible for managers to measure
performance of every staff member verbally. So, they prepare report to analyse their
5

performance along with it the strengths and areas of improvement is also measured with an ease
under this report. Thus, this report is helpful for both businesses purpose as well as individual
purpose. The higher authority provide guidance to employees on initial stage of project in order
to foster them to perform their best.
The performance report is helpful in providing various benefits which are as follows :
 This report is helpful for individual growth and development of employees as they are
guided by their superior by analysing weaknesses through report.
 The performance under this report is measured by actual with planned which help them in
taking corrective measures to attain success and organisational goal.
C. The benefits of different management accounting system and their application in context
of business.
Benefits and application of different management accounting system in context of
organisation are as follows :
Cost accounting system – The cost accounting system enables company like Roberts
Metal Packaging to measure and improve their performance by ascertaining cost and decline
amount of wastage. Along with it, cost accounting provide guidance to management of Roberts
Metal to deriving production cost for which they able to execute decisions regarding use of
labour or machinery for their production of metal packaging.
Inventory management system – This system is helpful in achievement of productivity
and efficiency in operations (Langfield - Smith and et.al., 2017). Company Roberts Metal
Packaging by adopting this inventory system is able to save their time as well as money by
tracking on products and services company rendered to their customer’s.
Job costing systems – For Roberts Metal Packaging this system found very profitable
because by job costing system company is able to estimate the similar cost job which will be
taken in the future. The efficiency of plant of metal packaging also regulated by attention at the
cost which is related to job of individual. Along with it, by this system company is able to
analyse in detail about labour, overhead and material for each job.
D. Evaluation of management accounting system and reporting which is integrated in
process of organisation.
Management accounting system focus on preparation of financial information of
company for internal and or confidential purpose which is used by managers which enhances
6

their decision making ability whereas management accounting reporting is helpful to monitor
business performance. These reports are prepared on frequent basis as and when needed. The
managerial reports and management accounting system are inter - related .
Cost accounting system is followed under Roberts Metal Packaging company in which
they able to ascertain their cost of product as well as profitability. But for determining the cost a
budget is prepared from budget report in production department for which the company able to
determine their allocation of amount (Krishnan, 2015). Any deviation in budget report lead to
disbursement of this accounting system. Thus, cost accounting system and budget report is inter -
related. Like wise, inventory management is system is related with budget report and cost
managerial accounting report. As it includes cost of labour, raw material, etc. which enhances
overall cost. This influences not only pre set budget but also inventory management system
affects with it as they both are concerned on tracking of productivity and profitability of
company Roberts Metal Packaging.
Part 2
Analyse different planning tools which is used in management accounting.
The different planning tools which is adopting in management accounting as ass follows :
Activity based costing – This method of costing is assigns to indirect cost activities and
products which is based on usage of activities on each products. It identifies activities which
generates and assigns costs to activities. Costing based on activity is observed a more accurate
method of product and service costing and helps the company to take pricing decisions more
effectively. This method enables challenge operating cost to better way of eliminating and
allocating overheads. This method is also helpful in improvement of customer’s and products in
analysing profitability. Also, it provides support to techniques of performance management.
The activity based costing depicts an accurate information as company Roberts Metal
Packaging able to determine activities and cost of activity. It helps the company in identify their
cost of activities. This method help marketing personnel in providing accurate cost of products
for decisions about price and also the products which are not profitable eliminates.
Benchmarking – The benchmarking method is a measurement of internal performance
and process of organisation and lays a comparison with related and comparative companies
(Saleem Salem Alzoubi, 2016). The managers of a company compares performance of their
products with that of products of external rivalry firms. The company operates this method to
7

improve their performance and incorporation of best practises into their business through
innovation.
The company Roberts Metal Packaging use this method for improve their operational
efficiency and product efficiency. Also, the benchmarking enables company to reveal their cost
position and opportunities for the improvement. In addition to this, benchmarking also bring new
ideas in the business and enables sharing of experience.
Break even analysis – This is a technique which is widely adopted by management
accounting and production department. The break even analysis relies between variable cost and
fixed cost. The fixed cost is not directly associated with production or output level. This means
that even at zero output the fixed cost remains same while variable cost changes with level of
production. When there is break even point, the revenue is equal to summation of variable cost
and fixed cost.
TASK 2
Part 1
Absorption costing
The absorption costing is a cost which is associated with process of production and
apportioning them towards individual products. This is a cost ascertaining technique in which
both the fixed and variable cost are charged. This cost comprises addition of overhead cost in
direct cost. Also, the fixed cost is absorbed under unit cost.
Particulars May
J
u
n
e
Sales 400000 10.5 4200000 360000 10.5 3780000
Less: COGS (refer
working note 1) 1900000 1710000
GP or NP 2300000 2070000
Marginal costing
It is a procedure which is used in measuring, preparing, analysing and communicating
management information in adopting evaluation, planning and controlling of business. An
8

additional unit to the cost of production represents marginal cost (Arnaboldi, Busco and
Cuganesan, 2017). Also, this is a powerful technique which provide assist in decision making of
businesses. This cost is helpful for companies for setting price and compare various methods of
production.
Particulars May
Sales 400000 10.5 4200000 360000 10.5 3780000
Less: COGS (refer working note
2) 1300000 1170000
Contribution 2900000 2610000
Less: fixed overhead cost 600000 600000
Net profit 2300000 2010000
Working notes related to cost of goods sold
1. Absorption costing
Particulars May
Opening stock 0 0 0 0 0 0
Add: purchases 400000 4.75 1900000 400000 4.75 1900000
Less: Closing stock 0 0 0 40000 4.75 190000
COGS 1900000 1710000
2. Marginal costing
Particulars May
Opening stock 0 0 0 0 0 0
Add: purchases 400000 3.25 1300000 400000 3.25 1300000
Less: Closing stock 0 0 0 40000 3.25 130000
COGS 1300000 1170000
Interpretation : It can be noted from above calculations is that there is a difference
between cost of goods sold in case of marginal costing and in case of absorption costing. This is
because marginal costing undertakes variable expenses for valuation in which it is valued at 3.25
9

whereas opening and closing stock under absorption costing is valued at the rate of 4.75. As this
costing considers both costs that is variable and fixed cost in identification of cost of goods sold.
Part 2
Profitability ratio analysis
Gross profit ratio - The gross profit of Tesco group plc for the year 2018 was £3350
million from sales of £57,491 million whereas £4144 million is gross profit of 2019 from sales of
£63911 million . The Gross profit ratio of the company Tesco group plc was 5.83% in 2018
which increases up to 6.48% in 2019. This increase in gross profit ratio represents that company
is attaining sustainable profitability and also company is very efficiently using their available
resources.
Net profit ratio – Tesco plc Net profit in 2018 was £1206 million and sales revenue was
57491 but in 2019 the net profit rises up to £1322 from the sales of £63911 million. The net
profit ratio depicts that in 2018 the company's ratio was 2.10% whereas in 2019 it declines by
0.3% that is 2.07%. This indicates that Non cash expenses like Accrued expenditure,
depreciation and amortisation of Tesco incurs more in 2019 as compared to 2018.
Liquidity ratio analysis
Current ratio – Total current assets in the year 2018 was £13726 million whereas current
liabilities was £19238 million. The current ratio for the year 2018 was 0.71 times. In 2019, the
total current assets is £12668 million and total current liabilities is £20680 million. The current
ratio for 2019 was 0.61 times. This data represents that total assets decreases and total liabilities
increases from 2018 to 2019. The company is loosing their money as their liabilities increases
which means total number of debt increases but decline in assets is represents that Tesco will not
easily pay off their debt.
Quick ratio – Total quick assets of Tesco in 2018 was £11463 million whereas in 2019 it
is £10051 million. The quick ratio in 2018 was 0.60 times and in 2019 it is 0.49 times. The
company is continually decreasing their liquid assets to pay their current liabilities. Also, it has
analysed that quick ratio of Tesco is much lower than their current ratio this depicts that Tesco is
highly depended on their inventories.
Solvency ratio analysis
The solvency ratio of analysis of company is calculated by analysing debt to equity ratio.
In which the Tesco in 2018, holds 0.67 times while in 2019 it declines up to 0.38 times. This
10

analysis depicts that company is not taking any benefit of their increased profits which is brought
by financial leverage. Also, company is decreasing their long term debt by the analysis of 2018
and 2019. Tesco is increasing their equities which represents that they are increasing their
financially strong and attains a huge amount of profitability.
Efficiency ratio analysis
Ratio analysis in terms of efficiency for the company Tesco group is showing increasing
trend as the stock turnover ratio from 2018 to 2019 increases by 0.76 times. Also, total assets
turnover ratio increases by 0.09 times and fixed asset turnover ratio from 2018 increases by 0.02
times. This indicates that company is using their available resources efficiently. Also, they are
attaining success in their business operations due to efficiently management of their assets and
investments.
Investment ratio analysis
The investment ratio is analysed through dividend per share and earning per share. The
earning per share of Tesco is depicting a decreasing trend of 0.03% whereas dividend per share
is increasing from 2018 to 2019 by 0.08%. The increasing trend of dividend per share indicates
that company is sure about their future earning and distributes dividend more in 2019 as
compared to 2018.
CONCLUSION
This report was all about management accounting for the company Roberts Metal
Packaging. The report was begun with a brief explanation of management accounting and
essential requirements of different kinds of management accounting such as cost account system,
job costing system , and inventory management system. This report also describe about certain
methods adopted by management accounting reporting like budget report, cost report,
performance report and account receivable report. The benefits of different management
accounting system were described under this report along with their applicability in context of
Roberts Metal Packaging. Also, the management accounting system and reporting were
elaborated in report for expressing relationship between them during process of organisation.
Three planning tools were also be discussed which is adopted by management accounting was
explained in this report. At last, a portfolio of financial statement were calculated along with it
ratio analysis of Tesco group plc were calculated and interpreted in this report.
11