Management Accounting Report: Systems and Decision Making at Tech (UK)

This report provides an overview of management accounting systems at Tech (UK) Limited, differentiating it from financial accounting and highlighting its importance in decision-making. It delves into cost accounting systems (actual, normal, and standard), inventory management, and job costing systems. The report also explores various managerial accounting reports, including financial reports, pro forma cash flow statements, and sales reports, emphasizing their roles in improving productivity and profitability. It examines how these systems and reports aid department managers in forecasting, analyzing rates of return, understanding performance variances, making buy-make decisions, and analyzing cash flows, ultimately contributing to sustainable revenue growth.

Management Accounting report for Tech
(UK) Limited
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Contents
Introduction.................................................................................................................................................4
Task 1(M1, D1)...........................................................................................................................................5
TASK 2 (M2, D2).....................................................................................................................................11
TASK 3 (M3, D3).....................................................................................................................................14
TASK 4(M4, D4)......................................................................................................................................18
Conclusion.................................................................................................................................................20
References.................................................................................................................................................21
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Introduction
Management accounting helps in managing the income and expenses of the organisations. The
concepts of management accounting help management in taking overview of the sources of
income and centres of cost within the organisation from various streams. The report
differentiates the concepts of management accounting and financial accounting. The report also
presents the various techniques which can employ by the management within the organisation.
Balance score card approach helps in dealing financial problem within the organisation, which
helps in getting sustainable success for a long time period.
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As a trainee management accountant at TECH (UK) Limited a report on the functions of
Management Accounting systems are hereby presented.
Task 1(M1, D1)
a. Explanation of management accounting and the essential requirements of management
accounting system which entails:
I. Distinguishing Management Accounting from Financial Accounting
1.Management accounting provides operational reports to the end users within the concerned
entity that means to the people working or connected within the business entity such as
employees, stakeholders etc. The purpose of management accounting is to provide the fair
position of the company to the internal team so that they operate the company more efficiently
and effectively and also helps in decision making, controlling and planning.
Financial accounting provides reports which are complied with the relevant accounting standards
that gives true and fair position of the company to the various users and is meant for the people
belonging outside the entity such as shareholders.
Financial accounting is required by the law and every year a report of the financial statements
has to be filed as per the required law to the government
II. The importance of management accounting information as a decision making tool for
department managers
2. The importance of management accounting information as a decision making tool for
department managers can be explained as
Helps in Forecasting the Future – Management accounting helps in forecasting future related
to decision making as whether to go for the decision or not. (Drury, 2013).
As decision making is dependent on the operational reports derived through management
accounting are used by the department managers in decision making. Forecasting the future
trends in business helps to acknowledge the past problems and provides appropriate remedies to
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resolve such issues. In a long run management accounting information is very important decision
making tool. Future business is somewhat similar to what the business has shown results in past
in anticipating such business one has to understand management Accounting system.
Helps in analyzing rate of return- Rate of return is the amount of return that is obtained against
the capital invested for running the business.
Through management accounting reports can be generated easily and through these reports it is
very easy for the department managers to analyze the rate of return. When rate of return is
calculated and analyzed then it helps the department managers in decision making. The return
from a business is to be calculated at every moment as one has to have records where the uses of
the business can easily identify and understand what returns is the business providing to them.
The purpose of the business is to earn and knowing whether the business is providing the
expected rate of return one has to calculate them for this purpose management Accounting
systems are made which helps in decision making so as to continue the business if the rate of
return is as expected or above expectation.
Helps in understanding various performance variances- When the expected future growth is
compared with the actual growth then the difference that arises is the performance variance and
such variances can only be calculated through the Management accounting reports that provides
the managers the actual position the entity and also helps the managers to make future decisions
where the managers can reduce such variances to happen. Business no set of blueprint, there are
variances from whatever we expect from it and whatever we get from it so as to understand such
variances one has to go into the depths of the business. Management accounting system provides
information that helps identify search variances and helps the user to analyse whether such
variances are tolerable. As resolving an issue identified during the course of the business is very
crucial.
Helps in buy –make decision-Introducing a product the manufacturer need to understand that
whether buying a product from a third party is cheaper then manufacturing it. Managerial
accounting system provides information through which it can be calculated. Both the cost are
calculated and then analysed before reaching towards the final decision of making it or buying it
from outside.
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Helps in analyzing Cash Flows - Cash flow statement are made every year through which cash
position of the company can be ascertained. Analysing such cash flow statements provides the
user the detailed cash inflow outflow within the company. It helps in identifying the impact of
the cash flow on the business and how essential is it. It also provides because that the company
will incur in the future forecasting cash flows helps in identifying from where the revenues will
come whether the revenues will increase or decrease in the upcoming future. Management
Accounting information that is provided by the system helps in designing various budgets,
trends, charts and helps in allocating money and resources so that a sustainable future revenue
growth can be expected from the business.
To improve productivity and profitability: A Company will always try to improve its
productivity and profitability and to improve the same the company needs to work on certain
factors. Management Accounting systems provides information and health the company to
increase its productivity and and profitability through understanding the entity and its nature. It
also helps in enhancing the productivity and the quality of the product. Such reports are prepared
to enhance the productivity of the organization through planning and controlling organizational
activities. Such activities also aid in improving the profitability of the organisation as well. (Van
Dooren, et. al., 2016).
III. Cost accounting systems (actual, normal and standard costing)
3. Cost accounting system can be defined as the system through which the cost of a product that
the entity is producing can be calculated and also the profits arising from such products can be
ascertained. It can be further divided into following segments:
a. Normal costing – Where the manufactured product is measured through actual material costs
involved, actual labour and variable overhead cost occurred. (Drury, 2013).
b. Actual costing – In calculating the product cost it includes the actual value of materials and
labour and variable overheads used to manufacture such product.
c. Standard costing- Where an estimate of the various material, labour and overheads is taken into
consideration for producing a good are standard cost occurred in manufacturing such product.
And such an approach is called as standard costing.
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IV. Inventory management systems
4. Inventory management systems-
Inventory management system tracks good and identifies where the goods are kept in the
business and from where the goods are to be transferred wherever there is a shortage of goods in
any one of the warehouse it helps the goods to transfer from one warehouse to another and thus
is helpful in determining the stock levels and helps in maintaining the minimum stock level for a
company.
The coverage of the inventory management system is very vast as it covers every single aspect of
a company's business which begins from production to the retail warehousing to where the goods
are being shipped and it also considers every movement of stocks is necessary and so that it
helps in in avoiding repetition.
The inventory management system nowadays helps the department managers as it reduces their
effort and time and is very helpful for them to devote their time in the other aspect of the
company and also they can easily give time towards other important aspects of the supply chain.
V. Job costing systems
5. Job costing systems
Job costing system helps in tracking the work done by a labour for a particular specific job and it
accumulates information for various jobs done by various labour and the estimated time to do a
service job is then compared with the actual time taken on a particular job by a labour and this
process of governing all these things is called as job costing system.
Job costing helps in accumulating various cost undertaken to complete various service jobs done
by various labour such a process is followed where a company needs to submit the cost analysis
to a customer where a contract is being made for that such information also helps to company to
quote a particular price to the customer also it helps in determining the accuracy of companies
estimation of various cost and which results in a reasonable profit.
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Job costing system accumulates three types of cost which includes direct material, direct labour
and overheads in a particular service job. The amount of direct material, direct labour and
overheads are to be calculated for estimating the cost of a particular service job such 3 costs are
then combined together and the cost of a job is calculated and such calculation of all the jobs
together is being done by the job costing system through through which the cost of the job can be
calculated easily.
Job costing system can be tailor made as per the requirement of a customer because there are
many customers who do not like to include all such kinds of cost in the job they want to get
done. Such customers only want to add the cost which they wanted in their job so they get their
job costing system customised as per their requirement. (Drury, 2013).
b)
I. Different types of managerial accounting reports
1. Managerial accounting reports-
Management Accounting reports are various tools which helps in decision making and helps the
department managers to understand what is going in the business and is the business running
smoothly. Mangerial Accounting reporting also includes collecting various data from various
other operations and combining them and working according to the Generally Accepted
Accounting Principles where during managerial accounting report are very helpful in providing
data to the internal team. (Drury, 2013).
Types of Managerial accounting reports-
a. Financial reports- Financial report is the type of managerial accounting reports where the user's
of the report can find the profit and loss statement which tells about the company and the amount
the company has spent, the amount the company has earned .It Breaks the numbers into various
categories and also provides the detailed profit that the company is being earning everyday,
every week and every year. The balance sheet that the financial report provides to the company
summarizes the data and provides how much the company is earning how much the company
owes to the outsiders. Managerial accounting is very useful and these financial reports make
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them more useful as they determine how the profits and the losses of the company have played
out over time and what is the company's current net worth and how much the company is
carrying the liquid cash for their available operations. (Drury, 2013).
b. Pro forma cash flow-
Cash flow statement is a type of managerial accounting report which gives week by week
summary of incoming and outgoing cash flows which provides the company to anticipate the
shortfalls and the gains that the company has .Proforma cash flow can also be subdivided into a
short term proforma cash flow report and long term cash flow report considering both together
short term proforma cash flow report is found more useful than a long-term pro forma cash flow
report.
c. Sales report-Sales reports are highly useful for the company’s Management Accounting as they
help and identify sources of the company's revenue and also guides the company as to which
aspects of the business are most and least successful .Sales report basically focuses on the
business activities which provides the user with the activities that earn the most revenue for the
company and also it provides which salesperson are generating more revenue for the company by
taking the least income from the company.
II. Why it is important for the information to be presented in manner that must be
understandable.
2. Nowadays presentation is what matters if the data provided in the report to the management
accounting is not understandable is not presentable it cannot be understood. The user will not be
able to understand what the data provider has provided in the reports if such data is not arranged
is not presented properly. Such reports will be of no use for the users. So that the users can easily
understand the data in the reports shall be presentable (Weygandt, et. al., 2015).
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TASK 2 (M2, D2)
Require to prepare income statement for the month of September
Marginal costing: In marginal costing, per unit cost of the product is ascertained by considering
the only variable cost of products and no fixed costs are included. This is because the unit of
product mainly differs due to variable cost and fixed cost mainly remains same. The marginal
income statement shows that difference in calculating the fixed and variable cost. It charges
variable cost in accordance with per unit cost whereas it completely reduces the fixed production
cost from contribution. The main disadvantage of marginal costing is that it does not measure
closing stock in accordance with the relevant accounting standard approach and does not value it
properly.
The difference in absorption costing and marginal costing:
The difference between absorption costing and marginal costing is mainly due to either under or
over absorption of fixed cost and due to the difference in inventory valuation. The profits in
absorption costing are higher due to the inclusion of fixed cost element in the closing inventory.
Income statement for the month of September for Tech(UK) (IN EURO)
Marginal costing
approach
Selling price(Note1)
Sales 52500
Direct Material(5x2000) 10000
Direct Labour(8x2000) 16000
Variable Production overhead(2x2000) 4000
Closing Inventory(500X15) -7500
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Selling & Distribution and Administrative
expenses
7875
Contribution 22125
Fixed Selling & Distribution and Administrative
expenses
10000
Fixed production overhead 15000
Profit/(Loss)(note6) -2875
Absorption costing: This is a technique whereby the cost of products is ascertained by adding
all types of cost (whether fixed or variable) in the calculation of per unit value. In absorption
costing, there is no difference between in obtaining the fixed and variable cost per unit is in
accordance with the number of units. The major disadvantage of absorption costing is that it is
more complex in calculating (Silva, and Jayamaha, 2012).
Income statement for the month of september for Tech(UK) (IN EURO)
Absorption costing
approach
Selling price(Note1)
Sales 52500
Direct Material(5x2000) 10000
Direct Labour(8x2000) 16000
Variable Production overheaad(2x2000) 4000
Fixed Overhead 10000
Closing Inventory(500X20) -10000
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Selling & Distribution and Adminstrative
expenses
7875
Fixed Selling & Distribution and Adminstrative
expenses
10000
Profit/(Loss)(note6) 4625
The difference in the profits is due to the fixed cost element which differs in both the approaches.
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TASK 3 (M3, D3)
Report
Introduction:
The repot helps departmental manager to get involvement in the budget preparation process and
take decision regarding sales growth of the company .The report has divided into three parts
which involve different kinds of budgets, advantages and disadvantages, process of preparing
budgets and importance of budget as planning and controlling tool of the company.
a) Different kinds of budgets and their advantages and disadvantages
The types of budget are
Master budget- A master budget is nothing but a combination all the budget which provides the
company with the actual position of the company.
The most important advantage of a master budget is that the user of the budget has to go through
only one budget rather than going through individual budgets.
 A master budget saves the time for the user as it provides the complete detail in one place
(Vuorinen, 2015).
 Master budget has some of the limitations as well for user who has lack of understanding
find it difficult to capture data from a single budget.
 It becomes difficult for him to understand what a master budget provides it and the result
is the user is not able to get the actual health of the company.
Operating budget-An Operating budget provides a complete forecast of the various projected
incomes and expenses related to the business in a long course of time. It includes factors such as
production, material cost, sales, manufacturing cost and other administrative expenses
An Operating budget helps in analysing all the cost related to a business in one place which
results in the actual profits and gains that the company is going to earn.
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Operating budgets are less helpful where proper cost is not calculated as it misses guides the user
and provides wrong outcome (Vuorinen, 2015).
Cash flow budget- Cash Flow budget provides the user with the flow of cash within the entity it
considers factors such as account payable, receivables to understand and to know whether the
company can handle any cash crisis and company has sufficient amount of cash to handle and
continue their business appropriately (Vuorinen, 2015).
Cash flow budget is the best way to to know that if there is any shortage of cash within the
company and to ful fill such shortage before the requirement comes for the cash.
Cash flow budgets are not 100% accurate they might be situation that while preparing a cash
flow budget the preparer may include a non-cash flow item in the budget.
Financial budget-Financial budget includes a company's way of managing its cash flow,
income, expenses and assets it provides the image of a company's financial health and its core
operations.
Financial budget defines the company's strategies which are very helpful in managing the various
aspects of a company. On the other hand financial budget helps in improving company’s
financial health and gives the user true and fair picture of the company's position in the market.
Financial budget has many limitations but one of the limitation is that it only considers financial
outcome that means it only includes financial values and do not deal with the quality of the
products provided to the customers.
Static budget-Static budget is a type of fixed budget that hardly changes and remains unchanged
even when there is a change in the sales volume or sales. It is a type of fixed budget. The static
budgets are not flexible in nature and which leads to one of the most important disadvantage of a
static budget.
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b) The budget preparation process including determination of pricing and different costing
systems that can be used.
Preparing a budget includes a lot of knowledge and assumptions which are realistic in nature for
preparing a budget preparer of the budget has to understand the assumptions that that he has to
use in preparing the budget after understanding the assumptions he has to get down and
understand the bottlenecks used in preparing the budget reviewing the bottleneck provides the
growth of the company in detail. The preparer of the budget now has to understand whether are
there proper funding available for the company to make the budget whether the growth that has
been anticipated by the preparer is in coordination with the funding available with the company
after analyzing all this. He has to start preparing the budget analyzing forecasters forecast and
the past Trends are also to be obtained and understood how he has to begin with preparing the
budget after considering all such factors.
For discussing the budget with the senior management team the budget preparer has to work
upon the costing concepts that are being used in preparing search budget. Not only identifying
the concepts of Costing but also understanding their approach and their applicability and to
provide the logic behind using such concepts of Costing (Otley, 2015).
While preparing the budget determination of prices has to be considered and has to be used
accordingly. After preparing the budget the preparer of the budget has to review the budget he
has to meet with the senior management team so that he can reviews the budget and can get a
follow up on the budget finally if everything gets right then the budget can be launched in the
financial software and can be worked upon.
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c) The importance of budget as a tool for planning and control purposes.
Importance of budget
Budget is considered as one of the most important tool in the company as it provides the plan of
action through which objectives can be achieved. A plan of action is nothing but a detailed
analysis of how the user has to begin while preparing the budget. It is a kind of a blueprint that
helps him to prepare the budget in a most convenient manner. It helps in measuring adequate
performance it provides the company with appropriate plan of action to deal intelligently in
adverse situations. Budget is considered as a key managerial tool for planning, controlling and
monitoring the finances of an entity and provides the detailed analysis of the incomes and gains
for appropriate budget prepration. Budget guide in terms of monetary unit it provides an
appropriate estimate of the cost and revenues also budget helps in allocating scarce resources to
achieve the best out of the least (Demski, 2013).
Conclusion
The report has discussed the importance of budget and its necessity within the organization. The
report helps in understanding the basic concepts of budgets for the organisation as whole. The
report guides the departmental manager in preparation of budgets for their respective
departments.
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TASK 4(M4, D4)
Balance Score card approach in order to respond its financial problems.
As per the last financial statements of Tech (UK) limited that were published, displayed a loss of
euro 1.5 million. Which proves that the current position of the company is poor and the company
is facing an adverse financial problem which can lead to a financial risk for the company? To
resolve the problem there are various solutions that the company can use. Management
accounting systems can resolve such financial problems in the upcoming future one of those
techniques includes balanced scorecard approach. The auditors of the company have also
suggested the company to use balanced scorecard approach through which they can manage their
financial problem, financial risk and upcoming losses.
Balanced scorecard approach helps in providing growth and enrichment to the business
performance of the company. Balanced scorecard approach identifies the areas of business laws
which help the users to work upon them and to rectify such problems. (Nawaz, 2013).
As per the auditors balanced scorecard approach is found to be the best amongst all the
Management Accounting systems that can resolve future losses and provide certainity to a
business. Considering the management and the auditor's opinion the company would like to
adopt balanced scorecard approach. The function of balanced scorecard approach for the
organisations are-
To communicate the task that they need to accomplish, analysing the day to day work and
adopting a particular strategy of doing the same work, various products and services need to be
prioritised as per their urgency and forming targets and achieving those targets while measuring
and monitoring the growth and the progress of the company.
Since last 75 years balanced scorecard approach is being used and followed by majority of the
countries and the results are astonishing. Balanced scorecard approach has four perspectives
from viewing the organisation which are-
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 Financial perspective deals in achieving financial performance for the company the
financial target are to be achieved within the set targets.
 The target are made time bound and thus for achieving a single financial performance
every target need to be achieved
 Also balanced scorecard approach provides more optimal utilisation of resources that
means it focuses on effective use of resources and using these resources to the best of
them.
Customer perspective the most important prospective a balanced scorecard approach follows in
which it has to value the customer relationships valuing a customer is the most important aspect
of a business as a customer provide business and they need to be valued not only value a
customer but customer satisfaction and retaining a customer for a long shall be put on priority
once customer is connected with business it should form part of the business family and thus
resulting in more profit.
Internal process perspective the internal teams work together to achieve small goals on day to
day basis and which leads to group effectiveness and to bring efficiency in the business.
Efficiency is the most important aspect of a business. If business is not efficient enough it could
not survive for long as one has to consider efficiency as an important criterion to achieve
Business goals. It also focuses on quality control aspect where quality checks are made at each
level of production so that the defects in the product are identified at the initial level and are
eliminated there and then. (Ward, 2012).
Capacity perspective- when a business or company has to be started it needs capital to be
invested. Capital can be identified as monetary or human. Human capital includes the senior
management team, the employees and the management team. Human capital can also be said as
human resource. Search Human Resource are managed and maintained by a called human
resource management. The role of Human Resource Management in a company is very crucial as
they have to hire human resource which should be the best for company. (Ward, 2012).
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Conclusion
The assignment has presented discussion over management accounting in Tech (UK) Limited.
The assignment contains report over management accounting and financial accounting. The
report also include practical example of various techniques of management accounting.
Different types of budgets are helpful for different departmental managers. The report also
guides the managers of Tech UK limited in relation to budget preparation process. The report
also explains the way which are responsible for sustainable success of the organisation.
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