Management Accounting Report Analysis for Tech(UK) Ltd. (Semester 1)

This report delves into the core concepts of management accounting, differentiating it from financial accounting and highlighting its importance in organizational decision-making. It explores various management accounting systems, including cost accounting and inventory management, and examines different types of managerial reports, such as accounts receivable and budgeting reports, emphasizing their significance in enhancing financial returns and reducing losses. The report further applies absorption and marginal costing methods for income statement preparation, outlining the merits and demerits of different budgeting techniques. It also addresses the use of planning tools, financial issue analysis, and the application of management accounting principles to resolve financial problems. The analysis is contextualized within the framework of Tech(UK) Ltd., providing practical insights into real-world applications of management accounting.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Concept of management accounting and its essential requirement.......................................1
P2 Different types of managerial reports and its importance......................................................4
M1...............................................................................................................................................5
D1................................................................................................................................................5
TASK 2............................................................................................................................................6
P3 Application of absorption and marginal costing method for preparation of income
statement.....................................................................................................................................6
M2...............................................................................................................................................8
D2................................................................................................................................................9
TASK 3............................................................................................................................................9
P4: Merits and demerits of using various types of budgets and their significant.......................9
M3: Evaluation of planning tools..............................................................................................12
D3: Critical analysis of financial issues....................................................................................12
TASK 4..........................................................................................................................................12
P5: Balance scorecard approach................................................................................................12
M4: Analysis of financial issues arises in an organisation.......................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Every kind of organisation whether small or large in nature required to record their
transactions to analyse the current performance of their employees. This will provides the
opportunity in development of new strategies which directs the employees for accomplishment
of desired objectives. Management accounting is important concept which helps in formulation
of different kind of accounts and reports for improvement of understanding between the different
departments. It refers to the process of measuring, analysing, interpreting and communication of
information in achievement of organisational goals. Such different kind of reports provides
financial and statistical information which enhance decision making power of management for
operation of day to day functions (Arroyo, 2012). It assists the manager of organisation in
planning, organising, monitoring and controlling. Tech(UK) Ltd. Producing special charger for
mobile telephone and other gadgets for retail outlets in UK.
In the present report explain about, concept of management accounting, distinguish
between management and financial accounting, importance ascertained by manager from
management accounting information as decision making tool, different types of management
accounting systems, various kind of managerial accounting reports and their importance and
application of the costing techniques like marginal and absorption for the purpose of preparation
of income statement. Also, define about different kind of budgets and its advantages and
disadvantages, budget preparation process along with different pricing and costing system,
importance of such budgets to manager and application of the principles of management
accounting to respond financial problems.
TASK 1
P1 Concept of management accounting and its essential requirement
Difference between management and financial accounting
Management Accounting Financial Accounting
Broad concept contains the provisions of
managerial and cost accounting
Narrow concept in comparison to
management accounting and only includes the
provisions which helps in preparation of
financial statements
The different kind of accounts and reports are These accounts are used by the external
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used by the internal parties to enhance
decision making
stakeholder to gain the information about
organisation
Its perspective is future oriented It includes the evaluation of past information
of organisation
This includes the preparation of different
reports which depicts the performance of
every department
It helps to analyse the overall financial
position of organisation
It helps in preparation of operational budgets
according to need of different departments
This will assists in preparation of financial
budgets only.
Examples of using this accounting is to
determine accountability that can be more
meaningful to the business management team
and other corporate finance departments.
These are mostly used for evaluation of
companies performances. Examples of this are
suppliers, banks, customers and investors.
Management Accounting: It is important concept which helps in recording of the
transactions of organisation of the basis of the performance of every department. This will
includes the use of various cost accounting principles in development of different kind of
accounts and reports like job costing, inventory management, cost accounting etc. The main
purpose behind the application of the principles of management accounting is to improve
decision making of internal parties and attains the support of employees in performance of
different tasks and accomplishment of objectives within stipulated period of time.
Importance of management accoutring to manager of organisation as decision making tool
As management accounting assists in performance of different kind of functions within
the organisation. Therefore large numbers of importance are associated with their different kind
of managerial and costing tools which are used by the manager of Tech(UK)Ltd. Are defined
below:
 Effective distribution of resources: Management accounting system helps in
preparation of different kind of reports like inventory management, Accounts receivable,
budgeting etc. It helps in assessment of the need of different departments to perform their
functions. It improves decision making regarding allocation of resources in most
optimum manner (Boyns and Edwards, 2013).
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 Assessment of risk: The main perspective behind the application of the management
accounting principles within the organisation is formulation of future strategies on the
basis of the evaluation of their past performance. It improves the insight of manager to
effectively identify the risks and make solutions for its removal.
 Appraisal of the actual performance: Formulation of different kind of reports
according to the performance of various departments helps in preparation of budgets
which contains the standards which are need to adhere by the employees in performance
of their functions. One the basis of the deviations which are arise in actual results
performance of employees are measures and effective actions are taken to overcome from
such issues and attains their standards.
 Presentation of financial position: There are many accounts which provide the
opportunity to understand about the financial performance and position of organisation in
market. This will contributes in improvement of their brand image which has direct
impact upon their profit earning capacity (Herzig and et. al. 2012).
Various kind management accounting systems
The three different kind of accounting systems are adopted in Tech(UK)Ltd. All these
systems have their different roles and importance o for organisation. This can be understood
from the points which describe their provisions and roles mentioned below:
Cost accounting system: It is important of organisation to estimate their costs in future
for ascertaining the information regarding their profitability, inventory cost and controlling of
expenses. It assists the manager of organisation as per such approaches which help in
maximisation of their profits. It includes the process of costing of product in different styles
defined below:
 Actual costing: Here all the ingredients which are used in production process at actual
cost.
 Standard costing: This will provide the targeted cost which is needed to achieve.
 Normal costing: Here the costs are assorted on the basis of predetermined manufacturing
overhead rate.
Examples: it is more appropriate for an activities management companies, a niche
furniture producers of manufacture of very high cost air surveillances system. Coffee roaster
which after retaining at wider order of material.
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Job costing: One of the important system need to implement all manufacturing units to
track the expenses. This will be useful in providence of cost to each individual product which is
manufactured by organisation. So, the provisions of this system are more important for
organisation which produces multi products. The costs are charges upon two different aspects
which are named as direct material and fixed and variable overheads.
Example: It must track cost of material that are mainly helpful for Scrapped during the
course of job. It is mostly useful for construction companies.
Inventory management system: The main role of this system is that it helps to organise
the assets and stock of organisation in effective manner. As it provides opportunity to attain
maximum results for utilisation of their resources at full capacity. The different kind of tools
which provides their supporting in such management work is defined below:
 FIFO: Here inventories are record as they used in organisation. It helps in valuation of
closing stock.
 LIFO: Here, such inventory is recognised which is oldest in organisation whether used
later.
 AVCO: It provides the opportunity regarding ascertaining the average cost to take better
decisions.
Examples: Raw material such as wood to make various products. Unfinished cake in a
product producing business. Tangible items that a business holds and ultimately available for
sales.
P2 Different types of managerial reports and its importance
Different management accounting reports
There are different kind of reports prepared by the management of Tech(UK)Ltd. To
interpret the results and performance of their different departments(Otley and Emmanuel, 2013).
The main purpose of these supports improves the coordination and communication which helps
bring understanding among employees. The function of such different report is defined below:
 Accounts Receivable report: The main function of this report is to provide the
information regarding outstanding amounts from their debtors along with their time
period. It is the duty of the management is to segmentation of invoices on the basis of
time period they are unpaid. It helps to assess the effectiveness of their exist credit
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policies and if there is need to tighten their policies then bring changes according to
requirements. It helps to recover their outstanding amounts.
 Budgeting reports: One of the effective report which is used regarding appraisal of
performance of departments in comparison to standards which are set while preparing
such budgets. It provides the opportunity regarding determination of issues and
application of innovative technique which to improve their performances. It also helps in
designing of incentive reports according to such appraisal of performance.
 Job cost report: This report is used to assess the profits which are going to earn in future
after deduction of estimated cost and expenses. This will provides the information
regarding which part of project which consist higher amount of profits. So, it helps to
frame the strategies according to that and provide more efforts to such activities.
Importance of management accounting reports
 Increased financial returns: Budgeting report provides direction through providence of
standards to employees that accomplish their targets and earn large number of income.
This will prove as motivating factor which improves their passion towards their work.
 Reduction in loss: Analysis of the past information on the basis of such reports helps to
identify the mistakes and provides opportunity to reduce their future risks through
application of appropriate solution (Parker, 2012).
M1
Benefits of management accounting systems:
Cost accounting system
 To ascertain the amount of profitability
 Helps in reduction in amount of expenses
 Makes better future plans
 Measurement of the efficiency of actual processes
Job costing system
 It helps to track their expenses
 Helps in reduction in the amount of repetition of work
D1
Type of reporting Integration with organisational process
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Accounts receivable report It helps in collection of their outstanding
amounts from debtors and maintenance of
liquidity
Job cost report Provides opportunity in identification of most
profitable projects and reduction of cost to
reduction in amount of efforts from such
wasteful processes
TASK 2
P3 Application of absorption and marginal costing method for preparation of income statement
Cost: It is the amount which is paid by organisation in manufacturing of the product. There
are many which also takes the part of total cost of products which includes material, labour,
opportunity foregone, risk and time.
Marginal costing: This method of costing considered only variable cost. It helps in
assessing the change in cost if there is change in production of units.
Absorption costing: It contributes to build effective long term decisions. This method
includes both fixed and variable costs (Vasile and Man, 2012).
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
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Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £
Amount
Sales value
Less: Variable costs
Stock at the begining
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
Net loss -2875
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: under this budgeted cost is £10,000and Actual cost is £7875
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Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit using absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
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M2
It is the obligation upon the manager is to adopt approach which helps in improvement of
their profitability. Such approaches also help in attainment of sustainability in their business
operations. The two techniques are used improve their business performances. Conservatism
technique helps in reduction of their unnecessary expenses and on the other hand materiality
technique helps to manage their available resources in more optimum manner.
D2
Through use of marginal costing method loss of 2875 is observed whether from the use of
absorption costing method loss is attained of the amount of 375. This difference occur because
involvement of fixed cost in absorption costing method.
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
According to the above calculation, it has been found that profit generated from marginal
costing is 2125 from their total sales. This differences are arises because of fixed cost
adjustments.
TASK 3
P4: Merits and demerits of using various types of budgets and their significant
Planning is an important part for every business, they need to make use of data in order to
manage and control resources of an organisation in effective manner. This will assists TECH UK
to attain their set objectives by using appropriate budgets. Budgets is known as future estimation
of total costs and expenditure they are going to invested on the production of specific products
and services are recorded effectively. The primary motive of every project managers is to make
use data in accordance to attain future aims and objectives. It has been seen that there are various
types of budgets that are essential for an organisation to record their important data during the
period of time. Some of them are discussed underneath:
Master budget: According to this particular budget which is known as combination of all
types of budgets those are prepared by an organisation at the time of manufacturing process.
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This budget is consists of essential financial statements such as income statement, balance sheet,
cash forecast and financial planning. This help and organisation to perform all kinds of internal
or external activities in accurate manner (Cadez and Guilding, 2012).
Advantage: The main benefits of using this budget are to assist manager to prepare only
one report that consists of all data regarding growth and financial performance of Tech UK.
Disadvantage: The main limitation of using these types of budgets is that it is more costly
and time consuming of the company.
Cash flow budget: According to this types of budget which is prepared by an organisation
to analyse total cash flow incurred by the company during an accounting period of time. The
main sources of data collection are taken from various activities such as investing, operating and
financing.
Advantage: Total cash goes out of the business can easily be determine by managers
during the period of time. It will make simple to account managers to make use of data in
systematic manner so that they can determine total cash inflows during the time.
Disadvantage: In case of total recovery time get completed it is more difficult to calculate
total cash generate by the company during the time.
Operating budget: It is known as total all those report which is being prepared by using
all essential data regarding total costs and expenditure Tech UK at the time of production
process. It can be prepared on regular or continuous basis (What is Budgetary control? 2017).
This will assist and organisation to control necessary implications that are affecting overall
profitability at the same point of time.
Advantage: It assists company to analyse their total sales, operation and raw material
budgets which is being prepared during the period of time. It is more reliable in case they are
preparing for longer terms.
Disadvantage: It is more time consumer as regular data is needed to be collected in
continuous basis which is tougher task for production managers (Fullerton, Kennedy and
Widener, 2013).
Rolling budget: It is continually updated to include a new budget period as the most
budget period as the most recent completion of time frame. This involves the incremental growth
of current budgets.
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