Management Accounting Report: Analysis of Tech UK Operations

This report offers a comprehensive analysis of management accounting practices within Tech UK, an electronic gadgets manufacturing enterprise. It begins by defining management accounting and distinguishing it from financial accounting, emphasizing its role in internal decision-making. The report then delves into various cost accounting systems, including actual, normal, and standard costing, alongside inventory and job costing systems. It further explores different types of management accounting reports, such as budget, accounts receivable, job costing, and inventory reports, highlighting the importance of effective information presentation. The report includes the preparation of income statements using both absorption and marginal costing methods. Additionally, it examines budgeting, covering different budget types, the budgeting process, and the importance of budgeting for planning and control. Finally, the report discusses the application of the balance scorecard approach to address financial problems, concluding with a summary of key findings and references.

Management accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 (a) Explanation of management accounting......................................................................3
Difference between management and financial accounting...................................................3
Importance of management accounting information as decision making tool.......................4
Cost accounting systems ........................................................................................................4
Inventory management systems.............................................................................................5
Job costing systems ...............................................................................................................5
P2 (b) Difference types of management accounting reports..................................................6
P2 (b) Importance of presentation of information in effective manner.................................7
TASK 2............................................................................................................................................7
P3 Preparation of income statements.....................................................................................7
TASK 3..........................................................................................................................................10
P4 (a) Different kinds of budget and their merits and demerits ..........................................10
P4 (b) Process of preparing budget involving determination of pricing and different costing
systems.................................................................................................................................11
P4 (c) Importance of budget as a tool for planning control purpose....................................12
TASK 4..........................................................................................................................................13
P5 Way to use balance scorecard approach for responding to financial problems..............13
CONCLUSION..............................................................................................................................15

REFERENCES...............................................................................................................................16

INTRODUCTION
Management accounting is a well-defined and established process used for formulation of
reports of management, accounting statements that provide relevant, time financial along with
the statistical information which is needed by the managers in order to make day to day as well
as short term decisions (Hilton, and Platt, 2013). It is used to generate monthly and weekly
reports for people inside the organization. Present report is based on the analysis of Tech UK
which is electronic gadgets manufacturing enterprise in UK which used different types of
management accounting system in order to regulate their smooth business operations along with
achievement of growth in profitability. In this report, distinction between management
accounting and financial accounting has been determined along with its importance as tool for
decision making. Further, Income statement has been prepared by using the two important
methods of cost accounting such as marginal and absorption costing.
TASK 1
P1 (a) Explanation of management accounting
Management accounting have been considered as effective process as well as techniques
which concentrates in the effective and efficient use of resource of organization in order to assist
the managers in their activities of increasing both customers and shareholders values (Ward,
2012). Management system of accounting is also considered as information system that has been
used to develop the information needed by the managers in order to control the resources and
creating values. In present report, management accounting systems used by the Tech (UK)
limited have been analyzed as a trainee management accountant.
Difference between management and financial accounting.
There is major difference between management and financial accounting because the
financial data along with information which is collected by the management accountants of Tech
(UK) limited is only for internal utilization whereas financial accounting information has been
collected and used by the external parties such as shareholders and investors etc. Financial
accounting system follows the generally accepted accounting principles whereas management

accountants do not implement these principles. Further, the financial reports and statements that
are formulated by accountants involve the performance, budgets as well as costs reports which
are usually concentrated towards a specific segment with in the business enterprise such as
production line or functional units whereas the financial accountants of the enterprise collects the
information in order to develop financial statements for showing the financial position of the
overall company (Parker, 2012). Moreover, reports of financial accounting depends upon the
previous information which emphasis on the independence as well as verifiability whereas MA
information as well as reports are not controlled by the standards or regulations of accounting
and its content has been designed by the needs of managers.
Importance of management accounting information as decision making tool.
Employers and manager of Tech (UK) limited also have to take countless decision while
producing their new products in every business day. Information of management accounting
provides them input from the data to take those important decisions that will improve the
decision making of company for long term (Fullerton, Kennedy and Widener, 2014). Through
this information, managers of Tech UK limited will be able examine the costs that differ along
the alternatives of advertising for their special charger for mobile telephone and other carry on
gadgets , not considering the common costs. Further, through utilization techniques of activity
based costing, manager of Tech (UK) can also determine the important task and activities needed
to develop and service a products line. It allows the organization to concentrate on advertising its
special charger to its target customers. Primary use of information related to management
accounting is to delegate the information that will be used for manufacturing the product.
Budgeting, projection of financial statements and balance scorecard are major illustration of the
way through which the management accounting information have been used to delegate
information to support the management control the future financial position of Tech (UK).
Cost accounting systems
 Actual costing: A system of cost accounting that always utilize the actual costs, rates of
direct costs as well as relevant qualities which are used for production to demonstrate the
costs of specific product. For example: ADC= ACR* actual qualities, actual indirect

expenses= allocated indirect cost rates * actual qualities. In tech (UK), this formula has been
used to calculate and analyze the overall production expenses.
 Normal costing: Method of costing accounting that is evolved to provide values to the
products manufactured by the enterprise along with the actual material expenses directs cost
of labor as well as manufacturing overheads which are based on the predetermined rate of
production overheads (Lambert and Sponem, 2012).
 Standard costing: It is also considered as practice that used for substitution of an expected
cost for actual expenses in the records of management accounting and further recording of
alterations periodically by determining the distinction between the actual and expected costs
(Standard costing, 2018).
Inventory management systems
Systems of managing inventories are used for tracking of products of Tech UK through
their overall supply chain or portion of business in which the company operates. In
manufacturing organization like Tech (UK), inventory management systems are used for
tracking of materials, the inventory levels for parts and finish products (Lavia López and Hiebl,
2014 ). It also involves the process reordering and making integration with the ERP software’s.
Further, there are two main types of inventory management system that needs to be used by
company such as perpetual and periodic inventory systems. In Periodic inventory systems the
data have been updated within specific time duration usually within a year whereas perpetual
inventory system is used by Tech (UK) to update inventory data continuously in order to analyze
the quantity and availability of inventories in appropriate manner. Barcode technology has been
used in perpetual system of inventory management.
Job costing systems
Job costing is mainly considered as a method that has been used for assigning the cost of
manufacturing to an individual product or the batches of the product. This method of cost accounting has
been used in the situation when the products and services have been produced are sufficiently distinct
from each other (The job costing system, 2018). It is also involves the accumulation of cost of raw
materials, overheads and labor for the accomplishment of specific job. Usually there are three different
types of things that have to be included in the method of job costing such as direct materials, labor and

overhead. In present context, manager of Tech (UK) limited will also needs to use this in order to track
the cost of materials that is used them at the time of manufacturing their special charger for mobile
telephone and other gadgets. Through these systems, company can also track the cost of labor they have
used for manufacturing of their product. Further, the job costing systems also assigns the costs of
overheads to one or more costs pools.
P2 (b) Difference types of management accounting reports.
There are some different management accounting reports have been developed by the
management accountants in Tech (UK) limited that help the employers as well as managers to
monitor the performance of organization and these are prepared frequently within the
accounting period as per requirement. Some important management accounting reports have
been mentioned below:
 Budget report: These are considered as important reports that assist the owners of Tech
(UK) limited in analyzing performance of their organization along with department
performance and control the costs (Contrafatto and Burns, 2013). This report has been
used by the management in order to compare the budgeted, estimated along with the
actual performance number attained during the time duration.
 Account receivable report: It is also important management accounting report that usually
highlights those customers of Tech (UK) limited who have unpaid invoices and also the
unpaid credit memos. It is considered as primary tool that has been used by the managers
of company to demonstrate the invoice which is overdue for the payment along with the
effectiveness of the credit as well as collection functions.
 Job costing report: It is an important report of managerial accounting that is used to
determine the expenses for a specific project of organization. These expenses have been
compared with the revenue received in order to evaluate the profitability. In present
context, managers of Tech (UK) limited also use this reports to analyze the cost of labor
which they have incurred to manufacture their special mobile charger and other gadgets
for a project. It also helps in identifying the highest areas of income of the business so
that organization will focus their efforts there rather than wasting time and funds on the
low profits margins.

 Inventory and production report: manufacturing enterprises like Tech UK, with the
physical inventory will also use the managerial accounting reports in order to make their
process of manufacturing products more effective and efficient. It involves the inventory
waste and per unit overhead costs.
P2 (b) Importance of presentation of information in effective manner.
Accounting data as well as information have been presented by the managers in the forms
of tables of numbers and charts that along with the clear determine of the cost of labor,
overheads and material costs in order to make comparison with the revenue which is received
after sale of goods after making for the effective evaluation of profitability and performance of
organization in market (Herbert and Seal, 2012). Appropriate presentation of data will be useful
analysis tool for Tech (UK) limited and if the data are being effectively interpreted then this will
facilitate the manager in process of decision making. There are various software packages which
have allowed the managers of Tech (UK) in creation of charts that will look very professional
and provide effective analysis of information so that cost of producing the given product can be
estimated and reduced in future. Further, it supports the organization in formulation and
implementation of strategy. It also contributes to improve the company’s competitive advantage
in terms of quality of products, time of delivery, cost, flexibility and the innovation through
distinctive process improvements and techniques of managing the cost.
TASK 2
P3 Preparation of income statements
 Absorption costing: It is considered as methods of cost accounting in which no
difference is made between the fixed and variable costs in the calculation of profits.
Statement of absorption costing estimated that fixed costs is associated to products so that
all the production costs whether it is fixed or variable will become a part of cost
manufacturing product.
Absorption costing:
Income statement for TECH (UK) on absorption costing

Particulars Details Details Amount
Sales revenue 1500*35 52500
Less: Cost of Goods sold
Direct Labor 2000*5 10000
Direct material 2000*8 16000
production overheads (Variable) 2000*2 4000
overhead costs (Fixed ) 2000*5 10000
Less: Closing inventory
Direct Labor 500*5 2500
Direct material 500*8 4000
production overheads (Variable) 500*2 1000
overhead costs (Fixed) 500*5 2500 30000
22500
Less: Under-absorption on overheads 5000
Gross profit 17500
Less: Overall cost of production 17875
Net loss -375
Interpretation: From the above income statements it has been considered that Tech
(UK) will face the losses at the end but usually they have covered overall costs of entity for
example direct labor and material etc. There will be a closing stock of 10000 after taking all the
fixed and variable costs.

 Marginal costings methods: It is also important method cost accounting which is
considered as practice of setting the price of product at slightly above the variable cost of
manufacturing it. It also relates with short term price setting situations (Caglio and
Ditillo, 2012). Further, this statement has been analyzed as alternative structure of the
traditional income statement that has been prepared under the absorption costing. It
usually treats fixed as well as variable cost that separately and show their contribution.
Marginal costing:
Income statement for TECH (UK) limited
Particulars Details Details Amount
Sales revenue 1500*35 52500
Less: Cost of Goods sold
Direct Labor 2000*5 10000
Direct material 2000*8 16000
overheads of production (Variable ) 2000*2 4000
Less: Closing in the end
Direct Lab our 500*5 2500
Direct material 500*8 4000
production overheads (variable) 500*2 1000 22500
30000
Less: Other costs (variable) 52500*15% 7875
Contribution 22125

Less: selling and administrative Costs(Fixed) 15000+10000 25000
Net loss -2875
Working Notes:
WN 1:
Overhead (Absorbed) 2000*5 10000
Overhead (Incurred) 15000
Under- absorption on overheads 5000
WN 2:
Production cost (Fixed) 10000
production overheads (Variable) 52500*15% 7875
Total cost of production 10000+7875 17875
TASK 3
P4 (a) Different kinds of budget and their merits and demerits
There are various kinds of budgets have been prepared by the management accountant in
the Tech UK in order to produce their new product in estimated budget. It is considered as
responsibility of departmental managers is to formulate plans that formalize the company’s
operational goals and also express them as financial criteria of performance which are to be met
by the managers and functional units of organization. Some important budgets with their
advantage and disadvantages have been discussed below:
 Cash Flow budgets: This budget usually considered as an estimation of cash inflows as
well as outflows for an enterprise over specific time duration and it is also utilized to

analyze that whether the organization has sufficient cash to operate. Organization needs
to utilize the sales and production forecasts in order to develop the budget of cash along
with the estimations about the expenditures which are required and accounts receivables
Advantages: Considered as beneficial as it provides actual forecast required to complete
production.
Disadvantages: Time consuming method and not always provide actual support in analyzing the
actual required completing the production in future financial period.
 Purchase budget: It is also important budget that consist the cost of raw materials which
is purchased by Tech UK during each budget period (Bouten and Hoozée, 2013).
Moreover, the amount which is specified in the budget is considered as the amount that
is required to make sure that there will be a sufficient amount of inventory in
organization so that customers order for special mobile telephone charger can be met. In
simple words, Purchase budget will simply match along with the actual number of units
that is expected to be sold in the financial or budget time duration.
Advantages: Help in representation of actual amount which is incurred from the sale of products
and services. Disadvantages: Also considered as time consuming approach and less reliable.
 Operating budgets: These are considered as the budgets that mainly involve the revenue
as well as operating expenses which surrounded with day to day business activities of
Tech UK. Operating revenues always signifies the sale of products and services.
Operating expenses will determine the costs of products sold along with the overhead and
administrative costs which are directly related to the manufacturing of goods and
services.
Advantages: Through this, Managers compare ongoing results to budget throughout the year,
planning and adjusting for variations in revenue.
Disadvantages: Effective management accounting techniques but it will not provide support in
reduction of costs and expenses.

 Sales budgets: A sales budget is analyzed as management’s estimation of sales for the
future financial time duration. Organization Tech UK will use sales budgets for setting
departmental objectives, expected profits and also the forecast of requirements of
production. The critical components of this budget are estimates sales of units, cost per
unit and allowance for some discount as well as returns. Estimated units of sales have
been multiplied by per unit cost of product which is equal to the budgeted gross sales.
Further, budgeted gross sales less the estimated discounts on sale and returns will results
in net sales for the period.
Advantages: Provides competitive advantage to the organization and forecast of future sales and
requirements of production. Help the organization in development of plans and strategies. Help
in analyzing the profitability achieved after sale of products and services.
Disadvantages: Considered as time consuming method and does not provide actual information
about the financial position of enterprise.
P4 (b) Process of preparing budget involving determination of pricing and different
costing systems
There are various business enterprise prepare budgets which they use as important
methods of comparison at the time of evaluation of actual results at the end of next accounting
year. The process used for preparing the budget needs to be highly disciplined in which the
manager must follow the set schedule so that completed budget will be ready to use at the
beginning of the next fiscal year. Here are some important that needs to be followed by manager
in to prepare an effective budget such as:
 Acquiring estimation: It is the first stage in which the estimates of sales, levels of
production, expected costs and availability of resources from each functional unit has
been identified (Herzig and et.al., 2012). In this, departmental heads and managers of
Tech UK will provide estimates of company future position and activities which provides
an influence on the organization.
 Coordinating the estimates: In second stage, Budget committee of the Tech UK will
need to evaluate various plans that has been submitted by the various important financial

units in order to demonstrate the potentiality of the plans within the overall interest of
their enterprise and make estimation availability of resources that needs to be fairly
allocated among the functional units.
 Communicating the budget: After that, the budget has been communicated to overall
departmental heads in the board meeting so that final approval from the members will be
achieved on the budgets.
 Implementation plan of budget : Finally at this stage, budget will be submitted to the
managers and implemented as the plan of operation for the upcoming budget time
duration.
 Reporting progress: Performance reports have been developed in order to provide
information to departmental managers of Tech UK and top management about the
performance that is achieved in terms of budget during the year.
P4 (c) Importance of budget as a tool for planning control purpose.
From the study, it has been analyzed that manufacturing organization can only achieve
maximization of profitability through proper planned utilization of resources which are available
within organization. Budget usually formalizes the coordination of activities among the different
departments in Tech UK at the time aligning these important activities towards company’s
strategic plans. Along with this, Budget will also improve the evaluation of performance by
providing a common base for the important communication on how effective the managers has
met their objectives and also providing the talk point concerning why the expected results is
different from original budget.
TASK 4
P5 Way to use balance scorecard approach for responding to financial problems.
From effective analysis, it has been identified that balance score is considered as
important strategic planning and the management system that company used to determine their
customers that what they are trying to accomplish , aligning the day by day work that everyone
is doing with the strategy (Kotas. 2012). It is also used for measurement and monitoring the

progress towards the strategic targets. It connects the dots between the big picture strategy
elements like mission, vision, core values, strategic as well as important areas of focus and more
operational elements like objectives. Balance score card methods of Kaplan and Norton is the
strategic approach and effective management system that provides an ability to Tech UK to
translate the vision and strategy in to implementation. It is usually works from four perspectives
in order to resolve the financial problems.
 Financial perspectives: Timely and relevant findings will always be the priority and
managers will ensure to provide it. With the implementation of a corporate database, it is
hoped that more of the processing can be centralized and automated.
 Customer’s perspectives: It implies to ways in which the manager of the organization will
think from the perspective of customers in order to solve the problems and development
of effective products and services. Increasing realization of the importance of customer focus
and customer satisfaction in any company.

Figure 1 Ways to use balance score card.
(Source: 4 perspectives of the Balanced Scorecard, 2018)
 Business process perspectives: This important business process terms as internal business
process, Measurement that is based on the perspectives will provide understanding to the
managers about the growth and financial position of enterprise. Along with this , it will
also information about their new product in life cycle (Cuganesan, Dunford and Palmer,
2012).
 Learning and growth perspectives: It is important perspective that involve the employee
training and attitudes within corporate culture related to both the individuals and
corporate self-improvement.

CONCLUSION
In this report, it has been concluded that management accounting systems plays an
important role in providing an effective estimation of cash , sales revenue, amount of inventory
in hand , state of account payable and account receivable. Systems of managing inventories are
used for tracking of products of Tech UK through their overall supply chain or portion of
business in which the company operates. Further, Appropriate presentation of data will be useful
analysis tool for Tech (UK) limited and if the data are being effectively interpreted then this will
facilitate the manager in process of decision making.

REFERENCES
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