Higher National Diploma: Unit 5 Management Accounting Report

This report delves into the core concepts and techniques of management accounting, focusing on their application in decision-making. It begins by explaining different types of management accounting systems, including job costing, inventory management, cost accounting, and price optimization, highlighting their advantages and disadvantages. The report then explores various management accounting reports, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports, detailing their significance. Further, the report provides an income statement using both absorption and marginal costing methods, along with a reconciliation statement. It also includes an analysis of fixed and variable costs, margin of safety, and break-even point calculations. Finally, the report describes different types of planning tools for budgetary control and analyzes the use of management accounting systems in solving financial problems, providing a comprehensive overview of the subject matter.

UNIT 5 – MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explaining different types of management accounting system.............................................3
P2 Explaining different methods used for management accounting reports...............................5
Task 2...............................................................................................................................................7
P3. ...............................................................................................................................................7
TASK 3..........................................................................................................................................11
P4 Describing advantages and disadvantages of different types of planning tools for budgetary
control ......................................................................................................................................11
P5. Analysing use of management accounting system for solving financial problems............13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting (MA) refers to the stipulation of financial data and proposal to
the company for achieving higher profitability and development. It is significant in the current
scenarios as it helps management accountant to take strategic decisions for efficient functioning
of the organization. The present report focuses on MA concepts and techniques for decision-
making. Additionally, the report will elaborate different types of management accounting
systems along with its advantages and disadvantages. The current report also gives detail of
different types of reports of MA. Additionally, it represents income statement using absorption
and marginal costing. The report also show segregation between fixed and variable cost along
with computation of margin of safety & break even point. The particular report also describes
different types of planning tool for budgetary control. Further, this study represents how
management accounting is utilized for solving financial problems.
MAIN BODY
TASK 1
P1 Explaining different types of management accounting system
Management accounting system use several methods to gather financial information for
the preparation reports for company (Management accounting and its importance. 2019). In
addition to this, these reports aid management to take strategic decision for smooth functioning
of the business. With respect to this, there are basically four types of management accounting
system which area as follows:
Job costing system
It is the system that collects the information regarding the cost associated with particular
production and service. Additionally, management accountant can aid Connect Catering Services
(CCS) to identify its organization's profits and loss (Agustina, 2020). With respect to this, the
system may be beneficial for CCS to evaluate costing related to particular job in present and also
for the future. In addition to this, it provides assistance in determining variance between the
actual and estimated cost of particular job. There are various merits and demerits that CCS will
get through this are as follows
Advantages Disadvantages

 Profitability for each job can
particularly identify
 No standardization of job so there is
requirement of close supervision.
 Aid business to calculate standard cost
of each job
 For maintaining detailed information
clarical work is needed
 Evaluation of unprofitable jobs  It is too expensive
 Computation of variance (Hutaibat, and
Alhatabat, 2020).
 Comparison of job becomes
meaningless in case of inflation
 Efficiency of variance  No corrective action in case of
estimated profits
 Helps in providing quotation for a
production
 Overheads can not be control
Inventory Management system
It is the combination of technology and procedures that monitor stocks of the products. In
addition to this, it will enable Connect Catering Services to maintain centralized records of assets
of the organization so that better productivity can be achieved.
Advantages Disadvantages
 It provides improved cash flow  It is the complex process
 Better productivity can be achieved  It is high-priced
 Reduction in storage cost  Controlled removal of organization risk
 Enhanced transparency  It does not identify the production
problems of the company
 Improved relationship with
stakeholders
 Declination in labour cost

These are the some benefits and drawbacks that CCS will get through use of inventory
management system of management accounting.
Cost Accounting system
It is the framework that is utilized by the organization to evaluate and analyse cost,
profitability, inventory valuation. Additionally, Connect Catering Services can use this to
examine raw material before production process to obtain better quality of finished goods. With
respect to this, it is significant for the business as it lower down the cost of production by
eliminating irrelevant items.
Advantages Disadvantages
 It can be adapted according to the
changing need of firm
 It is the additional step to verify
accuracy
 It is very efficient in monitoring and
controlling labouring cost
 It can be conducted only with high
skilled talent
 It allows the manger to view data in
different ways
 Although it is costly process
Price optimization
It is a method that determine demand at different levels of price then combine obtain data
with information of inventory and cost to evaluate the best price for the product. Additionally, it
will provide assistance to CCS firm to evaluate best pricing strategies for achieving higher level
of profits.
Advantages Disadvantages
 It provides scalability to the company
(Amara and Benelifa, 2017).
 Time exposure it the biggest drawback
of the system
 It helps business to obtain full control  It is a complex procedure
 With help of this system market
transparency can be achieved
 Another disadvantage is large scale of
non employability in the sector

 Full control is another benefit that firm
can get through this system.
P2 Explaining different methods used for management accounting reports
Management accounting reports are utilized for planning, organizing, regulating,
decision-making and measuring performance. In addition to this, following are the different
types of management accounting reports.
Budget Report
CSS use this reports to measure company's performance through evaluating each
department of the firm. In addition to this, every company prepare budget in the initial stage to
estimate its future expenditure so that it can effectively allocate financial resources. With respect
to this, these reports helps organization to compare its present position with previous so that
suitable major actions can be taken (Hlaciuc and et.al., 2017). Further, management account of
Connecting Catering Service can take decision regarding employees incentives, cost reduction of
suppliers and vendors.
Accounts Receivable Ageing Report
This is the crucial report that gives the company idea about organization should offer
credit to consumers or not (Types of managerial accounting reports, 2020). It provides an
overview of credit balances according to segregation of period such as 30, 60 and 90 days. With
respect to this, if there are many defaulters then company need to make completely new strict
procedure for credit transaction. Additionally, it is essentially to do the same for better cash flow
In add-on to this, it allows the organization to adjust its credit policies so that CCS can match its
norms & condition with customers capacity.
Cost Managerial Accounting Report
This report can help CCS to obtain cost of raw material, labour, overhead, etc. In addition
to this, it aids company to find overall summary of all the information of the firm. With respect
to this, manager can take decision regarding selling price of product with help of these cost
evaluation (Lasyoud and Alsharari, 2017). Additionally, profit margins can be estimated with
help of transparent view of cost of production of products. In aspect to this, these reports are very
beneficial for the CCS to evaluate profitability and cost of each procedure of the company.
Performance Reports

This is prepared to evaluate performance of the organizations and employees of each
team. With respect to this, it is also utilized to compare the current performance with the past to
check that company is going in upward or downward direction. Further, managers use this report
to take strategic decision regarding the employees increment, promotion, appreciation, etc.
Furthermore, it offers the deep insights into the working strategies of Connecting Catering
Service.
Other Managerial Accounting Report
Competitors, market and industry analysis report are very essential for the better
functioning of the CCS. In addition to this, it evaluates scope of the company in the industry by
identifying opportunities and weakness of the business. With respect to this, it is vital component
of management accountant as these reports gives overview of all transaction of the organization.
These are different reports of management accountant that help the organization to take
strategic and operational decision for the effective planning and controlling of CCS.
Task 2
P3.
Income statement using absorption costing
April May
sales 16000 16000
Add: Variable manufacturing cost 10000 12000
Fixed manufacturing cost 15000 15000
27000
Cost of goods available for sales 25000
Add: Opening stock 0 5000
Less Closing stock 5000 13500

Cost of goods sold 20000 18500
Gross profit -4000 -2500
Less Fixed manufacturing cost 4000 4000
Net profit -£8000 -£6500
Working note :
closing stock of april = production cost *closing stock unit/ units produced
= 25000×500÷2500
= 5000
closing stock of may = production cost *closing stock unit/ units produced
= 16000*1500/3000
= 13500
Income statement using marginal costing
April May
sales 16000 16000
Less Variable manufacturing cost 10000 12000
Add: Opening stock 0
2000(500*
4)
Less Closing stock
2000(500*
4)
6000(1500
×4)
Less Cost of goods sold 8000 8000
Contribution 8000 8000

Less Fixed manufacturing cost 4000 4000
fixed overhead 15000 15000
Net profit -£11000 -£11000
Reconciliation statement-
Particulars April May
Absorption cost profit -8000 -6500
add: Opening Stock 0 (500*6)3000
Less: Fixed overhead included
in closing stock
(500*6) 3000 (1500*5)7500
Marginal cost profit -11000 -11000
2. a)
1. Fixed and variable cost:
Variable cost Per unit Fixed cost Amount
a) Direct material cost £3.5 a) Manager's salary £5000
b) Direct labour cost £1.5 b) Rent £5000
c) Direct overhead cost £0.5 c) Advertising £1000
d) Insurance £500
e) Utilities £500
Total £5.5 Total £12000
2. Margin of safety at the sales level of 3500 pizza
Sales per unit 9.5
Direct material cost 3.5

Direct labour cost 1.5
Direct overhead cost 0.5
Contribution per product 4
Break even analysis (In units) = fixed cost / contribution per unit
=12000/4
=3000 units
Marin of safety (MOS) =Present sales- Break-even sales
= 3500 units- 3000 units
= 500 units
3. Change in BEP when managers salary increases by 6000
Fixed Cost managers salary Rent Insurance Advertising utilities
6000 5000 500 1000 500
13000
Break even:
1. sales (In units) =13000/4 = 3250 (Units)
2. sales (In values )= 3250* £9.5= £ 30875
b)
Units 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Fixed
costs 12000 12000 12000 12000 12000 12000 12000 12000 12000 12000
Variable 2750 5500 8250 11000 13750 16500 19250 22000 24750 27500

costs
Total
costs 14750 17500 20250 23000 25750 28500 31250 34000 36750 39500
Revenue 4750 9500 14250 19000 23750 28500 33250 38000 42750 47500
From the above graph it can be interpreted that fixed cost remain the same even if sales
volume increases. It can also be observed that variable cost increases with increment of sales of
products. With help of such graph and data break even point can easily evaluated.
Variance analysis with flexible and sales volume variance
Particulars Budgeted information Actual information Variances
Qty. Price Amt. Qty. Price Amt.
Absolut
e %
Sales
revenue 10000 9.5 95000 12000 10 120000 25000 26.32
Less
Variable
costs 10000 5.5 55000 12000 5 60000 5000 9.09

Contribution 4 40000 5 60000 20000 50
Less Fixed
costs 12000 15000 3000 25
Operating
Profit 10000 2.8 28000 12000 3.75 45000 17000 60.71
Units Actual budget
Flexible
budget Fixed budget
Flexible
variance
Sales volume
variance
Units 12000 12000 10000
Sales per unit 120000 114000 95000 6000 19000
variable cost 60000 66000 55000 -6000 11000
Contribution 60000 48000 40000 12000 8000
Fixed cost 15000 12000 12000 3000 0
Profit 45000 36000 28000 9000 8000
TASK 3
P4 Describing advantages and disadvantages of different types of planning tools for budgetary
control
Budgetary control is the process by which budgets are formulated for the future and helps
business to compare estimated performance with the actual. In addition to this, there are several
planning tools for budgetary control which has different advantages and disadvantages (Bhimani,
2020). Further, there are different objectives for which organization conduct control such as
planning, coordinating, etc. In addition to this, there are different types of tools some of which
are fixed, variable and flexible budgets.
Fixed Cost budget

Fixed cost refers to the expenses that are essential for the business to incur even in case
of nil production. In addition to this, these type of budget provide assistance to the company to
evaluate that its current expenses are higher or lower than previous fixed cost. With respect to
this, it is essential for the business to prepare and compare its non changeable cost budget for
evaluations of end results. In aspect to this, it plays vital role in deciding profit margins as selling
price will include the fixed cost related to production.
Benefits Drawbacks
 It helps organization to save time by
needless preparation of budget every
year.
 Becomes difficult to get variance when
output is different
 Easy tracking of cost  It is based on historical data so no
accuracy
 Quick implementation of strategies  Ineffective tool for cost control
Variable Cost Budget
Thisis the cost that vary with the sales volume of the organization. In addition to this, it
is essential budget that company can utilize to compare its price variation to check that its
production cost is increasing or decreasing. With respect to this, there are several advantages and
disadvantages of this method of budgetary control as well.
Benefits Drawbacks
 It enables the firm to conduct
operational planning
 This results in undervaluation in
inventory in the balance sheet
 This tool aids business to evaluate cost-
profit which help to get contribution
marking
 It is not acceptable by the external and
tax reporting
 It is a technique which is also
beneficial for the organisation to
determine its products' price
 It is not suitable for long term pricing
strategy

 Management decision can be taken
through this system of budgetary
control
 It gives lower net income as fixed cost
are considered as the period
expenditure.
 It also assists the business to implement
changes in its profit margins
 It is non confirming method according
to the principles of accounting.
Flexible budget
It is the budget that can be adjusted according to the changes in activities. In addition to
this, it is more useful in changing circumstances than static budget (Gaspars-Wieloch,2021).
With respect to this, the budget will be flex as the there is changing variable rate. In aspect to
this, is very useful in measuring manager's efficiency.
Benefits Drawbacks
 It allows business to record seasonal
expenses.
 It requires highly skilled workers for
preparing budget.
 It helps the business to calculate cost,
profit, etc. at different levels
 It is complex as historical information
need to be perceived correctly
 It assists firm to determine production
level in changing business and market
environment
 It is expensive to conduct flexible
budget
 It is not rigid  It is inaccurate as based on production
which is not in hand of management
Zero based budgeting
One of the important type of planning tool company utilize it to formulate strategic
budget that is completely based on new information available which in turn allows firm to
compete with changing circumstances of industry.
Benefits Drawbacks
 Coordination and communication can
be achieved through this mode of
 It is very time intensive exercise as it
consumes a long duration for

planning too as clarity and transparency
is maintained from the beginning.
completion of procedure as compared
to other tools.
Activity based budgeting
After considering overhead cost it is used by organisation for making proper budget.
Benefits Drawbacks
 Effective evaluation can be done by
company
 It is of complex nature so requires deep
understanding
 Improves relationship by making
positive working environment
 Suitable for short term only
P5. Analysing use of management accounting system for solving financial problems
Management accounting plays an important role in summarizing, analysing and
interpretation of financial information of the company. In changing scenario of world
management accounting has become integral part of organization. Additionally, it helps the
manager of the business to identify financial problems and best strategies suitable to solve those
issues. In addition to this, these systems aids manager to evaluate current performance with
previous to analyse improvement areas (Zadorozhnyi and et.al., 2018.). Further, it provides
assistance to management in increasing the efficiency level of decision-making. The process of
management accounting system is different from the financial system. Additionally, there are
several methods and techniques that enable business to get information related to the insight of
the cost fluctuation. With respect to this, manager of the firm can to analyse better and financial
stable future to obtain success. There are several ways that resource a company to use these
techniques in different method to achieve the desire outcome for the organization.
In aspect to this, benchmarking is the measurement of performance related to company's
each process with estimated standards which is the best part of management accounting. It is
utilized to identify internal opportunities for modification of lacking areas. With respect to this
there are two types of possibility for improvement such as continuous and dramatic. Continuous
improvement refers to mall adjustments and dramatic refers to re engineering the whole internal
procedure. Addition to this, there are respective benefits that assist company to solve its financial

problem (Rikhardsson and Yigitbasioglu, 2018.). It includes improving understanding of internal
process and cost structure. It also gives assistance in more becoming competitive and encourages
the team building environment. It enhances knowledge of key performance indicator to get better
results.
Further, these management accounting system helps the organization to solve different
problems such as finding replacement for one large expense in the budget, identifying irrelevant
expenses, creating specialized budget to solve these issues and increasing spending awareness.
Following are the ways in which management accounting assist organization to get success:
Management accounting process can be modified according to the need of business.
There are several advantages that combine with the capacity of the firm to improve its activities
and profitability.
Improves cash flow
Preparation of budgets are essential part of the management accounting which assist
organisation to have road map for carrying out business procedures. Companies prepare small
budgets according to requirement of departments to achieve better productivity and position in
the industry. The crucial reason for the budget is to eliminate unnecessary expenditures to save
money of business.
Increase financial returns
It can also be utilized to enhance financial returns. Additionally, it is assist management
accountant to predict future consumer demand for the products so that company can meet it to
achieve more sales (Abdusalomova, 2019.). Management accounting pays attention in gathering
details of competition in the market it also affects the financial return.
Strategic business decision making
Management accounting is used by businesses as decision-making tool. Additionally, it
gives quantitative analysis details of market condition which provide opportunity of making
strategic decision for quality performance.
Declination of expenditure
It lowers the operational expenditure of the organization to obtain more profit margins,. It
allows organization to get the complete details regarding requirement of capital for efficient
functioning of functions of business.
Tesco Marks and Spencer

To address the financial problem company
uses strategic business decision making
procedure in which it give emphasis on
inventory and risk management for achieving
better outcome
To overcome its financial problem M&S
focuses on declination of expenditure for
increasing profit margin. Improved cash flow
can be achieved with this.
CONCLUSION
From the above report it can be concluded that management accounting helps business to
take suitable actions for the improvement areas. It is also summarized that job costing, cost
accounting, inventory management and price optimization are types of management accounting
systems. Additionally these systems has various advantages & disadvantages such as efficiency
of work and complexity respectively. The study shows there are different types of MA report
which includes budget, account receivable ageing, cost managerial, performance, etc. Further,
the current report has shown different planning tools for budgetary control which implies fixed,
variable and flexible. Beside this, it is also summarized that it aid to resolve financial issues by
reducing expenses, crucial decision-making, incremental of returns, etc.

REFERENCES
Books and Journals
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of SME managers with a management accounting system. In The Future
Opportunities and Challenges of Business in Digital Era 4.0: Proceedings
of the 2nd International Conference on Economics, Business and
Entrepreneurship (ICEBE 2019), November 1, 2019, Bandar Lampung,
Indonesia (p. 307). Routledge.
Amara, T. and Benelifa, S., 2017. The impact of external and internal factors on the management
accounting practices. International Journal of Finance and Accounting.
6(2). pp.46-58.
Bhimani, A., 2020. Digital data and management accounting: why we need to rethink research
methods. Journal of Management Control. pp.1-15.
Gaspars-Wieloch, H., 2021. Scenario planning combined with probabilities as a risk management
tool-analysis of pros and cons. International Journal of Economics and
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Hutaibat, K. and Alhatabat, Z., 2020. Management accounting practices’ adoption in UK
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Lasyoud, A. A. and Alsharari, N. M., 2017. Towards an understanding of the dimensions and
factors of management accounting change. Asia-Pacific Management
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Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of
Accounting Information Systems. 29. pp.37-58.
Zadorozhnyi, Z. M. and et.al., 2018. Management accounting of electronic transactions with the
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Online
Types of managerial accounting reports. 2020. [Online] Available through:
<https://www.completecontroller.com/types-of-managerial-accounting-
reports/>
Management accounting and its importance. 2019. [Online] Available through:
<https://legaldocs.co.in/blog/importance-of-management-accounting>