Analysis of Management Accounting for Conway Ltd Report

This report delves into the realm of management accounting, focusing on its application within Conway Ltd. It begins with an overview of management accounting systems, including cost accounting and inventory management, and their benefits. The report then explores various management accounting techniques, such as absorption and marginal costing, providing income statements for Conway Ltd using both methods. Planning tools, including scenario, contingency, and forecasting tools, are examined in the context of budgetary control, highlighting their advantages and disadvantages. The report further addresses how management accounting can be utilized to respond to financial problems, using Unilever and P&G as examples. It evaluates how planning tools help organizations solve financial issues such as maintaining price and profit margins, and concludes with a summary of the key findings.

Management Accounting

Table of Content
• Introduction
• 1. Understanding of Management Accounting Systems
• 2. Range of Management Accounting Techniques
• 3. Use of Planning Tools in the Management Accounting
• 4. Use of Management Accounting to Response Financial
Problems
• Conclusion
• References

Introduction
Management accounting is the process of managing
information for the analysis of their financial data and it will
use by the manager to for the internal decision making
process. This report include the Conway Ltd financial
information to calculate or analyse the cost of their products.
It will be calculated through marginal or absorption costing
method.

1. UNDERSTANDING OF MANAGEMENT
ACCOUNTING SYSTEMS

DIFFERENT TYPE OF MANAGEMENT
ACCOUNTING SYSTEM
 Cost Accounting System: Managerial framework which help the
manager to identify the cost of each unit. Manager analyse the cost
through evaluating their profit margin, involuntary valuation and
try to reduce product cost and control it.
 Inventory Management System: Software which help the
organisation to track their inventory level on regular basis. As
physical counting will take enough time so this system help the
manager to improve their warehouse system.

BENEFITS OF MANAGEMENT
ACCOUNTING SYSTEM
 Cost Accounting System: Help the manager to identify the
cost of each unit including the labour, material & other
overheads. Easy identification of the overall expenses or
revenue of the organisation which further helps in achieving
business objectives & goals.
 Inventory management system: Increase productivity or
efficiency in the operational functions. Reduce the wastage
of material as well as provide prior information before
shortage. Provide accurate information and reduce manual
burden to record each entry.

CRITICAL EVALUATION OF MANAGEMENT
ACCOUNTING REPORTING INTEGRATED
WITH ORGANISATIONAL PROCESS
Management accounting reports are integrated with
organisational process due the inter- related function. Such as
different accounting reports required various information
which will be collected through organisational process and it
include the business goals & objectives. Performance or
budget report required the information related to employees or
operational functions which perform in the organisation.
Manager of Unilever company have to perform organisational
process and it will be done through budget report because it
include the each and every information regarding material,
planning, funding & other activities.

DIFFERENT METHODS OF
MANAGEMENT ACCOUNTING REPORT
 Budget Report: An internal report which help the
management to compare estimated data with the actual
performance.
 Performance Report Accounting: It includes the
experience of workers or organisation at the time of
performing their task. Also individual performance of an
employee is reflected in this.
 Cost Managerial Accounting Report: Includes all product
cost related information as well as strategies which help the
company to control their product cost or try to reduce each
unit.

2. RANGE OF MANAGEMENT
ACCOUNTING TECHNIQUES

Absorption Costing
It is an accounting methods which include the
manufacturing cost of product. Absorption costing not just
include the material and labour cost it also include the
production overheads. It will include direct or indirect cost of
manufacturing.

Marginal Costing
This costing system determine the changes when quantity
increased by every single unit. It is helpful technique to find
out each cost of product, where variable cost considered as
cost of unit and fixed cost as period cost

Income statement by absorption costing
methods:
Particular Amount
Sale(40000*15) 600000
Less: - Cost of goods sold
Material Cost (40000*4) 160000
Labour Cost (40000*4) 160000
Variable Cost (40000*2) 80000
Fixed overheads 50000

Income statement by marginal costing
methods:
Particular Amount
Sale(40000*15) 600000
Less: - Variable cost 400000
Contribution 200000
Less: - Fixed overheads 150000
Income 50000

Income Statement of Conway Ltd.

3. USE OF PLANNING TOOLS IN THE
MANAGEMENT ACCOUNTING

ADVANTAGE AND DISADVANTAGE OF
PLANNING TOOLS USED IN
BUDGETARY CONTROL
 Scenario tool: The main purpose of scenario tool is to make
a number of possible outcomes which may be occur in
future.
Advantage: Measure, manage and control the risk in which may
occur further in any enterprises. Making planning and give
solution to reduce the risk
Disadvantage: Expensive and difficult to predict and build
estimated planning.

Continued...
 Contingency tool: Every firm should be ready to bear the
contingency situation that may occur any times.
Advantage: Helps to compensate with future possible risk and
losses. Helps to make a structure plan for decision making by
recording day to day business activity.
Disadvantage: Based on future risk that is expected so it
requires more finance in order to arrange the risk. Suffers
inadequate literature because contingency depends on future
situation of business.

Continued...
 Forecasting tool: Effective tool that is used by every
organisation to prepare estimate future budgets with the help
of past information
Advantage: Help to assure about future planning and give
suggestions that how to solve the future financial problems by
analysing past information.
Disadvantage: Difficult to understand the data and business
decision because it is based on assumptions that is not actual
information.

APPLICATION OF PLANNING TOOLS
By using this tool an organisation can get ideas about future risk,
profits and actions which should be taken to reduce or
minimize the risk. Forecasting budget help to get future
finance information which may be required to run a business
effectively. It also give ideas that business should be continue
or not and what should be done to make better decision.

4. USE OF MANAGEMENT
ACCOUNTING TO RESPONSE
FINANCIAL PROBLEMS

ORGANISATIONS FOLLOW MANAGEMENT
ACCOUNTING SYSTEMS TO RESPOND TO
FINANCIAL PROBLEMS
Financial problem: It will occur financial pressure and it happen
due to the shortage of money in the organisation. Financial
problems affect the individual's mental health as well as
affect the profitability or productivity of the organisation. It's
better to build some effective strategies to overcome from this
situation. There are some financial problems face by the
Unilever company are as follow:
 Maintain price & profit margin: Company need to maintain
their product price because it will affect the profit margin. So
manger of Unilever company have to follow costing methods
to reduce or control each unit cost and it will further helps to
maintain their profit margin (Malina ed., 2018).

Continue..
Management accounting approaches: It is the management
accounting techniques which help the organisation to solve the
financial issues which occur in the business. Some of the
techniques are discussed below:
KPI: Key performance indicator measure the performance of
employees as well as organisation to compare with business
objectives. It the management accounting tool which help the
manager of Unilever company to analyse the various factors
which affect the productivity or employees performance
(Wouters and Kirchberger, 2015).

Comparison between the organisation and how they
adopt management accounting system to solve their
financial problem
Basis Unilever P&G
Problem Company face the issue
regarding product price because
low product price will decrease
the profit margin (Ahmad, 2012).
P&G suffer from shortage of
inventory at the time of
production.
Approach To deal with this problem,
manager of the company follow
the KPI approach. Which helps
to identify key factors which
affect the cost or increase the
price of product.
Company adopt Benchmarking
techniques and measure how
other firms handle their
production system effectively,
so they don't need to face
shortage at the time of
production (Bromwich and
Scapens, 2016).

Continue..
System Company follow the price
optimization system which help
the manager to identify
consumer's willingness to pay
the price of particular product
(Carlsson-Wall, Kraus and Lind,
2015).
P&G follow the inventory
management system to track
their regular stock. By using this
manager get the prior
information regarding low
inventory level. So company
can order more material
according to the requirement
(Hall, 2016).

EVALUATE HOW PLANNING TOOL
HELP THE ORGANISATION TO SOLVE
THEIR FINANCIAL PROBLEMS
It is recommended that planning tools are helpful to make
effective business decision by solving financial problems such
as maintain price,profit margin and sale. For instance,
Unilever is facing profit margin issue because of less selling
and high prices of products and services (Salterio, 2015). In
this situation manager need to use planning tools like
forecasting and scenario that will help to solve financial issues
such as to make attractive selling strategy such as discount
offer,buy one get one free, black Friday etc. It will help to
increase the sale as well as increase company's profits.

Conclusion
From the above discussion it has been concluded that
marginal or absorption costing help the organisation to control
their cost by use of various methods. Because these costing
methods help the manger to identify each unit cost and try to
reduce or control for the whole period of time.

Reference
Quattrone, P., 2016. Management accounting goes digital: Will
the move make it wiser?. Management Accounting
Research. 31. pp.118-122.
Shields, M. D., 2015. Established management accounting
knowledge. Journal of Management Accounting Research.
27(1). pp.123-132.
Modell, S., 2014. The societal relevance of management
accounting: an introduction to the special issue. Accounting
and Business Research. 44(2). pp.83-103.

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