Management Accounting Report: Financial Problem Solving Techniques

This report provides a comprehensive overview of management accounting, focusing on its role in financial analysis and problem-solving within a business context, specifically referencing A&R Cambridge Ltd. It begins by defining management accounting, its systems, and requirements, contrasting it with financial accounting. The report then details various methods used in management accounting reports, including income statements, cash flow statements, and balance sheets. Furthermore, it delves into costing techniques, such as absorption and marginal costing, illustrating their application in preparing income statements. The report also covers different management accounting systems for resolving financial problems, supported by practical examples and calculations, demonstrating the practical application of these techniques. The report concludes by providing a detailed analysis of financial data and the importance of management accounting in making informed business decisions.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P 1 Explaining management accounting, management accounting systems and their
requirements in the company ......................................................................................................1
P2 Methods used for management accounting report..................................................................3
P 3 Preparing income statements using marginal and absorption costing techniques of
management accounting...............................................................................................................4
P 4................................................................................................................................................8
Case 4.........................................................................................................................................10
P 5. Comparing different management accounting system used for resolving financial
problems.....................................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
A provision made of the set of numerous financial information of the company for the
purpose of using it in the business organisation and helping its managers for the development
purpose is nothing but a management accounting. It can also be defined as a process of analysing
internal performance of the company and summarise them in an effective manner so that
managers could easily analyse the actual performance and formulate their plans and strategies for
the business in more effective manner. A&R Cambridge Ltd. is a medium szized manufacturing
company of England. it was established in 2017. The present study shows a report explaning
detailed information about overall management accounting system, its requirement in the
company along with major difference of management accounting system with financial
accounting.
In addition, the study also shows an explanation regarding different types of planning
tools of budgetary control system and their critical analysis. It provides details regarding
numerous types of management accounting system that can be used by the various business
organisations in order to develop strength of the company in responding to various financial
problems arise in the company. In addition, a part of the present assignment also shows some
practical financial problems solved with the help of appropriate techniques of management
accounting system.
LO 1
P 1 Explaining management accounting, management accounting systems and their
requirements in the company
Management accounting
The term management accounting can be described as a range of methods used in the
management of numerous monitory and non monitory activities relating to financial performance
of the company (Fernando, 2016). It is analysing, summarising and presenting each financial
transaction of the company in more presentable way so that even a non commercial manager
could understand the actual financial position of the company. In this regard, the management
accounting can also be defined as a branch of accounting that performs its operations by assisting
the managers in their decision making process in context to financial performance of company.
Key functions of management accounting
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Following are the major key functions of managerial accounting in the business
organisation:
 To provide sufficient data to the managers.
 Modifying each information recieved by them in such a way so that it could be used by
the managers for their decision making process.
 To assist managerial accountants in improving their quality of performing their
managerial functions
 Management accounting system also performs a key function of being a mean of
communication in the company regarding financial information.
Types of management accounting:
Following are different types of management accounting system that can be adopted by
an organisation in order to improve quality of management and control:
Financial accounting system
The financial accounting system can be defined as a branch of overall accounting system
that concerns with analysis of various financial transactions performed by the company and
summarising them in a professional manner for the purpose of preparing various financial reports
such as statement of financial position, income statements, cash flow statements, etc.
For this purpose the managerial accountant needs to follow several rules and procedures
provided by GAAP, Financial accounting standard board (FASB) etc. These bodies provides
several guidelines, rules and procedures that laws that is needed to be comply by each business
organisation in order to prepare their financial reports.
In addition, the AIS (Accounting information system) helps the financial accountant in
improving the quality of collecting summarising and presenting the financial data in more
presentable manner (Accounting Systems & Rules. 2017). It AIS is a computer based system that
also helps in maintaining the financial information and tracking each financial and accounting
transaction of the business in an effective way.
Furthermore, the adoption of financial accounting system is required by the company in
order to improve the internal control system of the company and providing each information to
financial accountant more accurately.
Cost accounting system
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Cost accounting system is also one major type of management accounting system that
enables the managers in improving their management and control over the cost incurred by the
company. With the help of this system, managers also becomes able to detect the areas in which
A&R Cambridge Ltd. can cut down the cost without sacrificing with any quality of working or
profit generation capacity of the business.
Product costing, activity based costing, etc. are some methods used in the cost accounting
system. With the help of these methods, managers of the firm can determine different costs
incurred by the business in each activity. In this order, managerial accountant can become able to
improve their efficiency of monitoring each activity relating to cost and develop more effective
controlling measures for the firm in context to cost control of the company.
Management accounting system
Management accounting system is set of management accounting system is a set of rules
and guidelines that helps in presenting each information of the A&R Cambridge Ltd. regarding
its financial activities performed by the company during a specific time period. Adoption of this
system leads in helping the managers in their decision making process in context to the
improving the financial position of the company in the competitive market. This system also
provides various methods for the purpose of controlling and managing various activities such as
profit generation, investment decision, cost control, price optimisation, etc.
Tax accounting system
This system is required to be adopted by all those business organisations that needs to
pay tax to the Government (Ibrahim, 2019. International taxation, corporate tax, individual tax,
tax on partnership businesses, etc. are some core branches of the tax accounting system. These
branches can be adopted by any person of the country including individuals, corporations,
business organisation, etc. as per their needs.
P2 Methods used for management accounting report
Management accounting report is used to present the data in systematic manner to get evaluate
the information and take the useful decisions in the organization. Different methods are used by
the organization for management accounting report such as :
Income statement : The purpose of income statement is to provide the financial earnings of the
organization in specific period which can be monthly, quarterly or annually. It also known as
profit and loss account or earning statement. It was used by the A & R Cambridge limited to
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demonstrate the profitability and expenses of the organization to the different stakeholder and
customer to attract toward the business unit. The difference between the income and expenses
represent the net income or loss of the organization which was used for distributing the dividends
to the shareholders.
Cash flow statement : Cash flow statement is used to present the activities which generate the
cash or uses the cash in the organization. A & R Cambridge limited company present the total
cash inflow and outflow in a particular accounting period via the cash flow statement. The
purpose of the cash flow statement is to provide the information related to the cash payments,
cash receipts and net changes in the company because of the financial, operating and investing
activity.
Balance sheet : Balance sheet present financial status of the business in a particular accounting
year. It presents the total number of asset and liability in the organization to manage the debtor
and creditor of the business. A & R Cambridge limited analysis the financial position of the
business to control the activity and analysis the various factor which affect the growth of the
business.
Cost accounting system : Cost accounting system is also known as product costing system. It is
used by the company to estimate the cost of the product and services of the business to evaluate
the profitability, valuation of inventory and control the cost. For example evaluating the relation
between the cost and profit help the A & R Cambridge limited company to take the effective
decision and set the perfect price for their product.
Job costing system : Job costing system is mostly used in the customized product or when
customer orders the product. In job costing system they estimate each job cost and charge
according to the job. For example a house builder estimate the cost according to the different job
like building the structure, painting, furnishing etc.
Price optimizing system : It is used to analyse the reaction or behaviour of the customer
according to the price of the product. It also helps the company to analyse the price determine by
them is efficient or not ) (Gencia and et.al., 2016). For example by optimizing the price A & R
Cambridge limited company is able to analyse the buying behaviour of the customer.
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P3 Preparing income statements using marginal and absorption costing techniques of
management accounting
Cost:
The term cost can be defined as sum total of various expenses incurred by the company
during a specific time period. Total cost of the company includes various expenses including
both production and non production cost of the company.
Cost allocation:
Total cost incurred by A&R Cambridge Ltd. can be allocated in various categories such
as:
 Product costing: It is the category of costing that considers various costs incurred by the
business while manufacturing goods. Further, the product cost can be sub-categorised
into two parts namely; fixed cost and variable cost.
 Standard costing: These are pre estimated costs that has been predicted to be incurred
by the company within a specific time period. standard costs are being set by the
managers by analysing the actual goals and actual efficiency of the A&R Ltd.
 Absorption costing: Absorption costs is nothing but sum of all those costs that have
been incurred by the company while producing and selling goods and services. It includes
both production and non production cost.
 Marginal costing: This is the costs that considers all variable costs incurred by the
business while producing the goods or services. It does not consider any fixed cost at the
time of calculating cost of production.
Calculation of cost per unit under marginal costing system (Cost card)
Particulars Amount
material (7*5) 35
Labour (8*4) 32
Variable cost 5
Total production cost per unit 72
Preparation of income statement under marginal costing
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January
Particulars Amount Amount
sales budget 1000000
COGS
opening stock 420000
Material 384000
labour 60000
Variable cost
closing stock -144000 -720000
280000
variable expenses -40000
Contribution 240000
Fixed production cost -24000
Fixed selling cost -3000
net profit 213000
February
Particulars Amount Amount
sales 1250000
COGS
opening stock 144000
Material 3675000
labour 336000
Variable Overhead 52500
closing stock 0 -900000
350000
variable expenses -50000
Contribution 300000
Fixed overheads -24000
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Fixed selling expenses -3000
Net profit 273000
march
Particulars Amount Amount
Budgeted sales 1150000
COGS
opening stock 144000
Material 332500
labour 304000
Fixed cost 24000
Variable cost 47500
less: closing stock 0
-852000
gross profit 298000
variable selling expenses -50000
Fixed selling expenses -3000
Net profit 245000
calculation of cost per unit under Absorption costing
Particular Amount
material 35
Labour 32
Variable expenses 5
fixed expenses 2
Total production cost per unit 74
Income statement using Absorption costing system
January
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Particulars Amount Amount
sales budget 1000000
COGS
opening stock
Material 420000
labour 384000
Fixed cost 24000
Variable cost 60000
888000
closing inventory -144000
-744000
gross profit 256000
variable selling cost -40000
Fixed selling cost -3000
Net profit 213000
February
Particulars Amount Amount
sales budget 1250000
cost of sales
opening stock 144000
Material 367500
labour 336000
Fixed cost 24000
Variable Overhead 52500
- closing inventory 0
-924000
gross profit 326000
- variable selling expenses -50000
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- Fixed selling expenses -3000
Net profit 273000
march
Particulars Amount Amount
sales budget 1150000
COGS
opening stock 144000
Material 332500
labour 304000
Fixed cost 24000
Variable cost 47500
1203500
- closing stock 0
-852000
gross profit 298000
- variable selling cost -50000
- Fixed selling cost -3000
Net profit / loss 245000
P 4 Preparing and explaining different types of budgetary planning tools
Budgetary control system:
Budgetary control system can be defined as a process of analysing and evaluating
company's goals and objectives and forecasting future activities for the company. This system
enable managers in setting short term goals for the so that it could achieve its long term goals.
following are some essential planning tools of budgetary control; system that helps
managers in their effective managerial functioning:
 Zero based budgeting: Zero based budgets are prepared by managers without analysing
the previous performance of the company (What is Zero Based Budgeting (ZBB)?.
2019). Rather, they analyse actual goals and objective of firm and estimates performance
of the company so that it could achieve them effectively.
Advantages
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▪ It improves efficiency of company in achiveing the goals.
▪ It reduces the working of analysing previous performance of business.
Disadvantage
▪ It requires professional skills of managers.
▪ Company needs to invest huge money in preparation of this budget.
 Cash budgets: Cash budgets refers to a statement showing estimation of movement of
cash and cash equivalents within the business. This budget helps in detecting areas of
usage as well as areas of generation of cash and cash equivalent for the A&R cambridge
Ltd.
Advantages
▪ It helps in maintaining sufficient liquidity within the firm.
▪ It provides information regarding several areas through which business can
generate cash and cash equivalents to be used in the business.
Disadvantage
▪ Estimation of value of cash is not possible.
▪ This budget fails at the time of change in value of money.
 Operational budgets: Operational budgets are set of those budgets that describes
estimated performance of the business in its various operations. sales budgets, production
budgets, purchase budgets, etc. are some main types of operational budgets.
Advantages
▪ It helps in predicting each core operation of A&R Cambridge Ltd.
▪ It provides information regarding numerous resources that would be required by
firm within specific time.
Disadvantage
▪ It results in generation of rigidity within various business operations.
▪ It fails if company takes another project other than pre decided projects.
Case 3
Sales budget
Particulars Product EC1 Product EC2 Product EC3
Budgeted sales 2000 4000 3000
per unit prince 100 130 150
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Sales revenue 200000 520000 450000
Production budget
Particulars Product EC1 Product EC2 Product EC3
Budgeted sales 2000 4000 3000
Closing stock 600 1000 800
Total production 2600 5000 3800
Opening stock 500 800 700
Production Units 2100 4200 3100
Material usage budget of wood
Particular Product EC1 Product EC2 Product EC3
Total
products
Production units 2100 4200 3100
Material per unit 5 3 2
Production 10500 12600 6200 29300
Closing stock 18000
Opening stock 21000
Total material 26300
Raw material 8
Total raw material 210400
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Labour usage budget
Particular Product EC2 Product EC3 Total products
Units manufactured 2100 4200 3100
Required hour per unit 4 6 8
Required production 8400 25200 24800
wages 3 3 3
Total wages 25200 75600 74400
Case 4
Perpetration of cash flow for the 3 months
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Case 5
A) Preparation of flexible budget
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P 5. Comparing different management accounting system used for resolving financial problems.
Different management accounting system are there by use of which A&R Cambridge Ltd
can overcome its issues:
1. Benchmarking – It is defined as process of comparing and measuring performance level
in relation of business processes, procedures or services of a company with those
considered as one of the best and profit making company in the market. By making
comparison of own business products, services and operations with the standard one and
taking preventive measures for improving and bringing to set defined quality and
standard. With the help of benchmarking tool of management accounting system, A&R
Cambridge Ltd can easily identify its opportunities and weaknesses on the internal basis
which are requiring improvement on priority basis.
2. Key performance indicators – This tool of management accounting system is a
quantifiable aspect which helps in assessing the progress, growth or success level of
business and its employees as a whole (Clark and Craig, 2018). It helps in determining
whether the company is performing effectively in line with the strategies and plans made
or not for achieving the set defined business goals and objectives. By using key
performance indicator tool, A&R Cambridge Ltd can monitor and evaluate the level of
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success at different multiple points for reaching targets. Thus, it helps the company in
making improvement in its revenue and production level thereby focusing on minimising
the cost expenses associated with the unproductive business areas.
3. Budgetary target – It is one of the best tool comprising a process in which managers of
the company set financial as well as performance targets, goals to be achieved in future
along with budget plan. This help in making comparison of the actual result or outcome
from the business operations with the budgeted or estimated one (Barr and McClellan,
2018). It helps in identifying variances if any and takes corrective measures for
improving the performance level. A&R can formulate financial plan for a particular time
period with the help of budget target set by focusing on proper and accurate allocation of
limited available business as well as financial resources as per the requirements of
business department for smooth and cost effective performance of business operations.
A&R Cambridge Ltd has been using Key performance indicator tool for mitigating the
risk of loss arising from inefficient business operations, cost expenses associated with
unnecessary and unproductive business department. By designing sound and effective business
strategies and plans, it can overcome its low performance level regarding to productivity as well
as profitability. Also, by adopting new, innovative and better improved business processes A&R
can improve its process cycle time and minimise cost expenses.
Maple & Co. on the other hand, has been using Budgetary target for its issues related to
high business cost and low profit margin (Manea, 2017). By this tool, it can improve its business
profitability and customer satisfaction level by delivering quality and standard product at
affordable price as per the financial plan made for an accounting period with budget target.
CONCLUSION
From the analysis of above study, it can be evaluated that a business should involve
management accounting system and management accounting reporting within the firm, as it
helps in improving the quality of management and controlling system of the company. with the
help of different budgetary control system tools, managers can formulate more effective plans for
the company. Further, the study has also concluded that there are various types of management
accounting systems that can be adopted by managers in order to develop efficiency in the firm in
responding to a range of financial problems.
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