Management Accounting Report: Tools, Techniques, and Reporting Systems

This report provides a comprehensive overview of management accounting, examining its role in evaluating business performance and supporting decision-making. It explores the differences between management and financial accounting, highlighting the importance of management accounting information for strategic planning and operational efficiency. The report delves into various tools and techniques, including activity-based costing, relevant costing analysis, and the application of cost accounting frameworks such as actual, average, and standard costing. It also covers inventory management systems (FIFO, LIFO, AVCO) and job costing systems. Furthermore, the report discusses different types of management accounting reports, such as income statements, balance sheets, budgeting reports, job cost reports, and performance reports, emphasizing their significance in financial analysis and control. The application of these tools and techniques is illustrated in the context of Tech (UK) Ltd, demonstrating how management accounting enhances communication, improves decision-making, and contributes to achieving business objectives.

Management Accounting

INTRODUCTION
This report includes the important and necessary discussion about the management
accounting and its tool and techniques which helps the company to evaluate its overall
performance. It is a planning and measurement tools for the company. It also consider the brief
statement about various types of accounting systems and their important for business activities
to be consolidated with management accounting reporting. Under this report, Tech (UK) Ltd
producing a special mobile phone charger and it considers management accounting improves
communication system between the various departments about the flow of financial information
is readily available to all the departments to improve their decision making. Under this report,
the organization will frame the reporting for producing the decisions in an appropriate manner.
There are various accounting tools and techniques which are utilized by the company for
achieving business objectives in most effective and efficient ways (Hilton and Platt, 2013).
TASK 1
P1. Management accounting and the necessary requirements of administration accounting
framework
Management Accounting merely utilized to the investigation, interpretation,
recognition, and analysing of accounting data and information (Management Accounting, 2017).
Management accounting helps the managers and accountants in the making or formulation of
policies, decision-making process and in the daily business operations for the company.
Useful and essential areas of management accounting are:
 Risk measurement
 Performance evaluation
 Useful resources allocation
 Preparation of financial statement
 Decision making and policy framing
1. Distinguish between management accounting and financial accounting:
Objectives: The main aim of financial accounting is recording various operational
transactions in an appropriate a manner and assesses the enterprise outcome and financial
position whereas the aims of management accounting is to render essential information to the
management for the efficient performance of its functions.
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Set of rules and regulations: Financial accounting is obsessed with a different rules and
regulations and prescribed standards which can be used to the organization whereas no
application of accounting principles and conventions are imposed in the management accounting.
Period: The management accounting reports and statements are prepared at regular
intervals whereas the financial accounting is prepared at the end of accounting period.
Sources: The financial accounting uses the financial data whereas the management
accounting uses the financial as well as non- financial data (Lukka and Vinnari, 2014).
Subject matter: In management accounting, each department of the business is treated
as a separate entity. Therefore, performance reports and statements are prepared for each
department of the business separately whereas the financial accounts are prepared for the
business as a whole.
2. The management accounting information importance as a tool of decision-making:
 Activity-based costing: It apportions the overhead to those units which are actually
manufactured and use it. The activity-based costing may help to reduce the overhead cost
which is targeted by the company. It works in the complex or rigid environment, where
there are various products and machines are used to producing. It also helps in
recognizing the activities of business and accordingly assign the indirect costs to the
products which are produced (Bodie, 2013). This costing identifies the relationship
between the activities, costs, and products, and on the basis of this relationship, it makes
an assigns the indirect costs to the manufactured products. This costing is helpful to
analyse the profitability, customer preferences, product costing, target costing and service
costing also.
 Relevant costing analysis: This cost analysis is associated with the management
decision and which will help in change the future outcome of that decision. This cost
analysis is very useful to reduce the immaterial information from a particular decision-
making process. It is a very useful tool for the short-term financial decisions in an
organization. Relevant costing is opting in competitive costing decisions, make or
purchase decisions as well as further processing decisions.
 The exercise of useful and important data: The management accounting information
provides a data which is used to formulate the strategies and decisions for the
development of the company. The managers use the budgets, financial statements, and
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balanced scorecards for the future planning of the business and focus on the important
points and mistakes. By doing future forecasting on the important data the managers can
make strategies which target to improve the productivity of the business in the future and
also helps to achieve the pre-set targets at a pre-determined time (Vakalfotis, Ballantine
and Wall, 2013).
 Buying decisions: A buying decision is the important action of the management to select
in between the purchasing it from the outsider or external suppliers or manufacturing a
product. In this type of decisions, the most important factors to be considered are costs
and quantitative analysis which are associated with the production and capacity of the
business to produce at required levels. By doing this analysis, the managers of the
company can ascertain which option is more profitable or not.
3. Cost accounting Framework ( actual, average as well as standard costing):-
The system helps the company to forecasting cost of the product while analysis can be
calculated of the business profitability, inventory or stock, and cost control. Costing accounting
is the most important concept of the management accounting which provides the useful tools and
methods of the standard, marginal, and absorption costing which are used by the management of
the company to improve their profitability and productivity (Zang, 2011).
Differences in between the NORMAL, STANDARD, and ACTUAL COSTING:
Actual Costing Standard Costing Normal Costing
1. Actual direct service
costs (material and
labor) are allotted to
job as receive.
Standard direct costs (material
and labor) that are appointed
to incurred jobs.
Actual direct costs (material
as well as labor) that are
allotted to incurred work.
2. Actual producing
overhead is assigned
when the actual
amounts are known.
Production overheads can be
applied opting preset
(standard) overhead charge.
Production overheads can be
applied utilising preset cost
of overheads.
3. Actual costs are used
in this costing
Standard costs are used in this
costing.
In this costing actual costs
are used.
4. In this method, the
company cannot
This method is useful to
control the costs and
It’s a fairly accurate method
if the budgeted numbers for
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measure the
performance and
controls the costs.
performance. the standard overhead rate
are good.
4. Inventory management system: This is the system which helps to assess the inventory in an
effective manner. There is a strong needs to adopt various inventory management systems which
would ultimately help out to gain the sustainable development in an effective manner.
Organizational processes in Tech (UK) Ltd can be integrated with this type of system to achieve
efficient and effective flow of inventory within the organization and at the time of sale.
Inventory management is effectively used by way of FIFO, LIFO, AVCO. These are the
tools which can be used by the organisation in order to gain the sustainable development in an
effective manner. These are elaborated as under:
FIFO: This is the method where inventory is assessed by using first in first out method.
Hereunder, closing inventory value is assessed by using FIFO method in an effective manner.
LIFO: This is the method that can be used in order to know about the closing inventory
value. Hereunder, last in first out method is used.
AVCO: This stands for the average cost for knowing the inventory value in an effective
manner. Under this average inventory is assessed and then inventory closing is assessed.
The two important essentials are:
 Forecasting and replenishing strategies (Jalaludin, Sulaiman and Nazli Nik Ahmad,
2011).
 Management of inventory both physically and monetarily.
5. Job costing system:
This accounting system would help out to assess the price for making the cost of the
product in an effective manner. This covers the gathering of the costs of materials, labour and
overheads for a particular period of time. This kinds of approach is the perfect tool which is used
for knowing the perfect costs to the individual jobs and assessing them to oversee if the costs
could be limited in the later jobs. This accounting system is used to oversee the extra costs which
are incurred that can be billed to the consumers.
Tech (UK) Ltd can implement this system at the time when the products are identical to keep
track of other expenses.
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P2: Following are the different types of management accounting reports
1. Different types of reports of management accounting:
There are numerous types of reports of management accounting assist the preparation
administration of the effective management reports that count on the company's forecasts for
creating rigid decisions of business. They deliver managers with certain and more reliable
financial as well as statistical information. Financial information are used in an effective manner
so that the objectives of the cited organisation would get to attain its pre-set objectives in an
effective manner. Here, some of the components are used in the gathering the financial
information.
Income statement: this helps to know more about the operating and others income and
expenses which would help out to make the decisions in an effective manner. This is made for
the particular period of time and contains various transactions which are related to the
operations.
Balance sheet: This is the statement of affairs which contains the assets and liabilities of
an organisation. This helps to gain the sustainable development.
Cash flow statements: This covers the cash related revenues and expenditures related to
the particular period of time. This helps to know about the cash related situations in an effective
manner.
The various reports prepared by the management and their advantages are discussed below:
 Budgeting reports: This report prepare the plans to evaluate the organization
performance while devising analysis about the division’s performance and also control
the costs. For preparation of budget the actual expenses incurred in past periods are get
utilized. These budget reports are used to give incentives to employees that give
motivation to them to attain the desired goals and objectives. Future forecasting budgets
are based on these reports which assist the company to consolidate the endeavor of
various divisions towards overall goals and objectives of the institution (Hiebl and et. al.,
2015).
 Job cost reports: This reports are basically concerned with the cost evaluation, expenses,
and profitability of each specific job. These reports likewise check the cost while the
work is in advancement so that the areas of waste can be interpreted and the work can be
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made more workable and profitable in all aspects. The company can present its efforts on
those jobs or projects while loss their efforts on least profitable task.
 Inventory and manufacturing reports: The Company involved in the manufacturing
processes make this kind of report so that their inventory and manufacturing process can
become more efficient (Wickramasinghe and Alawattage, 2012). This reports contains the
overall per unit cost related to the labour, overhead.
 Performance report: This type of report presents the performance of the company’s
departments by doing the comparison of the actual results with the planned or budgeted
results. These reports generally prepared according to the company’s policy, basically it
is prepared yearly but most of the companies prepared this report according to their needs
may be quarterly, half-yearly.
2. Importance of using above accounting reporting system:
According to the above discussed all essential reporting method are helpful for an
organisation to record all necessary financial transaction in their respective set format. By the
help of performance report company would be able analyse previous year financial position in
accordance with the present one. Similarly, account receivable report will lead to determine
exact time to collect overdue payments from various debtors. While inventory management
report should be used to analyse overall position of stock kept by the company during an
accounting period of time (Gates, Nicolas and Walker, 2012).
M1: Benefits of management systems
By applying the management accounting tools and useful techniques, TECH (UK) LTD.
is able to run their business operations smoothly. There are so many methods that can be utilized
by the company for achieve their business objectives and goals in more appropriate manner.
Under this, it has been find that the business can run efficiently by adopting the management
accounting tools and techniques. Management accounting provides lots of benefits while
providing useful financial information to all departments to make an effective decision so that
the company increases their profitability ratios (van Helden and Uddin, 2016).
D1: Ways through management accounting system and management accounting reporting
integrates
Management accounting system helps the Tech (UK) Ltd to prepare the management
accounting reporting in order to prepare the effective and efficient decisions so that the company
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can achieve their pre-decided goals and objectives. This is the appropriate process which is
utilized by the company for smooth functioning of their business operations. But, only one of
them cannot achieve the company pre- decided goals and objectives. Therefore, both the
management accounting system and management accounting reporting are requiring to be
merged for achieving their pre- decided objectives and goals.
TASK 2
P3: Calculation of net profits under marginal and absorption costing
Income statement on the basis of Marginal costing method:
Income statement on the basis of Absorption costing method
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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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M2: Application of techniques
In this case, TECH (UK) LTD. is necessary to apply the management accounting tools
and techniques in order to increase the profit margin. This will help the company to run their
business operation more effectively and efficiently way. The above tools are used by the
company for their sustainable growth and improve their productivity. These tools are very useful
to all the departments of the company for taking an effective decision and also frame the
development plans for the business growth.
D2: Data interpretation
The net operating profits which are achieved with the help of marginal and absorption
costing reflects the so many differences. As per the absorption costing method, the company
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earns (£) 4,625 net operating profits. On the other hand, the company loss (£)2,875 net operating
loss by using the marginal costing method. So, it is beneficial to the company to use the
absorption costing method to earn the operating profits.
TASK 3
P4: Budget and its advantages and disadvantages
Budget can be referred as the report or statement made on the grounds of previous
performance of the company. Budget is an effective tool that is opted by managers in regard of
make their business operations run efficiently without any interruptions. A budget plan helps a
manager to prepare the plans and policies in most effective and useful manner. The budget
procedure is the one of the main process which assist the company in order to create business
plans in a systematic way, as well as on the grounds of that business, the manager will be able to
attain their pre-decided goals and objectives However, budgeted outcomes are compared with the
actually achieved results so that business would able to examine the outcomes which is
favourable or adverse (Lim, 2011). The manager of the TECH (UK) LTD. would make efforts
for eliminating the variances in an appropriate manner by using appropriate techniques. There
are so many budgets which help the overall company for helping the company to get pre-decided
objectives. Some of them are operating, sales, cash budget and etc.
Cash budget: It is generally associated with the estimating cash inflows and outflows for
a prescribed period of time. There are so many tools and techniques are used by the company in
order to make their business operations run so effectively without any restrictions.
Advantages:
 Cash budget is helpful for evaluating the cash inflows and outflows of the company.
Company would help out the firm for making business operations effective way.
 Cash budget help the company to make their business operations and activities in an
effective useful manner.
Disadvantages:
 Cash budget does not always produce sufficient data so that the decisions cannot make
appropriately for the business operations.
 Sometimes, there also some restraints which cannot be resolved by using cash budget.
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