Detailed Management Accounting Report: Unit 5 Analysis and Evaluation

This report provides a comprehensive overview of management accounting principles and practices, focusing on their application within the context of Super Toughened Glass. It begins by differentiating between management and financial accounting, outlining the essential requirements of various management accounting systems such as cost accounting, inventory management, and job costing. The report then delves into different methods of management accounting reporting, including budget reports, accounts receivable aging reports, performance reports, and cost reports, emphasizing their importance for internal decision-making. A significant portion of the report is dedicated to the preparation of income statements using both marginal and absorption costing methods. Furthermore, the report examines the advantages and limitations of planning tools used for budgetary control and concludes with a comparative analysis of how organizations adapt management accounting systems to address financial challenges. This report is a detailed analysis of management accounting, providing a framework for understanding its vital role in business strategy and financial management.

UNIT 5 - MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
LO1..................................................................................................................................................2
P1 Management accounting and the essential requirements of different types of management
accounting systems......................................................................................................................2
P2 different methods used for management accounting reporting..............................................5
LO 2.................................................................................................................................................7
P3 preparation of income statements by using marginal cost and absorption cost......................7
LO 3...............................................................................................................................................11
P4 advantages and limitation of planning tools which are used for the budgetary control.......11
LO4................................................................................................................................................15
P5 Compare ways in which organisations are adapting management accounting systems to
respond to financial problems. ..................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18
1

INTRODUCTION
The process of Management accounting is providing an aid to internal management of an
organization in order to analyse the various financial statement to undertake necessary strategic
decisions for sustainability and growth of business (Peterson, Schmar - debeck, and Wilks,
2015). The management accounting is an effective process for presenting and analysing financial
information to the managers on interval for decision-making strategically. Super toughened glass
will be chosen for this report. The super toughened glass company is the best among the
construction industry, fire resistant, supply of shatter-proof and self-cleaning glass for the
building projects in UK. This company is a family firm and employs staff of 145 employees
working for their company.
The report will lay emphasis on management accounting and the essential requirements
of different types of system of management accounting. The report will also cover different
method for the management accounting. Along with it, the report will calculate the cost of
appropriate technique in order to analyse the cost and also income statement will be prepared for
further analysis of the company. The report will highlight the different types of planning tools
and their advantages and disadvantages for budgetary control. This report will lay study for a
brief comparison of organization for adapting management accounting system for responding in
financial problems.
LO1
P1 Management accounting and the essential requirements of different types of management
accounting systems
Management accounting
The management accounting is a process which provide aid to internal management of
organization in order to analyse financial statement for necessary decision-making for a long
period of sustainability in business (Abdel - Maksoud, Cheffi, and Ghoudi, 2016). This concept
of management accounting includes the planning in effective manner and to select the best
alternative action of an organization. Also, the control is executed by interpretation and
performance evaluation.
Financial accounting
The financial accounting is a specialized branch of accounting which tracks financial
transaction of a business (Davila, Foster, and Jia, 2015). The transactions in financial accounting
2

at first record in Journals then summarize in Ledger accounts and lastly presented in financial
statements that is income statement and balance sheet.
Basis MANAGEMENT
ACCOUNTING
FINANCIAL ACCOUNTING
Legal requirement Reports under this accounting
is used within an organization.
It is prepared for the use of
internal activities of a business
(Richins, Stapleton, and Strat
opoulos - Wong, 2017). They
did not need any legal
requirement.
This accounting type follows
rules which is prescribed under
General accepted accounting
principles (GAAP) and
International financial
reporting Standards (IFRS).
The legal requirements are
there for company such as
Super toughened glass need to
follow all these requirements
for their smooth functioning.
Area of coverage within an
organisation
The management accounting is
wholly concerned with specific
area for the analysis. This area
vary from product line,
manufacturing unit,
geographical boundaries, etc.
Financial accounting is only
concerned with the business.
The accounting standards
bounds an organization such as
Super toughened glass to
report in an area by pre-set
format.
Format of presentation There is no presentation
format of management
accounting is available
(Banker, Byzalov - Fang and
Liang, 2017). Company can
choose any format according
to their preference and choice.
On the other hand, the
financial accounting follows a
specific format under which
the company need to record
and present all the information.
Type of data used The management accounting While, financial accounting as
3

uses both data that is
qualitative data and
quantitative data.
the name suggest uses only
quantitative data (Cassell,
Myers, and Seidel, 2015). The
company Super toughened
glass uses this accounting by
taking only quantitative data
into consideration.
Different types of management accounting systems are as follows :
Cost accounting system - This accounting system is used by various firms to estimate the
cost of product to analyse profitability, control and inventory valuation. The cost accounting
system work by tracking of raw material by passing through various stage of production and turn
into finish goods (Apostolou, Dorminey, and Hickey - Hassell, 2019). The accounting entry in
Super toughened glass company execute accounts when the raw material put into production. In
cost accounting, it is recorded immediately for the use of material by crediting account of raw
material and debit the account of goods in progress.
The direct cost is a type of cost which is related with production of good and services.
The distribution and labour cost are included as this is associated with products. On the other
hand, the production cost of material are used in direct expenses. The cost gets easily tracked by
project department (Peterson, Schmar - debeck, and Wilks, 2015). Also, derive value of
inventory is not allowed in International financial reporting standard (IFRS) and Generally
accepted accounting principles (GAAP). This did not provide view in which the cost is incurred
to create products and promoting activities of Super toughened glass.
The accounting standard is another cost which is occurred by evaluating difference
between budgeted and actual cost. The accounting executed a brief comparison between actual
expenditure of goods and estimating expenditure of goods used in production. The cost of goods
sold and ledger accounts contain standard one (Abdel - Maksoud, Cheffi, and Ghoudi, 2016).
The actual and estimated cost is identified by variance under the accounting standard cost which
uses the variance for generating outcomes.
Inventory management system – The system of inventory management tracks inventories
by supply chain or business portion in which they operate. The inventory management system
4

include shipping to warehousing, production to retail, etc. The inventory management includes
supervision of stock items and inventories.
The FIFO, LIFO and Weighted average are the different method of inventory
management. The First in first out (FIFO) is method of accounting which rely on cash flow
assumption in which cost of account of inventory is removed from the time it is purchased
(Davila, Foster, and Jia, 2015). The Last in first out method (LIFO) is utilization which is
matches with recent cost in income statement with the sales. While the Weighted average is
utilized under assignment of average cost of production. The inventory management assumes
selling all their inventories simultaneously.
Job costing systems – The job costing method involves process of accumulation of
information. This is associated with cost of production and service. There are three kinds of
information which is needed under this system (Richins, Stapleton, and Strat opoulos - Wong,
2017). They are direct material. Overhead and direct labour. The usefulness of this system is the
determination of accuracy in company's estimation system.
P2 different methods used for management accounting reporting.
The managerial reports are those report which provide aid to the internal users of the
company. This help enables effective decision-making in business. The reports generally
emphasizes on internal information that is received by financial accounting through auditors.
Also, this report is useful for effective planning, regulation, organizing, decision-making of the
company (Banker, Byzalov - Fang and Liang, 2017). This also helps in measuring performance
of internal staff of the business. This report is prepared under managerial accounting that is
focuses on providing information to all the internal users. The different types of managerial
report are prepared by businesses are as follows :
Budget reports - The budget reports are considered as very important report as it helps
the business in measuring performance and budgets of report which is generally prepared on
basis of different department to manage the operational activities and also the functions of
particular department effectively.
Budget report provides an aid to the organization in comparing actual performance with
projected. The corrective actions are taken in order to eliminate the deviation (Cassell, Myers,
and Seidel, 2015) . The income as well as expense are managed in according to budget. The
report informs internal users about inflow and outflow of cash and the performance deviations.
5

Advantages
 The budget report is an effective tool to measure the performance.
 Budget report provide help in taking corrective measures.
 The budget report lead the organization and helps them in ascertaining the risk. It also helps investors in order to decide further investment based on the performance.
Account receivables Ageing reports - This report is made by company if there is any
involvement of extending to credit in their business. The amount in which the credit is given to
customer for specific time period. This helps the managers in identification of defaulters which
would not pay money and this also helps them in finding the issue in collection process
(Apostolou, Dorminey, and Hickey - Hassell, 2019). This report will help the businesses to
ascertain number of defaulters which they transfer to credit policies of the business. The
accounts receivable ageing report helps mangers for altering & changing their credit policies and
related strategies.
Advantages
 This helps the managers of Super toughened glass in deciding the credit policies and also
restructuring of it.
 The report leads an organization in ascertaining collection period of the Super toughened
glass (Peterson, Schmar - debeck, and Wilks, 2015). Also, the internal users make effective decisions in regarding extending the credit.
Performance Reports - The performance report is prepared for analysing and reviewing
performance of the business. The staff members take decisions regard to their appraisals and
other need of the organization. The different performance report is prepared under large
organization for each department to analyse their performance in the direction of the projected
performance and goal (Abdel - Maksoud, Cheffi, and Ghoudi, 2016). This will aid the
organization in executing right decision and taking different corrective measures for eliminating
difference between projected and actual performance.
Advantages
 The performance reports helps in executing comparison between actual and budgeted
performance.
 This also provide guidance for executing decision-making in the company regarding
promotion or termination of an employee.
6

 The report in company Super toughened glass is also helpful in conducting training and
development program on basis of analysing of performance.
Cost report - The cost report is helpful in identification of cost related with the financial
activity of an organization. This report determine cost of each product, services, activities,
processes and projects (Richins, Stapleton, and Strat opoulos - Wong, 2017). This also provide
an aid to control cost in efficient manner. The cost report evaluates income and expense of
particular action or an activity that lead to higher efficiency as well as growth of business.
LO 2
P3 preparation of income statements by using marginal cost and absorption cost
Calculation of production cost as per the
marginal cost
particulars amount
material 8
labour 5
Production overheads 3
Total production cost per unit 16
Preparation of income statement by marginal cost for May month
Basis Amount
Sales (300*50) 15000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Variable o/h (500*3) 1500
8000
-Closing inventory (200*16) -3200.00
-4800
10200
-Variable selling cost -750
Contribution 9450
-Fixed costs -10000
Actual Net profit/(Net Loss) -550
7

Preparation of income statement by marginal cost for June month.
Basis Amount
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*16) 3200
Material (380*8) 3040
Labour (380*5) 1900
Variable o/h (380*3) 1140
9280
-Closing inventory (80*16) -1280
-8000
17000
-Variable selling cost -1250
Contribution 15750
-Fixed costs -10000
Actual Net profit/(Net Loss) 5750
Under Absorption Costing
Cost per unit
Direct Material 8
Direct Labour 5
Variable O/H 3
Fixed O/H 10
Total absorption cost per unit 26
Preparation of income statement by absorption cost for May month.
Particulars Net amount
sales (300*50) 15000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Fixed O/H 10000
Variable O/H (500*3) 1500
18000
-Closing inventory (200*26) -5200
8

-12800
Gross Profit/Loss 2200
-Variable selling cost -750
Actual Net profit/(Net Loss) 1450
Preparation of income statement by absorption cost for June month.
Particulars Net amount
Sales (500*50) 25000
Cost of sales:
Opening inventory (200*26) 5200
Material (380*8) 3040
Labour (380*5) 1900
Fixed o/h 10000
Variable o/h (380*3) 1140
21280
-Closing inventory (80*26) -2080
-19200
Gross Profit/Loss 5800
-Variable selling cost -1250
Actual Net profit/(Net Loss) 4550
Calculation for material variance analysis
Material variance analysis
(Budgeted price- actual
price)*Actual Quantity
(10-9.5)*2200
1100 Favourable variances
Material usage analysis
(Budgeted quantity – actual
quantity)* budgeted price
(1000-2200)*10
-2000 Adverse variances
Calculation of held stock by the weighted average method
9

Date Reference Purchase Issues Balance (Inventory)
Units £/
Units
£
Total
Uni
ts
£/
Units
£
Total Units
£/
Unit
s
£
Total
May
-01
Previous balance
(inventory) 50 3.00
00
150.00
00
May
-12
Bought 25 units at
£3.60 each 25 3.600
0
90.00
00 75 3.20
00
240.00
00
May
-15 Issued 36 units 36 3.2000 115.20
00 39 3.20
00
124.80
00
May
-20
Bought 20 units at
£3.75 each 20 3.750
0
75.00
00 59 3.38
64
199.80
00
May
-23 Issued 10 units 10 3.3864 33.864
4 49 3.38
64
165.93
56
May
-27 Issued 25 units 25 3.3864 84.661
0 24 3.38
64
81.274
6
May
-30 Issued 5 units 5 3.39 16.932
2 19 3.38
64
64.342
4
Inventory
calculations
Opening
inventory 150.0000
Purchase 1 90.0000
Purchase 2 75.0000
Issue 1 115.2000
Issue 2 33.8644
Issue 3 84.6610
Issue 4 16.9322
Balance 64.3424
Calculation of held stock by using LIFO method in the organization
Date Reference Purchase Issues Balance
(Inventory)
Units £/
Units
£
Total Units £/
Units
£
Total Units £/
Units
£
Total
May-
01
Previous balance
(inventory) 50 3.00 150.0
0
May- 50 3.00 150.0
10

12 0
Bought 25 units at £3.60
each 25 3.60 90.00 25 3.60 90.00
May-
15 25 3.60 90.00
Issued 36 units 11 3.00 33.00 39 3.00 117.0
0
May-
20 39 3.00 117.0
0
Bought 20 units at £3.75
each 20 3.75 75.00 20 3.75 75.00
May-
23 Issued 10 units 10 3.75 37.50 39 3.00 117.0
0
10 3.75 37.50
May-
27 10 3.75 37.50 24 3.00 72.00
Issued 25 units 15 3.00 45.00
May-
30 Issued 5 units 5 3.00 15.00 19 3.00 57.00
Inventory
calculations
Opening
inventory 150.00
Purchase 1 90.00
Purchase 2 75.00
Issue 1 123.00
Issue 2 37.50
Issue 3 82.50
Issue 4 15.00
Balance 57.00
LO 3
P4 advantages and limitation of planning tools which are used for the budgetary control
Financial budget : Financial budget are prepared to get the information about the
upcoming cask inflow and outflow to manage the expenses and prepare the plan for the spending
the amount different organization activity such as purchasing the raw material, wages and salary,
operating expenses etc. in the business organization (Financial Budget Benefits in Business,
11