Management Accounting Report: Unit 5 Analysis for Vectair Holdings, UK

This report provides a comprehensive analysis of management accounting principles and their application to Vectair Holdings, a UK-based company. The executive summary introduces the core concepts of management accounting, exploring various systems and their requirements. The report delves into cost accounting, job costing, inventory, and price optimization techniques. It examines both traditional and throughput accounting approaches, alongside lean accounting and transfer pricing. The study includes the calculation of costs using cost analysis strategies to generate a profit statement, evaluates the benefits and limitations of planning tools for budget control, and compares the adoption of accounting systems to manage financial issues. The report concludes with recommendations for improving the management accounting practices within Vectair Holdings, emphasizing the importance of effective decision-making and financial control. The report aims to assist the general manager in understanding the benefits of using the proper tools in turn has helped to control the budgeting process effectively and how adopting the accounting systems has further helped to carry out the various monetary issues related to the Vectair Holdings.

UNIT 5 MANAGEMENT
ACCOUNTING

Executive summary
The study begins with a brief introduction of management accounting. The description on the
diversity of the various management systems is provided in the initial part. The main
requirements of the management accounting are provided with the various criteria based on the
scenario. The study further proceeds with highlighting the techniques involved in the system and
an income statement is produced by using the cost analysis strategies. Making proper use of the
tools helps to make the analysis of the cost incurred in the Vectair Holdings better thereby
identifying their profit margin. In the later part of the study, the advantages and the drawbacks of
the planning tools and techniques is explained based on the budget management method and
finally concludes focusing the evaluation of the several sectors of management accounting,
which is to be presented to the general manager. As a management Accounting officer, it is
therefore a key role to manage the entire accounting process within the Vectair Holdings better.
Understanding the benefits of using the proper tools in turn has helped to control the budgeting
process effectively. Adopting the accounting systems has further helped to carry out the various
monetary issues related to the Vectair Holdings followed by recommendations for a better
accounting of the management.

TABLE OF CONTENTS
Introduction ...................................................................................................4
TASK 1............................................................................................................4
P1 An explanation of management accounting and the key criteria for the
different categories of management accounting according to the scenarios 4
P2 Demonstration of the several methods used in management accounting
and stating the relevant methods that can be utilized in the scenario..........9
TASK 2..........................................................................................................11
P3 Calculation of the cost by using the strategies of cost analysis in order to
generate a statement of profit .....................................................................11
TASK 3..........................................................................................................13
P4 Benefits and limitations of the several types of planning tools that can be
utilized to control budget for Vectair Holdings...........................................13
P5 A brief comparison of the adoption of accounting systems to control
monetary issues ...........................................................................................16
Conclusion ....................................................................................................18
Reference List...............................................................................................19

Introduction
The management accounting is a significant segment in today’s business. It has several strands
and is used to improvise on the strategies involved in the betterment of Vectair Holdingss. The
management accounting deals with the daily management in appropriate planning detailed
decision making, patterning and improving performance strategic systems. In this scenario, an
Vectair Holdings of the United Kingdom, the RR Aldens is selected and is further inclined to the
effective features present in the management accounting system. The company has a limited set
of employees but known for providing quality services related to meat and butchery products in
the United Kingdom. The company also holds a complex set of channels and supply chains
including pubs, restaurants and poultries.
TASK 1
P1 An explanation of management accounting and the key criteria for the different categories of
management accounting according to the scenarios
In the opinion of Fullerton et al. (2014, p.414), the procedure of business consists of several
complex methods, terminologies and techniques irrespective of the types of sectors. It requires
specific capability to get an in depth understanding of the activities and occurrences. There are
several kinds of accounting in the business field such as, financial accounting, managerial
accounting, management accounting. In this scenario, the method of the management accounting
is involved in enhancing the professional skillets to detect the upcoming requirements,
advantages and limitations of Vectair Holdings. The management accounting system works as a
tactful tool and is necessary for business situations today to cope up with the rapid situational
changes in business and figure out the solutions to the issues by maintaining a smooth graph.
The categories of management accounting system include mainly eight key points, which are
follows:
Cost accounting: They are involved with recording all the data followed by an effective
allocation of all the expenditures that are involved in determining the costs of the products and
services associated with the management of the Vectair Holdings. All the data are properly
arranged to control and carry out the decision making processes by the collected information for
a better management. The investments that are made for the Vectair Holdings aim at identifying
the actual costs thereby determining the final costs of the goods and services. This helps to carry
out the analysis of the costs incurred for the Vectair Holdings’s development effectively by

adopting several effectively planned strategies to meet their desired goals. Alden has taken up
the initiative to carry out the entire financial process of the Vectair Holdings effectively by
maintain a record of all the information and investments and how that has helped to meet the
customer needs.
Job costing: They involve carrying out an effective method of recording all the costs that
are incurred in the manufacturing job. The project manager of Alden has taken the help of job
costing to keep a track on all the costs that are involved in each particular job thereby
maintaining a record of the data and identifying their abilities to meet their customer’s
specifications.
Inventory: They refer to the effective usage of raw materials to provide the customers
with the best products and goods as part of the Vectair Holdingss’ assets to make them ready for
sale in the market. Inventory acts as one of the most important assets of an Vectair Holdings as
they act as the primary sources for generation of revenue thereby providing subsequent earnings
for the shareholders involved in the company.
Price optimization: They involve using an effective analysis of the mathematical aspects
which help to determine the customer response thereby regulating the prices of the goods and
services to fulfil their desired goals thereby maximising their profit margin. Alden has succeeded
to a great extent in analysing the prices effectively thereby focusing on their company goals.
The traditional method of cost accounting
As stated by Suomala et al. (2014, p.304), though the method of activity based costing is
mostly utilized in today’s time, the traditional technique of cost accounting is known to be
effective for a long time, aiding in the costing system. The traditional cost accounting helps the
managers to evaluate the pricing on direct manufacturing. The approach helps to make
assumptions on the upfront or direct labor cost, manpower cost, and cost calculations incurring
the work timing and hours and more. The assumptions are performed straight up by the
managers and often lack accuracy. The RR Aldens, also takes up the activity based costing
approach in complex situations, to which most modern business is inclined to. The reason being,
the method includes the manufacturing cost and cost of the supporting factors which makes it
more accurate.

Figure 1: The traditional approach to cost accounting
(Source: Fullerton et al. 2014, p.50)
Throughput accounting
On the other hand, the throughput accounting approach is more of information and data
based which includes crucial principles surrounding eminent decision making for the managers.
The managers often need to understand key criteria that are to be met, consequential influences,
post decision effects on Vectair Holdings and even more. As per Messner et al. (2016, p.1), the
throughput accounting (TA) process is known to be one of the simplest approaches in
management accounting or managerial accounting that helps in mainly decision making. It
contains several set of data that helps in separating and specifying the goals in the particular area
of accounting. Some of the effective factors behind this type of accounting are,
 Enforcing rapid reporting and evaluating the entire managerial figure in terms of real
timing
 Educating the employees in the functioning and operations about managerial accounting
fundamentals
 Helping managers to take decision that shall be company goal oriented in a precise way
The Aldens is a company working with a large number of supply chains. The significance of this
accounting tool shall help in driving Vectair Holdings towards meeting decisional targets, while
on the verge of expansion.

Process of lean accounting
The process of lean accounting is a wiser and faster approach to the business process. It
is helps in reducing the extra costs and unwanted resources in the process. This process is helpful
in providing a clear understanding to the managers in terms of transactional activities, product
lines, profit margin and aligning. This process is known to reduce the amount of lean accounting
as well as lean thinking in the entire procedure. The use of metrics and whole numbers makes
the process easier for the managers.
As per Ax and Greve (2017, p.59), the process have taken over the traditional or older approach.
In this scenario, the RR Aldens can utilize the traditional approach in case of complications in
the modern approaches but the utilization of the lean accounting is essential in cost cutting and
making right usage of the resources.
Transfer pricing
The method of transfer pricing refers to the core financial dealings based on the financial
aspects of the business. The method can be improvised when one particular operational head is
involved with Vectair Holdings. It involves the transactional activities and the taxation
regulations. The Aldens can utilize this tool to deal with the relevant scenarios and modifications
in the policies.
Figure 2: A basic functioning structure of the transfer price method
(Source: Van der Stede 2015, p.171)

The significant role of management accounting
The plays a key role in supporting the managers to make appropriate and quick decisions,
executing cost cutting and evaluating performance. The technique is also effective to understand
the exact objectives and goals of Vectair Holdings. Some of main roles of managerial accounting
involve,
Enforces an intelligent approach to performance evaluation which is different from other
methods
As stated by Chiwamit et al. (2014, p.144), due to the presence of effective set of tools
and the advanced trend of utilization of the same, the particular category of accounting is helpful
for analyzing the performances of employees. The auditing and the data or record storage helps
in recognizing the key skillets and the suitability of the employees of Vectair Holdings . The set
of skills varies from one employee to another and possess different types of requirements. For
instance, the employees in the operations or functioning department of RR Aldens, can be
assigned with the suitable responsibility based on individual requirements with the help of the
accounting process.
Assumption on monetary expenses
In order to increase growth in revenue, the techniques involved in management
accounting helps in making the precise cash flow assumption. This criterion is important for any
type of business sector. The reason being, it is necessary for the managers to be informed about
the revenue outflow and income for present and long term situations. The managerial accounting
techniques such as, charters, budget control and designing, patterning and aligning are highly
essential resources of Vectair Holdings. This method shall be effective for dealing with the
possible limitations in operations and revenue factor in the near future.
Forecasting long term business scenarios
As per Hall (2016, p.63), the Aldens is a small sector business Vectair Holdings that is on the
edge of expansion. It has to deal with the positive as well as negative influences that can affect
the business. The critical understanding helps in predicting the possibilities of risk factors
involved and be prepared for the sudden changes in business circumstances of Vectair Holdings.
Effective decision making

The RR Aldens is comprised of limited employees and has to improvise business strategies
tactfully. The eminent decisions include large number of variances, collection of appropriate
data, evaluation of the existing information and analyzing the situation. For example, the Aldens
uses the supply chain method as manufacturing products by the Vectair Holdings itself can result
in much more expenditure from the firm.
From: MOA
To: GM
Subject: the application of the management accounting system in improving the performance
of Vectair Holdings
Sir,
This is to inform you that the implication of the managements accounting system in the
organizational practice it will be helpful in enhancing the productivity, profitability as well as
efficiency. Thus, it can be said that there will be use of various costing, reporting and budgeting
techniques which in turn enhances the financial health and capabilities of the firm.
P2 Demonstration of the several methods used in management accounting and stating the relevant
methods that can be utilized in the scenario
Management accounting reports aim at focusing on the internal information of the Vectair
Holdings to carefully monitor and plan out effective decisions for carrying out the financial
accounting process of the Vectair Holdings effectively. There are a large number of descriptions
of some the eminent methods of managerial accounting that can also be utilized in the particular
scenario are,
Budget Control
Following several effective management policies, the budget report is created for the Vectair
Holdings. They focus on collecting the data and information of the previous year which helps to
make the necessary changes for future developments with the Vectair Holdings of Alden. All the
revenues related to the supply and expenses are collected in the data which helps to make the

budget effectively and analyse the performance of the company effectively. This helps to control
all the extra costs and include only those which are extremely necessary for the development of
the Vectair Holdings. Several funds are also involved which are provided as bonuses for the
employees and helps to keep them motivated thereby keeping their profit margin in check. The
budget control provides a supporting figure for the Vectair Holdings with which the actual
results can be compared, to identify the resources that shall lead to high expenditure. The method
of budget control can also help in managing financial issues in crisis situations. The budget
control method helps in tightening the expenditure style and the Aldens can utilize this process
in case of revenue turn down or reduction in revenue margin.
Figure 3: Overview of the budget control method in management accounting
(Source: Brandau et al. 2013, p. 466)
Graphical representation
As stated by Christ (2014, p.379), the graphical representation as the name suggests helps in
creating a calculative image or figure to the managers. This is not only helpful for the managers
but can also be utilized in educating or updating the entire team of Vectair Holdings, in order to
make the correct interpretations with the help of the statistics.
Cost accounting

The method of cost accounting helps in summarizing the prolonged financial or monetary details
involved in Vectair Holdings. The advanced trends, such as, separating, recording, storing and
classifying is helpful for complex calculations required for the business.
Fund Flow analysis
The fund flow analysis generally depicts the income and expenditure of cash in the business. The
investments made or the assets are excluded or not considered a part of the resource of the
analysis. It helps in keeping track of the fund flow based on months and quarters in a year. The
fund flow analysis is essential for maintaining an intact balance between.
Financial Planning
The method of financial planning aims to increase profitability of the Vectair Holdings through
pre planning techniques present in the system. The financial planning is one of the broadly used
methods in improving revenue margin and meeting Vectair Holdings objectives and goals within
the desired time frame. Framing an effective financial planning for Alden requires making of a
rcih and effective plan which act as a guide to deal with all the domestic and global upheavels
thereby keeping a track on the investments.
TASK 2
P3 Calculation of the cost by using the strategies of cost analysis in order to generate a statement
of profit
In the opinion of McLean et al. (2015, p.18), the absorption costing and marginal costing
methodologies shall be utilized in order to figure out the net income or profit, in the particular
scenario.
A presentation of calculation using the absorption costing method
Particulars Details Details Amount
revenue 500*35 17500
direct material 600*6 3600
direct labour 600*5 3000
variable production overheads 600*2 1200
variable sales overheads 600*1 600 8400
Less: Cl. Inventories
direct material 100*6 600
direct labour 100*5 500

variable sales overheads 100*1 100
Less: Variable sales overheads 500*1 500 1700
Less: Absorption of fixed overheads
Cost of production 6700
Per unit contribution 10800
Less: Fixed Expenses
Production overheads 1800
Fixed Administrative cost 800
Fixed selling cost 400
3000
Net profit 7800
Representation of the net income calculation with the help of marginal cost technique
Particulars Details Details Amount
revenue 500*35 17500
direct material 600*6 3600
direct labour 600*5 3000
variable production overheads 600*2 1200
variable sales overheads 600*1 600 8400
Less: Cl. Inventories
direct material 100*6 600
direct labour 100*5 500
variable production overheads 100*2 200
variable sales overheads 100*1 100 1400
Cost of production 7000
Per unit contribution 10500
Less: Fixed Expenses
production over heads 1800
Fixed Administrative cost 800
Fixed selling cost 400
3000
Net profit 7500
The two main methods that have been used in the calculations possess a large number of
advantages. As stated by Alawattage et al. (2017, p.177), the marginal costing and the absorption
costing consists of certain differences. The fixed costs are only categorized under the absorption
method, while the marginal method incurs the overall costing involved in Vectair Holdings. The