Management Accounting Report: Financial Analysis of Volkswagen

This report provides a comprehensive analysis of management accounting practices within Volkswagen. It begins with an introduction to management accounting, its differences from financial accounting, and various management accounting systems such as inventory management, price optimization, cost accounting, and job costing. The report then explores the role of management accounting in effective control and planning. Different methods of management accounting reporting are discussed, including budget reports, cost managerial accounting reports, and performance reports. The report also delves into cost analysis techniques, including marginal and absorption costing, and examines the application of these techniques to financial reports. The report further explores planning tools used in budgetary control and analyzes how organizations like Volkswagen adapt management accounting systems to respond to financial problems and achieve sustainable success. The report provides a detailed overview of the accounting practices and financial strategies adopted by Volkswagen.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................4
Management accounting and different types of management accounting systems....................4
Different methods which are used for management accounting reporting.................................6
The benefits of management accounting systems and their application within the company....7
How management accounting systems and management accounting reporting is integrated
with organisational processes......................................................................................................8
LO 2.................................................................................................................................................8
Calculation of costs by using effective techniques of cost analysis............................................8
Management accounting techniques and financial reports.........................................................9
Financial reports that accurately apply and interpret the data for several business activities...10
LO 3...............................................................................................................................................10
Advantages and disadvantages of different types of planning tools used in budgetary control
...................................................................................................................................................10
Analyse the use of different planning tools and their application for preparing and forecasting
budgets......................................................................................................................................12
LO 4...............................................................................................................................................12
Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success..........................................................................................15
Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success............................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting refers to the procedure of presenting accountancy data in order
to design the plans and policies which is adopted by the administration to operate its day to day
activities. It can be an activity of planning, organising, staffing, directing and dominant the fiscal
actionas of the business concern of the firm. It is essential to the administrator of the
organization to maintain the fiscal data and information and also assist in decision making
process. It is different form financial accounting because it will be prepared fro internal
stakeholders. Managerial accounting embrace many facets of account purpose at improving the
attribute of data which is delivered to management accounting about business concern trading
operations metrics (Alsharari, Dixon and Youssef, 2015). This report is based on Volkswagen
which is a German auto-maker and operate its business internationally. This firm was established
in 1937 and headquartered in Wolfsburg, Germany and operate its business in Automotive
industry. This assignment will discuss about management accounting and requirements of
different types of management accounting systems. Further, will discuss about different methods
of management accounting reporting, management accounting methods and proper financial
reporting documents. Advantages and disadvantages of various kind of designing tools that are
used in budgetary control and comparison of organisation which adopt management accounting
system to react to fiscal problems.
LO 1
Management accounting and different types of management accounting systems
Management accounting is a kind of accountancy which is helpful for the administrators
of the organisation to support the to manage the financial activities of the organisation in an
efficacious and efficient way and also support in the activity of determination devising in
different situations. In Volkswagen, the accounting financial manager manager of the company
can use it in manage the financial action like cost invest in manufacturing and others or have the
proper information of the finance which are invested by the company (Bennett and James, 2017).
There are number of accounting system which can be used by the firm in managing the finance
and decision making regarding it. Some of them are defined as beneath:
Inventory management system- In this system, the inventory of the organisations are
negotiated in an appropriate way. In addition to it, it traces the cost which which generates due to

the cost of storage of the goods in warehouses. The main objective of this management
accounting system is to make balance among the demand and supply of the goods of the
organisations. In Volkswagen, the management of the company can use this system under
guidance and with the help of it they can track the record of raw material to manufacturing a car.
The production function will take decision fro manufacturing new products as per the available
quantity of manufactured products like car in warehouse.
Price optimization system- This management accounting system is consisted in the
activity of setting price of goods and services on the base of customers feedback and analysis of
collected information of consumers (Chenhall and Moers, 2015). Generally, it is important for
sales division of the company because with the assistance of it, they set the price of the product
at a level is effective for both seller as well as purchaser. Apart form it, the organisations which
are not used this system of management accounting they face the problems in their business
related to finance like lack of sales and profitability etc. In Volkswagen, the administration of the
company implement this accounting system in their business with the purpose of setting the price
of their products. This help the company in maximising the sales and increasing the level of
profitability.
Cost accounting system- This accounting system is related with holding a brief record of
received cost in different operations. By using this system, the organisation can get information
about their actual financial position and make compression between their actual and estimated
cost. This management accounting system is beneficial for finance function of the company
because with the help of it they can formulate financial plan and make effective allocation of the
financial resources within the business activities. In Volkswagen, the financial team can apply
this system in the business because it help in keeping and managing the manufacturing cost at
minimum level. It is also crucial for the assignment of available finances into the different
production activities.
Job costing system- It is an another kind of management accounting system which is
affiliated to the assigning the manufacturing cost a specific unit of output. Generally, this
accounting system is important for those of organisations in which the portfolio of production is
bigger and their cost is differ from each other (Cooper, Ezzamel and Qu, 2017). So it is
important for determination of cost, loss, profitability of each job. In Volkswagen, the

management of the company can implement it for making evaluation of the cost of each and
every activity of production.
Role of management accounting
There are several role which are played by management accounting system in financial
activities of Volkswagen. Some of them are defined as below:
Helpful in effective controlling- Management accounting id beneficial for entities to
develop effective control over various forms of operations and activities of the business. It can be
do by using effective information from internal report and managers become competent to focus
on that activities which are output in to low profit margins or higher costs (Eldenburg and et. al.,
2019). In Volkswagen, the manager can make control on different aspects in efficacious with the
help of management accounting.
Helpful in effectual planning- Management accounting plays a vital role in developing
effective planning of different kind of available origins. With the help of it, the administrators of
the respective company can monitor future activities that are beneficial for efficacious planning.
In Volkswagen, by using management accounting as a planning tool, different functions of the
firm can do better planning which help in generating internal report.
Different methods which are used for management accounting reporting
Management accounting reporting
These kind of account reportage indicates to those reports which are formulated by the
administration of the company with rte assistance of financial and on financial information to
take the intrinsic determinations for the administration. In Volkswagen, the administration of the
firm can use these kind of reporting systems to formulate several kind of administration
accounting reports. Some of them are mentioned as below:
Budget reports- These kind of reports refers to those those documents which consist the
information and data about the actualised income, deterioration & approximative income,
financial loss and others. These kind of reports are essential to measure the effective
performance with the comparison of actual financial gain or finical loss with the budgeted targets
(Fourie, Opperman and Kumar, 2015). In Volkswagen, the administration can prepare these kind
of reports to monitor their effective performance. With the help of it they can prepare their
budget and the firm can list its all expenses and revenues sources.

Cost managerial accounting reports- These are those types of reports which consist data
and information regarding different cost which are generated due to different activities of the
business. In Volkswagen, with the help of these kind of report, the firm can calculate cost which
are manufactured (Maas, Schaltegger and Crutzen, 2016). These reports also help in offering
elaborated information affiliated to cost like raw product overhead, labour, labour cost etc. Cost
reports allow administrators the capableness to view the cost value of goods verse the
merchandising price. It also assist the administrators to make control and plan profitability.
Performance reports- It refer to those documents which include the information
regarding the performance actions and activities of the organisation. In Volkswagen, with the
assistance of these kind of reports, the firm can measure the actual performance of the company
and it will help them in taking effective decision in forthcoming for the demands and cost
increment. These kind of reports are computed by the management each year to monitor the
performer of the company in the market.
Therefore, these kind of reporting system can be formulated by Volkswagen for the
effective operations of the business activities and operations. It is crucial for the company that
they must be prepare these kid of reports so that they can have information about the cost which
can be incurred by the business activities and monitor the performance of the company etc.
These reports are beneficial to have the information about the internal and external functions of
the firm like, stakeholder, workers, shareholders and other.
Difference between management accounting and Financial accounting
Basis Management accounting Financial accounting
Meaning It is a accounting system which
provides relevant data to the
administrator of the company
to form policies, plans and plan
of actions to operate the
business in effective manner.
It is an accounting method
which concentrator on the
preparation of the financial
statement of accompany to
offer the financial information
to the interested parties.
Objective To help in planing and
determination devising process
by providing brief information
To offer financial information
to externals.

about different matters.
Information Monetary and non-monetary
data.
Monetary information only.
Time frame The reports are prepared as per
the requirements of the
company.
Financial statements are
designed at the end of the
financial year.
User Internal management is the
only user.
Internal and external parties
birth are the user.
The benefits of management accounting systems and their application within the company
Management accounting system Benefits
Price optimization system:  It assist in finding out the customer behaviour in
context of various price range of the product
(Malina, 2018)(Morse, 2015).
 With the assistance of this accounting system,
administrators of Volkswagen can get
information about the purchasing power of the
customers which help in formulating strategy
further.
Cost accounting system:  With the assistance of it, the firm can aware with
the each unit cost.
 It help in minimising the manufacturing cost of
products and formulating plan of action for the
future.
Inventory management system:  With help of this accounting system, the
management of the company can track the level
of inventory of the organisation (Oboh and

Ajibolade, 2017).
 To implement this system, the firm can minimise
the wastage and manage the production level.
How management accounting systems and management accounting reporting is integrated with
organisational processes
Management accounting system and reporting system are related with the business
operation process of the firm. Because, there are various accounting methods and they are
implements by the management of the organisation to negotiate the information and data
regarding the finance which is invested by the different activities of the business. In Volkswagen
different accounting method like cost accounting, inventory management and job costing are
used to manage and control the financial activities.
LO 2
Calculation of costs by using effective techniques of cost analysis
Marginal cost- This method is used by the company to monitor the marginal cost of the firm. By
exploitation this method only covariant cost are advised and fixed costs are neglected (Otley,
2016).
Absorption cost- It is utilised to monitor absorption costs for the company. In is all the fixed
cost are interpreted in to intellection while calculating profits by this method.
a) Before installation of the new machine
Contribution Margin Per Unit =
Sales Price per unit – Variable cost per
unit
40-28 = 12 p.u.
Break even point in units = Fixed Costs/ Contribution Margin per unit
180000/12
Ans. 15000
Break even point in Pounds =
Sales Price Per Unit x Break even point in
units

40 x 15000
Ans. 600000
P/V Ratio = (Contribution Margin p.u./ Sales
Price p.u.)*100 30
BEP from P/V Ratio 600000
b) After installation of the new machine
Contribution Margin Per Unit =
Sales Price per unit – Variable cost per
unit
40-14 = 26 p.u.
Break even point in units = Fixed Costs/ Contribution Margin per unit
(180000+236000)/26
Ans. 1600
Break even point in Pounds =
Sales Price Per Unit x Break even point in
units
40x16000
Ans. 640000
P/V Ratio = (Contribution Margin p.u./ Sales
Price p.u.)*100 65
BEP from P/V Ratio 640000
Since marginals expenditures needs variable costs to measure participation, the
explanation among the discrepancies in gain and loss statistics which are accumulated by
absorption and nominal activities. But absorption costs consist all components like fixed cost and
variable in productivity estimates (Nørreklit, 2017). As per the financial reporting, business
involvements monitor the actual position in the particular accounting year along with gains and
losses. With the statements, the data consisted in the financial reports assists to plan forthcoming

investments along with the formulation of plan of actions that are efficacious for growth and
success of the business.
2 c. Financial statement
Scenario 1.
Without installation
Sales £5,40,000.00
(-) variable cost -£3,78,000.00
Contribution £1,62,000.00
(-) Fixed cost -£1,80,000.00
BEP -£18,000.00
Current installation
Sales £6,00,000.00
(-) variable cost -£4,20,000.00
Contribution £1,80,000.00
(-) Fixed cost -£1,80,000.00
BEP £0.00
Scenario 2.
After installation
Sales £8,00,000.00
(-) variable cost -£2,80,000.00
Contribution £5,20,000.00
(-) Fixed cost -£4,16,000.00
Profit £1,04,000.00
Installed
Sales £6,40,000.00
(-) variable cost -£2,24,000.00
Contribution £4,16,000.00
(-) Fixed cost -£4,16,000.00
BEP £0.00

From the preceding tables, it has been monitored that organization should use new
machines as they are capable to gain £1,04,000 and BEP is £0.00 when the organization sell
16000 units (Otley, 2016). Therefore, when the firm maximize its selling unit, there will be
maximization in the profit margins ration.
Financial reports that accurately apply and interpret the data for several business activities
The administration of Volkswagen frames financial reports with the assistance of
marginal and absorption techniques of cost accounting. Both the techniques have create
favourable and unfavourable impact. The marginal costing method is useful because it has the
feature of making control on the cost by devising the cost into fixed and variable cost. This
method negatively affect because it becomes unrealistic in the case of high fluctuation of
production (Renz and Herman, 2016). The absorption cost is crucial for preparing the income
statement because it consist both cost and unit cost. Apart form it, the disadvantage of it is that it
make complex the calculation cost volume profit analysis. In Volkswagen, the management of
the company can use the absorption technique because with the help of it the company can
effectively analyse and monitor cost and unit cost and with the help of it, the firm can effectively
prepare the income statement of the company.
LO 3
Advantages and disadvantages of different types of planning tools used in budgetary control
Budget is regarded as the precise statements which highlights approximation of financial
expending and revenues for certain time period. It aids organisation in obtaining profit by
figuring the cost of their business entities. In addition to this, it is also defined as the qualitative
statements which is formed for definitive period in order to approximate upcoming time
expenditure and revenue. All organisation has to formulate budgets as this aids them in getting
knowledge about the futuristics risk and profit. Therefore, the Volkswagen manager may able
make its budget by using last one as this assists them to gain more profit and run the entities in
effective and effectual way. Such as they make budget for its raw materials as this helps them to
get knowledge about how much they can spend into its raw materials (Schaltegger and Burritt,
2017). Budgetary Control is considered as the practice that is performed by managers in order to
decide the financial objectives and performance by doing comparison with actual expenses to get

profit. Moreover, there are many planning tools which can be utilised by respective organisation
for budgetary control some of them are described below:
Cash budget: It is regarded as the budgetary planning tools that consists information
related to overall activities such as inflows as well as outflows of cash. This provide assistance to
its business owner in handling capital of networking. In boarded context, the cash budget
represents that how much cash is needed for operating its business (Schuster, 2015). Moreover,
cash budget is comprises of two of two section that are sources of cash as well as usages of cash.
Therefore, the Volkswagen accountants makes this particular budget as this aids its finance
division in order to develop effectual practices of management related to cash. Advantage: The sales budget provide assistance to Volkswagen for finding potential
deficit in quicker time period. It help in identify the amount of cash needed to fulfil
immediate short term obligations without usages of overdraft protection or lines of credit.
 Disadvantage: The main drawbacks of this is that it totally depends on estimation and
also this may be lost in simple way. It may also cause distortions and do not equate to
profit. Cash inflows resulting from security deposits, fines, the scale of capital assess or
any Theo one -off, not suitable activity do not necessarily represent reliable ongoing
sources of revenue.
Sales budget: It is regarded as the kinds of budget that consists information in respect of
expected units of sales and incomes and expenses that may occurs within sells process. Based on
this information, the manager may able to set its plan of actions to accomplish the target desired
sales. Moreover, this is also known as coordination instrument among various department within
firm such as sales, production, advertising, finance and many others. So, Volkswagen accountant
may develop this particular budget that provide assistances to their production department in
order to take corrective actions. Moreover, it have some advantage and disadvantage which are
as follows: Advantage: The sales budget is beneficiary for Volkswagen in delegating resources for
producing many products and sales the in effective and efficient manner with the aim to
realise expected sales.
 Disadvantage: The main drawback of sales budget, it is only completed according to the
last data . Moreover, in some cases the respective organisation can leads towards huge
financial losses.