Management Accounting Report: Financial Analysis of Cream Ltd

This report provides a comprehensive overview of management accounting principles and their application within Cream Ltd., a UK-based SME. The report begins with an introduction to management accounting, explaining its role in facilitating informed decision-making and its distinction from financial accounting. It then delves into various management accounting systems, including job costing, price optimization, cost accounting, and inventory management, highlighting their significance for internal departments. The report further explores different methods for managing accounting reports, such as budget reports, performance reports, and inventory management reports. A significant portion of the report is dedicated to the preparation of income statements using managerial accounting techniques, specifically absorption and marginal costing methods, and their impact on financial reporting documents. Additionally, the report examines the benefits and drawbacks of budgetary control techniques and assesses the influence of management accounting on resolving financial problems. The report concludes by summarizing the key findings and emphasizing the importance of management accounting in achieving organizational success. Overall, this report provides a solid foundation for understanding management accounting and its practical applications in a real-world business scenario.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Explanation of various management accounting and their system.......................................3
P2 Different method that can be used in management accounting reports..................................5
TASK2.............................................................................................................................................7
P3 Preparation of income statements using managerial accounting techniques..........................7
TASK3...........................................................................................................................................12
P4 Benefits and drawbacks of budgetary control techniques....................................................12
TASK4...........................................................................................................................................17
P5 Effect of management accounting technique in solving financial problems........................17
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................21

INTRODUCTION
Management accounting is terms as an activity of maintaining record of intrinsic
information about an organisation so that it makes easy for management to make a better and
profitable decisions for further growth and success of an organisation (Biondi, Gulluscio and et.
al., 2017). Keeping such report helps stakeholders such as customers, employees, shareholders
etc. to identify actual financial performance of an organisation so that they can decide whether to
stay with company or not. The present assignment report is based on Cream Ltd. Which is
engaged in provide wide range of products such as ice-cream, waffles, doughnuts etc. It is SME
operated in United Kingdom. The report explains the concepts of management accounting and its
systems and reporting. Along with this, use of different costing methods for the purpose of
calculations of net profit are also summarised under this report. The report also covers planning
tools to control budget and use of MA in resolving financial issues of an organisation.
TASK 1
P1: Explanation of various management accounting and their system
Management accounting: It is a branch of accounting in which transactions are
collected, measured and recorded for the purpose of taking essential financial decision. In other
words, it is a process of formulating managerial accounting policies with the use of accounting
data. Organization use this technique for optimum utilization of their resources by taking
effective decision. This tool of accounting is used by internal department of Cream Ltd..
Managers of Cream Ltd. uses different management accounting systems for the purpose of
taking necessary decisions. Success of plans and policies of internal department is depending on
how effectively their managers use management accounting system of their department
(Bromwich and Scapens, 2016)
Differences between management and financial accounting:
Basis Management accounting Financial accounting
Meaning It facilitate management to
make accurate profitable
decision and plans for
operating business more
effectively.
It mainly focuses on preparing
final accounts of business so as
to know their actual financial
stability in the market.

Compulsion It requires only when business
operations are not running
effectively.
It is compulsorily required for
company to prepare financial
statements so as to retain their
loyal stakeholders.
Prime motive Providing useful information
on various business matters so
as to make suitable plans and
policies.
To provide financial
information to interested
stakeholders.
Time frame Reports are prepared only if
there is requirement of
business
Annually
Types of management accounting system:
Job costing system: It is essential part of managerial amounting. Under job costing
system managers allocate cost of producing specific task products. Cost of each activity are
analysis and recorded in statements. These types of system is useful in those industries which
produced limited and specific products on demand of their customers. For example, producing
wide range of products such as ice-creams, waffles etc. by Cream Ltd., using such system helps
managers in allocating cost to different product according to the growth in their sales and
revenue(Eldenburg, Krishnan and Krishnan, 2017)
Price optimizing system: This system is applied by organizations to decide pricing rate
of their products. Managers decides price on the basis of analyzing entire market conditions.
They set price which gave satisfaction to customers and also provides financial gain to the
organization . Managers uses various strategies to set their price. Business organizations various
strategies of price like skimming, penetration and etc. They decide their price of product on the
basis of industrial life cycle product. In the context of Cream Ltd., identifying perception of
customers towards pricing policy of company, it makes easy for manager to make relevant
changes in their existing pricing policy which increases customer satisfaction level as revenue.
Cost accounting system: In management accounting tools cost accounting is also play
important role. Business organizations uses this system to analysis cost incurred in
manufacturing of products and then formulated polices which help in minimizing cost. This

system is useful for every kind of industries either it is small or large size of enterprises. Cost
accounting system has very large criteria. In the context of Cream Ltd., analysing total cost
incurred in manufacturing of products makes easy for manager to set margin and charge prices
from customers accordingly (Ferdous, Adams and Boyce, 2019)
Inventory management system: Inventory management system is used to monitor and
control the stock products, which may be the asset, raw material, deliveries, supplies or product
which is ready to dispatched to the customers. This is a technological software used for tracking
the inventories of the company and as gives the information related to the stock which is helpful
for to control the stock or outages. There is a use of barcode scanning process which includes all
the detailing of product used to maintain the record. In the context of Cream Ltd., identifying
level of inventory reduces changes of failing customers needs and requirements which makes
strong brand image into the market .
P2 Different method that can be used in management accounting reports
Management accounting reports defines the management of reports which provides
financial information. It has been preparing to analyse the profit, loss, gain, expense, etc. which
is needed to the company to increase its profitability index by increase its sale and reduces the
losses or to fulfil the loopholes that directly helps to grow even more faster. To manage the
reports it is more effective and efficient way for Cream Ltd. to keep the records of all the
activities perform in a particular period of time that is helpful in future forecasting. There are
several methods used to manage the reports by the management of Cream Ltd. these are as
follows as:
Budget reports - This is a report used for budgeting the certain task and hold back the
productivity by the management department. Budget reports is being used to compare the
performance or set the standards for every task. As it calculates the difference between the actual
and calculative cost thus it is helpful for Cream Ltd. to accomplish the task with more
consistency and improves the performance of the company. This is also used for forecasting the
future costing which is beneficial for the growth and development of the company (Hiebl and
Mayrleitner, 2019).
Performance report - Performance reports defines the individual, group or company
performance. It is useful to define the growth of individual by analysing the performance
because growth can only be achieved by better performance. Performance is being analysed to

provide bonus, incentives, perks, promotion, etc. to the employee which builds the motivation
and self-confidence to achieve the individual and company's goals and objectives. So
performance report is needed for Cream Ltd. to measure the growth of all.
Inventory management report – It is also necessary to control and manage the stock
reports as excess inventory or less inventory both is harmful for the company and in both the
cases company bears the loss. As every company such as Cream Ltd. deals with different product
and provide different services on that thus by which company manage to gain the profit for that
the control on production is much needed and that is control by inventory management reports.
Also manage according to the need and demand of customers as much the product is in demand
that much the stock is needed and if the product is not in demand the stock will also be not
needed (Thomas, 2016).
Accounting receivable report - Accounting receivable reports are the report of those
sale whose payment is not received by the company at a particular period of time. It is useful for
Cream Ltd. to compare the profit and loss of the company and also reflects company's
performance. It keep the record of credit sale and enlist those payments which is not pay at in
order to services ordered by the customer. This can be used by manager of Cream Ltd. to
measure the performance of the company as it defines the financial stability of the company and
also used to make budget and set target according to the previous reports.
The accounting management reports is used to measure the financial performance of the
company which involve the budgeting, inventory control, accounting receivable reports. It help
managers of Cream Ltd. in decision making, strategies, plan formation to gain the profit at a
certain period of time. Company need to prepare these reports to evaluate the performance and
deal with threats and grab the opportunities to enjoys the profit. This is also needed to present the
report in the market for the shareholders as they invest in the company and for market value as
well (Fiondella and et. al., 2016)
M1 Essential requirements of management accounting systems
Every organisation wants to sustain in competitive market for long duration which can be
possible only the suitable plans and policies formulates. In the context of Cream Ltd., it is
important for management to utilise different management accounting system for beneficial
purpose for an instance, using of price optimisation system drives managers to update their
existing pricing strategies after acknowledging perception of customers towards their existing

pricining policy. This will retain loyal customers with company for longer duration. Another
instance of getting fruitful outcome for using management accounting system includes inventory
management system which communicates managers about the level of inventory available with
company at present so that further decision could be made regarding ordering further stock in
order to meet client’s requirements. This will increase brand image and loyalty in market.
D2 Management accounting system and management reporting system are integrated with
process of organisation
The management accounting and reporting systems of an organisation are integrated as
with the help of accounting system various reports of the company like financial statements etc.
can be produced which help in determining the financial position of a company. The accounting
system of a company help in recording the transactions that occur in company so that records can
be maintained. Thus it can be said that both the systems are integrated which help the company
in maintaining effective records of the company.
TASK2
P3 Preparation of income statements using managerial accounting techniques
Cost: It is an incurred amount in production process on the basis of which pricing
strategy for products are formulated by the management of an organisation. It includes two kinds
of costing methods which are used to calculate net profitability (Cost accounting systems, 2013).
Here are such methods that can be used by Cream Ltd. To calculate net profit:
Absorption costing method: It is also known as full costing method due to including both
fixed and variable cost. It reflects true and fair financial position of an organisation which helps
in retaining their loyal stakeholders. Such kind of method is mostly used by large sized
organisations.
Marginal costing method: It is also known as variable costing method due to considering
only variable cost and ignoring fixed cost. It is used by SME such as Cream Ltd. as it helps them
in showing high profitability of company than actual under financial statement with a motive of
attracting shareholders to provide them financial support.

M2 Management accounting technique and financial reporting documents
With the help of management accounting techniques like marginal and absorption costing
the management of an organisation can effectively mange the budget so that sufficient funds can
be available wit the company in achieving its goals and objectives. The company can identify its

financial position with the help of these tools so that the monetary data can be effectively
managed.
D2 Financial report which apply to interpret business activities
Various types of financial reports like budget reports, account receivable ageing reports,
cost accounting managerial reports etc. help the managers of company in identifying the
deficiencies and variances in an organisation (Ndemewah, Menges and Hiebl, 2019). This help
the management in identifying the effectiveness of business activities so that company goals can
be achieved so that efficient decisions can be made through strategic planning in order to achieve
long-term benefits.
TASK3
P4 Benefits and drawbacks of budgetary control techniques
Budget: budget is a process which defines the calculated and estimated result of funds as where
to invest and how much to invest for specified period of time in future. budget can be made by a
family, an individual, a group, by company, etc. It is for to manage the financial funds.
Types of Budget:
Cash budget: -
Cash budget is a forecast of the total amount of receipts and payments made by a company in a
financial year. This is a demonstration of inflow and outflow of cash in an entity in a specific
time, so that the estimation for working capital and other expenditure can be made to sound
working of an organisation. This is the budget which is prepared by Creams Ltd. primarily
before any of the budget so that close estimation can be made for other budgets and any cash
discrepancies can be found this will help the company to maintain ample cash balances (Lowe,
2019).
Objective of preparing cash budget:-
 To forecast liquidity position of company.
 To predict cash position of Creams Ltd. whether shortfall or surplus.
 To estimate the time when cash will be required so that source of finance can be selected
accordingly.
 To control over expenditure cash where funds are at shortfalls.
 To perpetuate balance between cash, working capital needs, loans and advances made.

 It depicts monthly cash requirement so that finance manager can wisely use funds and by
this funds will not be idle and cash will be in reserve when required.
Static budget:-
A static budget is prepared before commencement of a new financial year and on the
basis of revenue generated in last year. It is forecast of expenditure and income over an
upcoming financial year irrespective of the change in level of activity i.e. it remain unchanged
even if sales volume and production quantity fluctuates. Static budgets are made to evaluate
financial soundness of a company over a span of time (Chenhall and Moers, 2015)
Objective of preparing static budget:-
 To mark costs, expenditure, income of a company and to determine financial position of
company.
 To ensure that all the subdivision are under the budget by this companies can keep all the
department on proper track and prevent from deviation.
 It leads to the proper management of cash flow in the organisation so that cash can be
obtained on time when needed.
 To maintain record of field where amount is spent, from where money is coming and
what are the future expectations of flow of funds.
 It helps in calculating performance for a period of time since the amount of expenditure is
evenly spread and hence it become easier to evaluate performance since it is easier because sum
of money apportioned to each month is the same.
 It creates roadmap of income and expenditure of a company so that it can be followed
accordingly.
Planning tools to control budget
1. Master budget:
A master budget is the combination of all the budgets prepared by all the divisions. It is the
concise form of all divisional budgets made, this is not the biggest budget but it is a summarised
form of all the budgets. Master budget can be used in enlargement of business because it covers
all the aspects of business and makes the process of decision making easy (Endenich, Trapp and
Brandau, 2017) Master budget anticipates detailed knowledge about sales capacity, production