Management Accounting Report: AB Dynamics Cost Analysis and Planning

This report provides a comprehensive overview of management accounting, focusing on its application within a company like Anthony Best Dynamics (AB Dynamics). It begins by defining management accounting and contrasting it with financial accounting, emphasizing its role in internal decision-making, strategic planning, and resource allocation. The report then details various managerial accounting methods, including budgetary control, job costing, and inventory reports, and their significance in monitoring performance and addressing financial problems. Furthermore, it explores cost measurement techniques, such as standard costing and the retail method, along with different cost types like fixed, variable, and operating costs. The report includes an income statement based on marginal and absorption costing, demonstrating profit measurement. The report also discusses the advantages and disadvantages of planning tools and the use of management accounting to respond to financial challenges, providing practical insights into how businesses can leverage these tools for improved performance and sustainability. The report is structured to provide a detailed understanding of how management accounting supports effective decision-making within organizations.

Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK A...........................................................................................................................................1
P1. Management accounting and its essential requirement to various types of management
accounting...............................................................................................................................1
P2. Various methods used for managerial accounting...........................................................3
P3. Cost measurement by using various appropriate techniques and preparation of income
statement in relation marginal and absorption costing...........................................................5
TASK B...........................................................................................................................................8
P4. Advantages and disadvantages of various planning tools used for budgetary control.....8
P5. Use of management accounting to respond to financial problems.................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting are the short term reports which are framed with a purpose to
reduce the uncertainty and deviations from business. By using this method, organisation can deal
with many problems which arise at the time of performing various operations. In service sector
industry, their facilities are the only thing from which they can increase profitability.
Management accounting is completely different from the financial accounting in which reports
are prepared on the basis of long term or on whole financial operations (Pitkänen and Lukka,
2011). In this report, the use of managerial accounting in a company will lead to define various
management accounting reporting systems. Along with this, cost analysis is another essential
term on the basis of which price of product gets settle down. A proper planning is also required
for a successful business and maintain their accounting reporting properly. Thus, this helps an
entity in responding to all financial problems which are not appropriate for the business and its
sustainability. All these things will lead to describe and evaluate with support of Anthony Best
Dynamics that deals in designing and manufacturing of automotive parts as well as testing them
to measure their quality (AB Dynamics, 2017).
TASK A
P1. Management accounting and its essential requirement to various types of management
accounting
Encompassing technique and process which are intend to provide financial and non-
financial information of a company for such people which are related to within an organisation to
make better decision and thereby attain the effectiveness and control over the deviations. This
method is helpful in taking the appropriate decision for the business for gaining sustainability
and effectiveness (Zimmerman and Yahya-Zadeh, 2011).
By using the managerial accounting system all the decision which are related with the
internal purpose will be taken in an adequate manner. The following are the well-defined
purpose of accounting system:
 Formulate the strategies which provide benefits in long term by analysing then in short
period of time
 Resource allocation and properly get utilised by identifying the daily routine report
 Control the unnecessary wastage by determine the internal report system
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This process is helpful for all such people which are related with internal business
segment so that management can derive adequate step for further development. As this provide
support to a firm in conducting all operations properly by inspecting the books and statement on
day to day basis.
Managerial accounting is a process through which management can measure and identify
all the problems which are associated with an organisation on short term basis by investigating
the financial statement of a company (The Differences Betweenbetween Financial Accounting &
Management Accounting, 2017). This is based on weekly, monthly and quarterly basis reporting
system and completely distinct from financial accounting. A major differentiation between
financial accounting and management accounting is described as below:
Financial accounting Managerial accounting
Provide a detailed overview of a company so
that long term strategies for next year can
done.
Include only considerable terms so that proper
design of strategies for long term can made.
The reporting intervals is based on annual year
basis.
Reporting interval is decided by management
that what frequency required to inspect
statement.
Financial accounting is for the external
stakeholders of business (Keohane and
Olmstead, 2016).
Managerial accounting is for the internal
stakeholders of a business.
Shows the overall performance of a company
by providing a detailed overview of whole
accounting year.
Based on current and future trends and not
based on past performance.
Managers investigate the statement at the end
of year thus dealing with dynamic business
environment become hard.
Aid in dealing with all fluctuation with support
of managers. As this method is helpful in
measuring the books on short period of time.
As per this differentiation, management can use and employ this tool in business in more
adequate manner. There are various type of managerial accounting system are identified through
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which an entity can understand this concept and use it in more proper format. Several number of
accounting approaches are as follow: Traditional accounting: This approach is helpful in tracing the cost of product by using
two basis: job order costing and process costing. Job order costing is for the large
projects in which only single product or similar nature goods get manufactured whereas
process costing is for such groovy and services which are for the different nature
products and services (Kama and Weiss, 2013).
 Lean accounting: For removing the wastage and unnecessary elements from products,
managers can apply this tool on their business. Lean accounting is helpful in removing
the irrelevant cost from product.
Anthony Best Dynamics have to apply managerial accounting process in their business so
that they can provide proper system to their clients. Along with this, analysis of statement on
regular basis aid managers to reduce the unnecessary costing from products and their services.
Entity support in providing quality control to other automotive companies. There are many new
inventions and innovations are also developed by a company in making their clients experience
more satisfactory.
P2. Various methods used for managerial accounting
Managers have to formulate several reports to identify all facts and things which are
taking place in a business. By proper evaluation of such reports, appropriate action and step can
be carried down which are beneficial for long term sustainability and implementation of
strategies in an adequate manner (Hongjun, 2011). By using this concept, management can
prepare a clear picture of all operations of a business and action plan get implemented properly.
Management accounting report provide the detail of cash, current state of organisation
position to meet with obligations, sales revenue and many more things (Management accounting
- What is management accounting?, 2017). Managerial accounting report usually for the internal
stakeholders and have to be confidential in nature.
AB dynamics have to prepare these reports so that they can deal with various problems
which might arise in business. Along with this, if there is any new innovation and invention will
lead to take place, then company first have to measure the availability of cash. By using this
reporting tool, management become capable to deal with many problems which arise in business
and not acceptable at all. On the basis of system, there are various number of managerial
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accounting reporting are derive which are helpful for the business and its long term existence by
providing more and more quality based services. Budget report: In budget report, whole year investment and expenditure have to be
described properly (Higgins, 2012). This aid in taking beneficial decision for such area
which really required investment. Budget is helpful in dividing the whole operations
activity in an adequate manner. For operating a feasible project, budget is consider as
helpful element for a business and its growth. Traditional managerial accounting system
is helpful in preparing the budget report through which proper utilisation of resources get
done. Job costing report: Management have to keep their focus on such operations which are
more profit generating as compared to those which are not. Cost get escalate by reducing
the wastage of resources and optimum utilisation of all the material which leads to use in
production. Job costing report is for the large projects which aid in generating more and
more profit for the business. In such relation, traditional accounting and lean accounting
system are work as support in this reporting method. Account receivable aging report: Management have to tighten their policy towards such
debtors which shows less interest in paying all debts of a company. This will support to
collection department to make their work more appropriate for maintaining proper flow
of cash. Tradition accounting system is helpful in preparing their account receivable
aging report so that proper flow of cash can maintain and investment get done at
appropriate place.
 Inventory and manufacturing report: Another major area on which management have to
keep their focus is inventory and manufacturing (Goyal, 2014). This is a stream where
most unnecessary wastage get done due to lack of information. Firm have to maintain
proper report for the goods in quantity which they tend to manufacture in near future
course.
These are the methods of managerial accounting reporting which have to employ by AB
dynamics in their business for proper management of cash and funds. By framing proper budget,
AB have to expand only such amount in such area which require investment. Along with this,
they have to measure their stock also for manufacturing more quality automotive parts and
suspensions.
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P3. Cost measurement by using various appropriate techniques and preparation of income
statement in relation marginal and absorption costing
Cost is a value in monetary sense which incur on the project or task which execute by an
organisation. Cost measurement and its analysis is essential for an organisation to identify the
potential risk and gains of selected project. A proper research have to perform by management
and then analyse the data for making an appropriate cost analysis
It is a duty of manager to control the cost which is associated with project so that delivery
took place at adequate price level. There are two major cost measurement techniques are
identified which are helpful in determine the adequate cost for a product or good or service: Standard cost: This costing approach is helpful in determine the variances which are
taking place in an organisation so that company can find out the difference between
actual cost and expected cost. As this is consider as beneficial approach so that
management can control the variances and render goods and services at accurate price
level.
 Retail method: This method is helpful in estimating the ending inventory using the cost to
retail price ratio (Gond and et. al., 2012). A high level of accuracy is required in this
method because estimation in advance is hard to determine for a business. Predictions are
always not appropriate in business context.
There are various type of cost are associated with the manufacturing of products which
have to take in account by a company for delivering goods and services at appropriate price
level. Every product manufacturing require several number of cost in it, which are as follow:
 Fixed cost
 Variable cost
 Operating cost
 Direct cost
 Indirect cost
All these have to taking into account by a manufacturer in fixing up their prices of
product which they lead to deliver to target users. Along with this company have to work on their
marginal costing and absorption costing also. By using these two statement, company can
measure their profit. In costing technique, management have to measure the cost which incur on
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the project by manufacturing one and relief other one as well as whole cost which incur on the
project. This type of costing is defined as marginal costing process.
The below is a income statement on the basis of marginal costing and absorption costing
for the company AB dynamics with two quarters (DRURY, 2013). This income statement is
helpful in measuring the net profit which generate by a company in both the quarters:
Absorption costing for Quarter 1:
Particulars Amount (in £)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost
(78000*0.85) 66300
Closing stock
(12000*0.85) 10200
76500
Gross profit -10500
Less: Fixed & selling
expenses 5200
Net profit -15700
Absorption costing for Quarter 2:
Particulars
Sales 74000
Less: Cost of sales
Opening inventory
(12000*0.85) 10200
production cost
(66000*0.85) 56100
Closing stock (4000*0.85) 3400
69700
Gross profit -4300
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Less: Fixed & selling
expenses -5200
Net profit -9500
Marginal costing for Quarter 1:
Quarter-1
Particulars
Amou
nt (in
£)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65)
5070
0
Closing stock (12000*0.85)
1020
0
60900
Gross profit 5100
Less:
Fixed overhead
1600
0
Fixed & selling expenses 5200
21200
Net profit -16100
Marginal costing for Quarter 2:
Quarter- 2
Particulars Amount (in £)
Sales 74000
Less: Cost of sales
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Opening inventory (12000*0.85) 10200
production cost (66000*0.65) 42900
Closing stock (4000*0.85) 3400
56500
Gross profit 17500
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit -3700
From the above calculation, marginal costing and absorption costing get calculated.
Marginal costing is one when an organisation will lead to manufacture something new in market
and have to sacrifice their one unit for that (Christauskas and Miseviciene, 2012). According to
the calculation of AB dynamics, they are suffering loss in their quarter which is not appropriate
in nature.
Absorption costing is defined as the process in which whole project value get included in
the task. Moreover, company have negative profit which means that they are not operating in an
adequate manner. As this is harmful for a business and management have to take care about this.
TASK B
P4. Advantages and disadvantages of various planning tools used for budgetary control
Plan is defined as the process which provides a proper framework for operating all
activities in an adequate manner. A perfect plan is a one in which all the short term and long term
plans are described properly with their gains and risk. Planning is set framework which work as a
guideline for the al employees and stakeholders of a company whom are related internally (Chen
and et. al., 2011). Planning tools are the guide for implementing all the interventions in an
appropriate manner by an organisation. There are various features of planning tools are defined
which are as described:
 Organisation timeline
 Sample meeting agenda
 Action item checklist
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 Things to do checklist
Planning tool is helpful in taking such decision for a business which help them in their
long term. Managerial accounting is a concept which includes decision making and framing
strategies for short time period. Planning tool is consider as a part of business which have to
implement by management in an adequate manner (AB Dynamics, 2017).
Budgeting and budgetary control is defined as the capability of manager to monitor all
the resources are utilising in an adequate manner. Moreover, evaluation of performance by actual
result with budgeting figures also have to done by leaders or managers. In an organisation,
control is defined as an essential thing for a business in making operations effective and
appropriate. Managers of Nero limited have to measure the budget and analyse their actual result
with desired one so that they can measure difference and work according to that.
A budget includes all such operations and activities which will take place during an
accounting year. In this, short and long term plans both are included properly. There are various
sort of budgets are identified which have to take in account by Nero limited for making their
investment better and appropriate for enhancing their profitability. Financial budget: This budget is for the whole financial year activities in which only
financial activities are included in that.
 Operating budget: This budget is for the operational activities which are taking place in
an organisation so that management can manage all expenses and investment
appropriately.
Budgetary control is essential technique under the planning tool for managing all
resources properly. Monitoring that all resources are utilising properly or not is a major function
which have to perform by the manager of an organisation. Advantages and limitations of
budgetary control that can be used by Nero limited in business for running their operations
effective are stated as below:
Advantages Disadvantages
All the resources get utilise in an appropriate
manner by using budgetary control (Cardoni,
2012).
Completely based on predictions which is
harmful for a business due to change
environment.
Make the process centralised on the hand of Conflicts between employees and management
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decentralisation. due to complete centralisation.
Reduce the chances of uncertainty for making
operations effective and appropriate.
Uncertainly never get forecast and future
forecasting in business is not so appropriate.
P5. Use of management accounting to respond to financial problems
Whenever, a business get started, a major issues which get identified is finance. From
initial stage of business, finance is a major and big problem for every business. Thus, managers
have to use their skills and capabilities to deal with these financial problems because they affect
the business directly. Thus, managers and leaders have to use their skills for resolving their
financial problems.
Respond get done through by performing the skill of all managers and leaders of a
company. Finance is the only thing through which management can maintain the health of their
business. Various number of problems for a business are as follow:
 Low income
 Less profit generation
 Not inspecting the books properly.
 Less cash reserve and more long term assets
All these are the financial problems of a business which have to determine by
investigating the books on regular basis (Bracci and Maran, 2012). This is helpful for an
organisation to remain sustainable at keen competitive market for long term. Hence, Nero limited
have to prefer appropriate tool in their business and deal with financial problems which arise in a
firm. Nero limited is facing a serious issues in which they do not have adequate amount of fund
for dealing with regular operations. This is harmful for the business in their long term as such
sort of things are not appropriate at all. In such relation, for maintain the effective use of finance
and increase their cash availability, company have to analyse their reports regularly by adopting
managerial accounting system:
 Reports get prepared on the basis of short term basis as this is helpful in identifying the
deviations which are taking place in an organisation.
 Try to increase their cash reserve by selling some long term projects and property of
business (Barth and et. al., 2012).
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 Control cost by utilising all resources properly and minimise the unnecessary wastage of
products.
 Prepare budget on monthly basis and evaluate the performance of long term and short
term. Budget aid in incurring of all expenses and investment at appropriate places.
By performing all these things by a business, management become able to deal with all
financial problems which are not appropriate for them. As they have to work on them and
managers have to use their skills more adequately into a business to deal with them. Management
have to respond to all financial problems in an adequate manner for making their operations
effective and appropriate.
CONCLUSION
The above stated report completely emphasises on managerial accounting and its process.
This is one of the important accounting procedures which is for the internal stakeholders of a
business. In this report, firstly, management accounting and its requirement to a business is
defined properly. Along with this, a major differentiation between financial accounting and
managerial accounting is in this report. Moreover, there are various number of managerial
accounting reporting being identified which are helpful in the proper utilisation of resources.
Further, by performing cost analysis, various sort of terms are identified which are helpful in
creating value for the product. Budgetary control is an essential step of planning tool through
which proper use of resources gets done. It has been assessed from the report that planning is an
essential tool for every business and there are various type of budgets identified in relation to
management accounting. On the basis of such budgetary control or measure, management can
control all of their expenses in a proper manner. But there are various advantages and
disadvantages identified in such relation. By proper utilisation of budget and investment, all
financial problems can be sorted out and managers can respond to them.
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REFERENCES
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family firms: a case study. Piccola Impresa/Small Business. (3).
Cardoni, A., 2012. Business planning and management accounting in strategic networks:
theoretical development and empirical evidence from enterprises’ network" agreement".
Management Control.
Chen, H. and et. al., 2011. Effects of audit quality on earnings management and cost of equity
capital: Evidence from China. Contemporary Accounting Research. 28(3). pp.892-925.
Christauskas, C. and Miseviciene, R., 2012. Cloud–computing based accounting for small to
medium sized business. Engineering Economics. 23(1). pp.14-21.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Gond, J.P. and et. al., 2012. Configuring management control systems: Theorizing the
integration of strategy and sustainability. Management Accounting Research. 23(3).
pp.205-223.
Goyal, D.P., 2014. Management Information Systems: Managerial Perspectives. Vikas
Publishing House.
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Hongjun, G.U.A.N., 2011. Design of Team Economic Accounting Management System in
Petrochemical Industry. JDCTA. 5(1). pp.133-149.
Kama, I. and Weiss, D., 2013. Do earnings targets and managerial incentives affect sticky costs?.
Journal of Accounting Research. 51(1). pp.201-224.
Keohane, N.O. and Olmstead, S.M., 2016. Introduction. In Markets and the Environment (pp. 1-
10). Island Press/Center for Resource Economics.
Pitkänen, H. and Lukka, K., 2011. Three dimensions of formal and informal feedback in
management accounting. Management Accounting Research. 22(2). pp.125-137.
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
Issues in Accounting Education. 26(1). pp.258-259.
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AB Dynamics. 2017. [Online]. Available through: <http://www.abd.uk.com/en/About>.
[Accessed on 4th September 2017].
Management accounting - What is management accounting?. 2017. [Online]. Available through:
<https://debitoor.com/dictionary/management-accounting>. [Accessed on 4th September
2017].
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