Management Accounting Report: Techniques and Cost Analysis, Guildford

This report provides a comprehensive analysis of management accounting practices within the context of the Guildford Tyre Company, a small tyre retailer. The report begins by defining management accounting and its essential requirements, including cost accounting, job costing, inventory management, and price optimization systems. It outlines the objectives of management accounting, such as measuring performance, assessing risks, and ensuring effective financial reporting. The report then details various management accounting reporting methods, including job cost reports, inventory management reports, debtors aging reports, and segmental/departmental reports, highlighting their applications and benefits. Furthermore, the report delves into the calculation of costs using different tools and techniques, and evaluates the planning tools involved in budgetary control, discussing their advantages and disadvantages. The report concludes with a discussion on how organizations should adapt management accounting systems to address financial problems and achieve sustainable success. Throughout the report, the focus is on practical application and the critical evaluation of management accounting systems and reporting within an organizational context.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
P1 & M1 Explain management accounting along with the essential requirements of the
different type of the system which are related to management accounting and application of
management accounting system..................................................................................................4
P2 Different methods used for management accounting reports................................................6
D2 Critically evaluate management accounting system and management reporting in the
organisational process.................................................................................................................8
TASK 2............................................................................................................................................8
P3 & M2 Calculation of cost using different tools and techniques.............................................8
D2 Interpretation of the financial data......................................................................................11
TASK 3..........................................................................................................................................12
P4 & M3 Different planning tools which are included in budgetary control and its advantages
and disadvantages......................................................................................................................12
D3 Planning tools and sustainable success...............................................................................14
P5 How organisation should adapt management accounting system to respond to the financial
problems....................................................................................................................................14
M4 Analysis of management accounting for the sustainable success.......................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Cost management is the one of the main branch of accounting that is used to do cost
computation for products and services at the workplace. It is a form of approach that is used to
record transactions which assist in allowing the business to predict the impending expenditures
which aid in reducing the chance to check that budget is properly made or not. Management
accounting includes the different type of functions which company have to use and the functions
are forecasting as well as planning, organising, coordinating, performance should be controlled
in a proper manner (Baldvinsdottir Mitchell and Nørreklit, 2010). Along with this evaluation of
the financial statements also be done in a effective manner, effective communication, protection
of the business assets along with the tax policies. Supervisor of the business entity have to do
proper supervision which help them in attaining goals and objectives. The present report is based
on Guildford Tyre Company which is tyre retailer and enterprise having less than 50 employees
as well as annual turnover is £500,000. In the below mentioned assignment, determination is to
be done on the concept of management accounting on the basis of chosen scenario (Significance
of Management Accounting Techniques in Decision-making: An Empirical Study on
Manufacturing Organizations in Bangladesh. 2011). Along with this discussion on the different
tools and techniques used for supervising accounting reporting. Further, calculation of cost
according to different techniques.
TASK 1
P1 & M1 Explain management accounting along with the essential requirements of the different
type of the system which are related to management accounting and application of
management accounting system
To
The Board of Directors of Guildford Tyre company Date: 5th Octomber 2017
Subject: Essential requirements of management accounting systems
As a general manager of Guildford Tyre Company, they have to use the concept of management
accounting which helps in gathering, evaluating as well as analysing the information along with
the data so that all the operations as well as financing activities of a business. These reports of
the business entity are directed by the managers of a business rather than any external entities
which includes shareholders as well as lenders (Bennett, Schaltegger and Zvezdov, 2013). The

main objectives of the management accounting is measuring performance and it can measure the
two type of performance which involves the employees performance and another one is
efficiency measurement. In both the type of the performance management the employees of the
company have to make corrective actions so that they can improve the performance in the market
place when they are facing high competition. Along with this it helps in assessing the risk with
the allocation as well as utilisation of the available resources so that the staff members of
Guildford Tyre Company generate maximum profits. For doing the proper and appropriate
management, appropriate presentation of the various financial statements is necessary and on the
basis of that they can accomplish success in the market (Busco and Scapens, 2011). Along with
this management accounting having some advantages which includes as it assist in tracking,
recording and reporting the financial review.
It assist in reducing the expenses so that the cost of the economic resources along with
the other business operations. Another benefit is to improve or increase the cash flow. It helps in
making the appropriate budget so that proper expenditure should be done.
Management accounting is a profession decision is made in perspective of management
of Guildford Tyre Company. Along with this they have to devise the planning as well as
performance management system which assist in doing the supervision (Christ and Burritt,
2013). Moreover, they can take advice from the experts in the financial reporting along with the
controlling which helps in doing the formulation of the different strategies. Different systems
are:
Cost accounting system It is a system which helps in managing the cost of the product
by producing more merchandise and on the basis of that they
can do profitability analysis, inventory valuation and cost
control. It estimating the cost so that they can earn maximum
profits.
M1
Main benefit of cost accounting system is that in it all sort of
expenses related to all products are added to compute overall
cost of products. Managers can easily obtain overall overview
of cost of production of all products. It is applied in business

firms whose product lines are concise.
Job costing system It refers to that system which aid in assigning the
manufacturing cost to the individual along with the group of
projects. Job order costing system is used only when the
products of Guildford Tyre Company which are to be
manufactured in the different ways (Cinquini and Tenucci,
2010).
M1
Job costing system is used by firms that produce goods
according to specifications given by clients. Main benefit of
job costing is that under this costing of all product lines is
done separately. Hence, managers can identify individually
products whose cost is very high and low in business and
accordingly can take decisions.
Inventory management system It is a software which is based on the computer system so that
the employees of the firm can track the inventory level, orders
which are taken by them as well as sales. It includes all the
related documents and bill of materials.
M1
Major benefit of inventory management system is that it help
firms in tracking their inventory level. By using inputs
provided by inventory management system storage cost is kept
lower in business and order is placed for purchase of raw items
on time.
Price optimisation It is use to analyse or evaluate the mathematical calculations
by a company and also assist in determining that how the
consumers will respond to the different price for its products
and services through different channels. It helps in meeting the
goals and objectives and earn maximum profits (Contrafatt and
Burns, 2013).

M1
Major merit of price optimization system is that it help in
minimizing cost in the business. Thus, cost optimization can
be done in better manner by using mentioned accounting
system.
P2 Different methods used for management accounting reports
To
The Board of Directors of Guildford Tyre company Date: 5th Octomber 2017
Subject: Essential requirements of management accounting systems
Management reporting system helps in capturing the sorts of data or information which is
needed or required to the managers of the company to run the successful business and also
assist in accomplishing the targets as well as goals and objectives. The financial data of
Guildford Tyre Company have to present that in the annual report which help the
investors in making the correct judgement and it is for the betterment (Weißenberger and
Angelkort,2011). Proper communication is also important in this as it assist in conveying
the ideas so that they can understand the concept of market trends and do the efficient
business operations and attain the success in the market. Different methods of supervising
reporting system are:
Basis Description
Job Cost reports This report is made by the vendor and it includes the job
summary. This report includes the list of job costs which the
employees of Guildford Tyre Company incurred for each
project and it is recalculated by vendor of business entity. It
includes the all type of cost. This report helps in determining
the labour as well as material cost which are incurred in
every project and also in a systematic way so that staff
members can provide the actual information to the
consumers. moreover, it also includes the actual cost,

overhead along with the profit which is earned by the
business entity (Fullerton, Kennedy and Widener, 2014).
Inventory management reports This report is also important for the business entity and it
involves all the information related to stock or inventory
whether it is available in the company or they have to
purchase that so that they can attain the goals and objectives.
This report can not made by taking the advice from the
experts or the senior management.
Debtors aging reports This report includes the list of unpaid consumers invoice as
well as unused credit memos by the date ranges. It is primary
tool which is used by the workers of the company to do the
proper collection of the personnel so that they can analyse
the invoices which are overdue for make the payment.
Segmental/ Departmental
reports
This report is used by the managers of Guildford Tyre
Company. It helps in providing the separate accounts of the
business entity with the individual divisions, subsidiaries as
well as other segments (Håkansson, Kraus and Lind eds.,
2010). It helps in providing the accurate picture of the
performance of the business entity to its shareholders.
Business segment reporting is used by them to evaluate each
segment which includes income, expenses, assets, liabilities
etc. which succour in assessing the risk along with the
profitability. Moreover, it also aid in making the correct
judgements to make the investments or not.
Performance reports It is a report on the basis of the performance of the firm in
the marketplace. In the appropriate routine this report is
produced by the regulatory bodies which assist in providing
the financed by the public money and they are required to
show the money that company is using effectively and

efficiently.
Operating budget reports This report includes the information and data which includes
in the budget so that the employees as well as managers can
do the proper operations and attain the success in the
competitive market (Herbert and Seal, 2012).
Service profitability reports This report is made by the higher level authorities by
Guildford Tyre Company. It includes the relevant structure
so that they have to design for the purpose which helps in
measuring the productivity and profitability which includes
helps in meeting the regulatory requirements as well as
optimising the tax treatments so that the employees can reap
the targets and success.
D2 Critically evaluate MAS and management reporting system
As per the views of Hiebl, (2014), it has been analysed that management accounting
system as well as reporting of the supervision is necessary which helps in managing all the
operational activities so that they can generate maximum revenue. There are different methods
which can be used by the employees of Guildford Tyre Company that is they have to utilise the
appropriate data, activity based costing method can be used by them. Along with this they can
also use the make or buy analysis which helps in attaining the targets and reap the success
(Setthasakko, 2010).
TASK 2
P3 & M2 Calculation of cost using different tools and techniques
Different instruments which can be used by Guildford Tyre Company to calculate the
cost as well as profit and they are:
Absorption Costing: It is a method or instrument which help the employees in calculating the
cost of the merchandise which includes the direct as well as indirect cost so that they can attain

the maximum profit. The cost which helps in identifying with the individual cost centres where
as indirect cost can not be easily identified. Absorption costing is a principle which involve the
fixed and variable cost which are allocated to the cost unit on the basis of production cost so that
proper functioning can be done (Ward, 2012).
Income statement on the basis of Absorption costing method:
Table 1Profit by absorption costing method
Particulars Amount Amount
Sales 700*35 21000
Less: Cost of production 16*700 11200
Less: Closing stock 16*100 -1600
9600
Less: Over absorption of fixed production
overhead -100
Production cost of sale 9500
Gross profit 11500
Less: Variavke sales overhead 1*600 600
Less: Fixed costs, administration cost 700
Selling cost 600
Net profit 1900
9600
Marginal Costing: It is an approach under which expenses that change are to be charged on the
basis of cost units along with the fixed cost of the periods so that the employees of Guildford
Tyre Company so that they can do appropriate contribution in minimising the cost which succour
in making the effective decisions. It should be calculated properly for increasing or decreasing
the cost of production in which they have to actually pay to their staff members which assist in
attaining maximum profits (Jansen, 2011).
Income statement on the basis of Marginal costing method:
Table 2Profit by marginal costing method
Particulars Amount Amount
Sales 700*35 21000
Cost of production 16*700 9100
Less: Closing stock 16*100 -1300
Variable cost of sale 7800
Contribution 13200

Less: Variavke sales overhead 1*600 600
Less: Fixed costs, administration cost 2000
Administration cost 700
Selling cost 600 3900
Net profit 9300
Cost Volume profit analysis: It is also a technique which is used to determine the changes in the
cost and volume affects the operating income and net income of Guildford Tyre Company. They
have to give their best performance in the market and for that they have to do analysis by making
the several assumptions which includes sales price per unit, variable cost per unit as well as total
fixed cost per unit should be constant (Kaplan and Atkinson, 2015). This evaluation should be
done by using the appropriate formula of profit volume analysis that is contribution is to be
divided by the sales and multiplicate by 100.
= contribution /sales x 100
= 10800/21000 x 100
= 51.42%
D2 Interpretation of the financial data
The company members have to provide the financial report to the investors in a attractive
way so that they can make the investments and on the basis of that Guildford Tyre Company can
earn maximum revenue (Van Helden and et. al., 2010). Investors are stakeholders of the
company and they have to find the capability of business entity which helps in making
judgement that they have to do investment or not. By doing computation of marginal cost, it has
been interpreted that net profit is 7500 as well as contribution is 10800. Further, by adopting
absorption costing technique net profit is 6700. Moreover, from the different tools net profit is
different.
TASK 3
P4 & M3 Different planning tools which are included in budgetary control and its advantages
and disadvantages
A formal statement of the different financial resources so that they can carry out the
specific activities in a specific period of time. Along with this it assist in coordinating the
different activities of Guildford Tyre Company. Budgetary control is a technique which helps in

attaining the best results as compared to the budgets (Luft and Shields, 2010). These budgetary
control needs the proper planning and in this it enables the managers to monitor the different
organisational functions. Moreover, it helps in defining the areas of responsibility and provide
the performance appraisal on the basis of performance. Budgets having the different purposes
which helps the manager is that they have to coordinate the resources and also assist in defining
the standards so that they can use proper control system (Shah, Malikand Malik, 2011) .
Different type of planning tools which can be used by the business entity that is:
Cash Budget: It is a type of budget which helps in doing the estimation of the inflow and
outflow of the cash for a business over a specific period of time (Lukka and Modell, 2010) .
Along with this it helps in assessing or analysing that whether the entity having sufficient cash or
not to do the operations in the company.
 The main advantage of this budget is to identify the amount of cash which is required so
that they can fulfil the needs and wants without the utilization of the overdraft protection.
It is used by Guildford Tyre Company to make plans for the optimum utilisation of cash.
 Good cash management strategy can be prepared by the business firm by making use of
cash budget in the business. Disadvantage are cash budget may only cause distortions. Cash inflow result from the
security deposits, sale of capital assets. Along with this budgets are susceptible to do
manipulation. Other main disadvantage of cash budget is that wrong estimations can be made about
cash inflows. If same happened then in that case cash management of the firm can
become disturbed.

Capital Expenditure Budget: This budget is also used by the business entity and it includes the
funds or resources which are used by the employees to acquire or upgrade the physical assets
which includes the property, industrial buildings as well as equipment’s (Macintosh and
Quattrone, 2010). This budget helps in making the appropriate budgets so that they can make the
investments.
 The advantage is to do the several calculations so that they can do the appropriate
determination in which capital budgeting helps in making the correct investment
decisions. Moreover, it helps in saving the time along with the money so that employees
cannot face any issues. Major disadvantage of capital expenditure budget is that it is very difficult task to make
estimation about likely capital expenditure that firm can made in upcoming year. Cash
management goes according to prediction made in capital expenditure budget. If firm
plan get changed then it will be difficult to manage cash in business.
Cost plus pricing method: It is a cost based method so that they can set the price of the products
according to the income of the consumers. This approach helps in identifying the cost which is
related to direct material, direct labour as well as overhead cost for a merchandise so that they
can determine the price of the product (Nandan, 2010).
 The main advantage of this method is to identify the exact amount of expenditure so that
they incurred for making the product in achieving the desired revenue. It is a simple
method so that they can decide the price of the product which all can add to the cost.
 In terms of margin that firm intend to earn on product irrespective of cost can be
determined by using cost plus pricing method. The main disadvantage is that it should be taken into account for the future demand of a
product and on the basis of that they can decide the price of the product. The other main disadvantage of cost plus pricing method is that it cannot be used in every
situation. Firm in every economic condition in order to earn determined amount of profit
cannot increase price of product consistently.
Target cost pricing method: It is a approach which assist in determining the cost which is related
to the product life cycle which is sufficient to develop the specified functions as well as quality
so that they can earn desired profit. In this approach target cost for a product is determined just