Management Accounting Report: Costing, Planning, and Financial Issues

This report delves into the realm of management accounting, focusing on its application within the context of AZIO, a small business specializing in PC peripherals. The report commences with an introduction to management accounting, elucidating its role in aiding managerial decision-making and operational efficiency. It then explores various types of management accounting systems, such as cost accounting and inventory management, highlighting their importance in maintaining financial stability and optimizing business operations. The report further examines different managerial accounting reporting methods, including budget reports and job costing reports. The report then analyzes cost accounting techniques, specifically marginal and absorption costing, and their impact on financial reporting. Furthermore, the report discusses the advantages and disadvantages of different planning tools, along with an evaluation of financial issues and the adaptation of management accounting systems to address financial problems. Overall, the report provides a comprehensive overview of management accounting principles and their practical application in a business setting, offering insights into cost analysis, financial reporting, and strategic planning.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1.Management accounting and essentials requirements of various type of management
accounting systems.................................................................................................................1
P2. Various methods used for management accounting reporting.........................................3
M1. Merits of using management accounting system............................................................5
D1 Integration of management accounting system and management accounting report.......5
TASK 2............................................................................................................................................5
P3. Calculate cost using marginal and absorption costing.....................................................5
M2. Use of management accounting techniques....................................................................8
D2. Financial reports that apply for interpret business activities...........................................8
TASK 3............................................................................................................................................8
P4 Advantages and disadvantage of various planning tools..................................................8
M3 Evaluation of planning tools..........................................................................................10
TASK 4..........................................................................................................................................11
P5. Adaption of management accounting system to respond financial problems................11
M4. Evaluation of financial issues.......................................................................................12
D3. Evaluation of planning tools for respond financial problems........................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting system refer to the process of developing the financial report
which assist manager in taking corrective decision and in achieve better control over business
activities which in turn will contribute toward the accomplishment of organisational goals and
objectives (Anessi-Pessina and et. al., 2016). One of the main benefit of managerial accounting
system is that it help a company in bring efficiency in its operations. It also provide information
related to financial condition of the company and assist in taking decision related to organising,
directing and controlling of cost by effective utilization of resource. AZIO is a small business
enterprise which is situated in California US, founded in year 2005 and is specialized in
designing and manufacturing PC keyboard, mouse and audio product. This report describes
about various types of managerial accounting system and its importance along with the various
methods of managerial accounting report system. It further explains various techniques of cost
analysis used for preparing income statement using marginal and absorption cost. In addition to
this, it also describe various planning tools which help AZIO in deciding future course of
actions.
TASK 1
P1.Management accounting and essentials requirements of various type of management
accounting systems
Management accounting refers to the process of preparing the internal financial report by
analysing business cost and operations which help manager in decision making process to
achieve organisational goal (Management Accounting, 2018). In other words it is an act of
examining the financial and costing data arranging that data into useful information for
management to assist them in efficient functioning of business activities. One of the major
benefit of management account is that it help manager in getting better control over the business
operations which contribute toward the growth and success of the company. By using the
concept of management accounting, managers of AZIO can collect and analyse the information
related to financial aspects such as financial condition of the business, variation in stock, raw
material etc. which help in performing organisational activities more effectively and in
minimum possible cost. It also help in improving the financial condition of company and bring
stability in financial system.
1

While performing business operations several issues may arises and management
accounting help in overcoming these problems and contributing toward success of an enterprise.
AIZO need to keep and manage a record of its financial operations in order to achieve
organisational goal most effectively. Following are the importance of management accounting
system:- Increases efficiency of business:- Management accounting helps in increasing the
efficiency of business operations. It determines targets of different departments in
advance and accomplishment of these tasks are considered as an efficiency measurement
tool (Baldenius, Nezlobin and Vaysman, 2015). It assist AZIO in planning, controlling
and coordinating operations of the company. Assist in decision making:- Process of management accounting involve the collection &
analysation of data, which can be determined by AZIO before formulating plans and
policies. It help in taking right decision which in turn will contribute toward the
achievement of organisational goals.
 Safety and security from trade cycle:- The data collected through management
accounting throws light over past trade cycle which in turn will help company in
ascertaining the cause of errors and its effect. Thus, it help AZIO in safeguarding the
company from any negative affect that may arises because of trade cycle.
Types of accounting system Cost accounting system:- This system of managerial accounting help in estimating the
cost of company's product and services for cost control, profitability analysis and
inventory valuation. As estimation of accurate cost of product is very essential for AZIO
to make business operations more profitable and in preparing financial statement of
company which help in determining the financial condition of the firm throughout the
year. Inventory management system:- The inventory management system of managerial
accounting help company in maintaining the optimum level of cost which in turn will
assist AZIO in reducing overall cost of business operation. It includes number of tools
and techniques that can be used by AZIO to minimize the cost , such as Just in time
approach, Economic order quantity etc. which help in achieving business goals and
objectives (Bennett and James, 2017).
2

 Job coasting:- The process of accumulating information of the cost associated with a
particular production or service job is known as job coasting. This accounting
management approach assist AZIO in tracking and recording the types of cost incurred
such as overhead, labour, material, manufacturing cost etc. Job coasting put more
emphasis over controlling the expenses and maximizing the revenue of the company.
 Price optimization system:- Under this mathematical approach company analysis how
customers react over the different product prices (Booth, 2018). Prize optimization
approach assist manager in setting the best price of the product which help AZIO in
achieving their goals and objective. Information that is used by firm in this approach
consists of operating cost, historic price, inventory and sales.
Benefits of management accounting system
 Various management accounting system provide relevant data related with management
of business operations.
 Help in take right and timely business decision.
 Provide data related with present financial position of organisation.
 Help in plan about future actions and decisions of enterprise by offer specific information
based on budgets, environment analysis and surveys.
 Data collected from various accounting systems support managers in control
organisation’s success and growth.
 Systems of management accounting provide data which is used to determine the issues
and help in deal with the same.
 This help manager in analysis the performance which support in set goals.
P2. Various methods used for management accounting reporting
Managerial accounting reports are very important for decision making, planning,
regulating and measuring performance (Managerial Accounting Reports, 2014). These reports
are prepared on ongoing basis in an accounting period according to the requirements. It is
because many decisions and future planning are dependent on this report. Manager of AZIO
analysis managerial accounting reports and convert them into useful information for an
enterprise.
There are several methods which are used by AZIO for preparing accounting reports that are as
follows:
3

 Budget report: This is very essential method which is used by AZIO to measure the
performance of firm and for evaluating department actions. A budget report is utilized by
manager of an enterprise to compare the actual performance with the estimated budgeted
projection. Budget report is consist of all earnings and expenses. AZIO have set their
objectives and goals according to the budgeted report. This method of managerial
accounting report helpful in directing manager to provide bonuses, incentives to their
employees.
 Job costing report: Another method of managerial accounting report is job costing
report which is consist of all expenses for a specific project which is financed by an
organisation. This method helpful in determining higher earning areas of AZIO so
managers must focus on additional efforts and not finance the projects that have less
profit margins. Job costing report is also used for measuring expenses while project is on
progress so it is very helpful in reducing the waste before costs spiral out of control.
Managers of AZIO can easily analysis the records of work done and also improve the
performance of staff members. The main objective of an organisation is to decrease the
wastage and maximize the margin of profit in an effective and appropriate way.
 Performance reporting system: This is another method of managerial accounting report
which is prepared for analysis the performance of an enterprise. Performance reporting
system is useful for taking strategic decisions related to the future of an organisation
(Brochet, Loumioti and Serafeim, 2015). This report mainly concentrate on financial
statements that are very useful in measuring and regulating the actual performance of an
enterprise. Performance reporting system play vital role in AZIO by keeping accurate
measures of their strategies towards the desired goals and objectives of the business.
 Manufacturing and inventory report: It is the one of the essential method od
managerial accounting report that is used for maintaining manufacturing process and
physical inventory more effectively and efficiently. Manufacturing and inventory report
is consist of various items such as inventory waste, hourly labour cost and per unit
overhead costs. Managers of AZIO compare several assemble lines of an enterprise
which helps in identifying the areas of improvement and also provide bonuses and
incentives to staff members who perform well.
4

 Accounts receivable aging report: It is periodic report which categories an
organisation's account receivable as per the duration of time an invoice has been
outstanding. Manager of AZIO use this method of managerial account report to identify
the problems company's payment collection process. Firm must tighten its credit policy,
when large number of customer not able to pay their amounts. It is very necessary that
there is continuous evaluation of the account receivable aging report to keep the
collection department from overlooking old debts.
 Cost managerial accounting reports: This is another method of managerial accounting
report which is useful in computing the cost of products that are manufactured in the
organisation. This report contains various items such as overheads, labour, raw materials
and other cost (Chen and et. al., 2015). Cost managerial accounting report provides the
brief of all the information that is related to the production process.
It is very necessary for manager of AZIO to use these methods of managerial accounting method
for effective and efficient operations in the firm.
M1. Merits of using management accounting system
Management accounting plays an important role in enterprise which helps in managing
and monitoring the financial transaction that takes place in an appropriate manner. It is very
necessary for an organisation to use various accounting systems such as job costing, price
optimisation, inventory management system and cost accounting system which assist in
obtaining effective profitable outcomes (Cooper, Ezzamel and Qu, 2017). This process help
AZIO in improving efficiency of their business operations and also aids in better decision
making. The data collected through procedure of management accounting throws light over
various issues that arises during trade cycle and finding reason behind them so that company can
improve their efficiency by removing these issues.
D1 Integration of management accounting system and management accounting report
According to , growth stability is the main aim of every organisation which can be
achieved by using an integrated approach of accounting which includes reporting system and
management accounting system. Under this manager of AZIO prepares a report using past data
& information and after which, with the help of management accounting system manager
evaluate the performance of the company. This assist manager in taking investment decisions
and minimizing the expenses incurred in financial and operational activities.
5

TASK 2
P3. Calculate cost using marginal and absorption costing
Management accounting is utilised by an enterprise to formulate reports and reduce the
cost of business operations and activities. By using appropriate cost approach, firm can achieve
effective and better outcomes.
 Marginal costing: This cost is helpful in decreasing the cost and increasing the
production cost by producing one extra unit (Greene and Robertson, Verizon Business
Global LLC, 2014). This is very effective method of costing as both variable and fixed
cost is change for a particular period of time.
 Absorption costing: This is another type of expenditure method of management
accounting that take consideration of all costs related to the manufacturing of goods and
services. Absorption costing is based on the assumption that incurred cost have been
recovered from selling price.
Comparison between marginal costing and absorption costing are as follows:
Basis Marginal costing Absorption costing
Meaning In this costing, variable
overheads are less as per unit
cost of one product and fixed
expenses are calculated for net
income of firm.
In absorption costing, there is
calculation of manufacturing
cost with all overheads like
direct expenses (Hoque, 2018).
Cost identification In marginal cost, production
cost is to be considered as
variable cost and fixed cost
remain constant at the time of
production.
Both variable and fixed cost
considered for calculation of
final cost of manufacturing.
Cost and inventory valuation Variable cost is consider in
marginal costing.
Both fixed and variable cost
are consider into absorption
cost.
6

Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It is said to be one of the important point at which every cost and
expenditure required to provide equal results for AZIO. It is known as effective point in which
company neither get profit or nor goes into any kind of loss.
 Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of break even point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
7

BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is known as one of the reliable element which is related with better
management of various intrinsic value of stock at market cost (Horngren and Harrison, 2015). It
is termed as more accurate ways to provide effective and appropriate ways as an end sales
volume which would be depend as appropriate business range to overall break even analysis.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2. Use of management accounting techniques
There are several tools and techniques that are utilised by AZIO to achieve the financial
stability and attain set goals. The aim of management is to use controlling techniques that are
limited and can be managed in appropriate manner (Klausmeier, Skadool Inc, 2014). These
techniques are helpful in extract the information which is used for better decision making.
Sept Oct Nov Dec Jan
Receipts £ £ £ £ £
Cash sales 250 350 255 380 450
Credit sale receipts
from debtors 320 150 100 120 220
Other income received 415 430 320 215 330
Total receipts (a) 985 930 675 715 1000
Payments
Purchases 215 260 290 330 415
Wages- Labour and
overheads 115 90 180 210 150
Fixed costs 200 200 200 200 200
Capital expenditure -
Plant 650
8

Advertising 20 35 55 75 90
Total Payments (b) 1200 585 725 815 855
Surplus/Deficit (a) – (b) -215 345 -50 -100 145
D2. Financial reports that apply for interpret business activities
There are two techniques that can be used by an organisation that are marginal and
absorption costing which helps in calculating net profit of firm. This assist organisation to make
investment decisions which helps in evaluating net profit with these methods.
TASK 3
P4 Advantages and disadvantage of various planning tools
Budgetary control:
Budgetary control is the process of comparing the actual income and expenses with the
planned cost in order to determine whether the operations are performing as per the plan and if
changes required in current plan for making profit. In another word budgetary control is a
process to set financial and performance goals with planned budget, compare the result and then
adjusting performance as per the requirement of the company. It help manager to control and
manage the organisational operations in order to eliminate and minimize the waste and
maximizing the profitability of the company. The process of budgetary control is as follows: Consult with manager:- Proper coordination among managers and other functional unit
of the company is very essential for establishing a proper control over business
operations and activities. So it is very important for AZIO to maintain a proper
coordination between its manager and different departments of the organisation (Ji,
2017). For budgetary control management must consult with managers of other
department in order to collect information related to the cost incurred by each unit and
areas which need attention. Do assumptions :- After collecting all the data, next step is to analysis that information
and do proper assumptions to identify what action should be taken in order to eliminate
the cost incurred. This feature help AZIO in accomplishing the control over business
expenses. Fix data to attain business targets :- under this step manager collect information from
different department in order to analyse the financial performance of each unit and then
9