Management Accounting Report: Financial Analysis for Tech (UK) Limited

This report provides a comprehensive overview of management accounting principles and their application within Tech (UK) Limited. It begins by differentiating between management and financial accounting, emphasizing the importance of management accounting in decision-making processes, cost accounting systems, and inventory management. The report then explores different types of managerial accounting reports, including budget reports, cost management reports, and accounts receivable reports, highlighting the importance of understandable information. Task 2 presents income statements using both absorption and marginal costing methods. Task 3 evaluates different types of budgets and the budget preparation process, emphasizing the importance of budgeting for planning and control. Finally, the report discusses ways companies can respond to financial problems for sustainable success. The report covers various aspects of management accounting, making it a valuable resource for students and professionals alike.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A) Explaining management accounting and essential requirement of accounting system........1
B). Presentation of financial information....................................................................................4
TASK 2............................................................................................................................................5
Income statement as per absorption costing:..............................................................................5
Income statement as per marginal costing.................................................................................5
TASK 3............................................................................................................................................6
A). Evaluating different kinds of budgets..................................................................................6
B). Budget preparation process...................................................................................................7
C). Importance of budget as a tool for planning and control process.........................................8
TASK 4............................................................................................................................................8
Explaining ways through which companies can respond to its financial problems which leads
to the sustainable success............................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting can be termed as a process of preparing and presenting the
accounting information to the management of an organisation. This process will assist the
management to make decisions and strategies in order to achieve the organisational goals.
Management accounting helps in collecting and analyse and various data from all the
departments in order to create a report that helps management to interpret the functions of
various department on the basis of financial and static reports. The present report will help in
understanding difference aspects of management accounting and its requirement in Tech (UK)
limited which produces mobile chargers and other electronic gadgets for their retail stores in UK.
It will describe the importance on MA in decision making process and different management
accounting system. Further, this report will discuss different types of management accounting
reports and their importance for management. A calculation for the income statement using
different techniques will be presented. Furthermore, different kind of budgets will be discussed.
At-last, report will explain different types of management accounting techniques which assist in
responding to the financial problems in companies.
TASK 1
A) Explaining management accounting and essential requirement of accounting system.
I) Difference between management accounting and financial accounting:
Management accounting can be refereed as the application of knowledge and skills which
helps in the presentation of accounting information in a way which assist the management of
Tech(UK) Limited in the formulation of policies. Such policies will help in planning and
controlling of the operation of the undertakings. It is an important process which analyse and
interpret the financial information, report, records that helps the manager in their decision
making process in order to attain the organisation's goals and objectives.
Financial accounting on the other hand is the process that involves the preparation and
presentation of the financial statement which consist of the financial information regarding the
monetary performance of Tech(UK) limited (Ward, 2012). Financial accounting is used for the
company's stakeholders especially the external users which assist them in making their decision
regarding investment in the company. Whereas, management accounting uses this financial
information for the internal use only. However, it can be said that financial accounting has a
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much broader scope than management accounting. Management accounting have no specific
format and can be prepared whenever required by the management. But financial accounting has
specific format and can be prepared in a specific accounting period, quarterly, half-yearly or
yearly. The main objective of preparing management accounting is for internal decision making
process, while financial accounting is prepared for external use like investment decision and
auditing.
II. Importance of management accounting in decision making process.
Management accounting is an essential process that helps mangers to take various
decisions regarding departments functions and setting the goals and objectives of Tech(UK)
limited as a whole. Management accounting plays an important role which assist the managers to
make the decisions for enhancing the business profitability:
 through analysis of the cost of operations, management accounting assist in determining
the total expenses of company and its future activities. It helps management of Tech(UK)
limited to make decisions in order to reduce the expenses of the company's operations
(DRURY, 2013). It helps in making decisions in order to increase the sales so that the
expenses can be recovered and attain the goal of making maximum profit.
 Management accounting helps in preparing budgets for different departments based on
the past year expenses and revenue. As per the analysis a budget report is prepared and
presented to the management which help in analysing the variances. It assists the
managers to evaluate and determine various factors that causes and helps in making
efficient decisions to control this differences.
 Management accounting assist the managers to have overall reports and accounts of all
organisation function (Wickramasinghe and Alawattage, 2012). Which assist Tech(UK)
limited in making strategic decisions to improve and maintain the operations of the
organisation and attain the organisational goals and objectives.
III. Explain cost accounting systems.
It can be termed as a method that company uses in order to determining the expenses of
the product which assist in profitability analysis, inventory valuation and cost controlling
process. It is very essential to estimate the accurate cost of the production for a profitable
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operation. It is important for Tech(UK) limited to know which product is profitable which can be
determined by estimation of the actual cost of the production. This method helps the
management in for its purpose of measuring the financial position of a company (Hilton and
Platt, 2013). Cost accounting also assist in the manufacturers in order to track and monitor the
flow of inventory through its different stages of production. It also assists management as an
effective tool in budgeting and set up programs for cost control and raises net profit margins for
business in future. There are various types of cost in cost accounting system:
 Actual costing: It is the cost accounting system which uses actual cost, direct cost-rates,
overhead costs and each accounting period's production to determine the cost of a
specific product.
 Normal costing: This coasting method is used to evaluate the value of manufactured
product with its actual, material costs, the actual direct labour cost and manufacturing
overhead that are based on a predetermined rate of manufacturing overhead.
 Standard costing: it can be termed as an accounting method which is used to identify the
difference between actual cost of the good and the cost that has been incurred by
company. (What is standard costing?, 2019). The cost that should have been occurred is
the standard cost.
IV. Inventory management systems.
It is an essential system which assist in tracking of goods throughout its supply chain
from production to selling. It involves each aspect from production to warehouse and from retails
to final delivery of the product to customers. It helps Tech(UK) limited in tracking all the records
involves in this process. It can be termed as a process of controlling, tracking and supervising the
ordering, storage and selling of each components. Inventory management assist the manager in
order to understand the level of stock required in order to maintain the inventory and situation of
under-stock and overstock (Otley and Emmanuel, 2013). Inventory is considering an important
asset of the company, as it involves the investment of company that are directly related through
selling of the product. There are techniques of inventory valuation:
FIFO: In this inventory valuation system, the unit of raw material that is purchased first will be
used first. This technique is used when there are changes in demands of product in market.
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LIFO: Under this system, the units of inventory which is purchased last will be used first for
production of finished goods.
V. Job costing system.
It is the process of monitoring and tracking the expenses that are being assign
manufacturing cost to each products. It helps in enabling the manager to keep track of each
expenses. Job costing system helps in determining the manufacturing cost of a product by
deciding them in overhead, direct labour, direct material costs and helps in estimating their actual
value (Bodnar and Hopwood, 2012). It assists Tech (UK) limited in controlling the use of raw
material, labour and machines by allocating different cost to different customer orders. Batch and
process costing are a kind of job costing system.
B). Presentation of financial information.
I. Explaining different type of managerial accounting reports.
Managerial accounting report can be referred as a process that involves analysing,
gathering and presenting the financial and non-financial data of the organisation to the
management of Tech(UK). It is a tool to the manager for understanding the different activities in
organisation (Banerjee, 2012). It helps in showing the complete picture of the organisation as a
whole which assist the management in making decisions and strategies to improve the
productivity of different activities in order to attain the objectives of business. The different type
of managerial reports are as follows:
Budget reports: this is the most important report which helps the Tech(UK) Limited in order to
measure the business efficiency and performance in a certain period of time. Budget is the
estimation of the current expenses which are made on the past year expenses and revenue
(T Y P E S O F M A N A G E R I A L A C C O U N T I N G R E P O R T S , 2 0 1 9 ). The budget report
involves all sources of earning and expenses as per the estimated budget. It helps the
management in allocating and controlling process.
Cost managerial report: This report contains all the information regarding the cost of the raw
material., overhead, direct labour in the production process of a product and services. It assists
the manager in evaluating the profit margin by determining the expenses occurs in the production
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of that product. Cost report assist the manager in controlling the expenses in the production
process.
Account receivable report: this report is prepared to provide the information to the
management regarding the debtor of the company. These reports include the information about
the credit provided to customers and distributors (Kotas, 2014). The issues in the credit
collection can be analysed from this report, as it is very essential in order to control their cash-
flow of the company and determine the credit collection process.
II. Importance of information in report that should be understandable.
It is very important to prepare the management accounting report in a way that can be
better understandable to the management. The reports that are prepared must have the relevant
content, free from any error and bias these reports will assist the management of Tech-(UK)
Limited. Managerial accounting report are crucial for the management in its decision making
process (Lambert and Sponem, 2012). So all the financial as well as non-financial information
regarding different department's activity should be prepared accurately so that management can
get the data from this report. Management accounting report needs to be understandable as it
would assist Tech(UK) limited in improving decision making process, enhances the effectiveness
of the management. Better reports will also assist in increasing efficiency of the resources that
needs to be delivered the organisational services. Hence, it is very important for the report to be
effective as it will assist in making strategies and decision making for the future growth and
performance of Tech(UK) limited.
TASK 2
Income statement as per absorption costing:
PARTICULARS DETAILS AMOUNT
sales revenue 35*1500 52500
Less: cost of goods sold 2000*20 40000
gross profit 12500
less: selling and administrative 52500*15%
+10000
17875
operating loss 5375
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Income statement as per marginal costing
PARTICULARS DETAILS AMOUNT
sales revenue 35*1500 52500
Less: Variable cost
(Variable production cost)
(Variable selling & adm. cost)
15*1500
52500*15%
22500
7875
contribution 22500
Less: fixed cost 10000+15000 25000
operating loss 2875
TASK 3
A). Evaluating different kinds of budgets
Budget is the process that assist in estimating the expenses and income of business
activities and performance of the company in a specific year. This estimation is based on the past
year's performance of the company. There are different types of budgets that are prepared by
Tech(UK) Limited:
Financial budgets: This budgets contains all sources of revenue and expenses of the
company for the current period. The sources for revenue of a company are sales revenue, cash
from selling of assets (Herzig and et.al., 2012). Whereas, the expenses can be occurred through
purchasing of assets, raw materials, paying short-term and long-term debt. Financial budgets are
of two types cash budgets and capital expenditure budgets. Cash budgets helps in forecasting the
estimated cash receipts and expenditure of the company as compared to the actual revenue and
expenses. This budget will assist the management in controlling the cash flow which is essential
in meeting the day to day operations in the firm. Another type of financial budgets is capital
expenditure which mainly focuses on the capital expenditure like purchasing new assets. These
budget help in monitoring the capital investment of Tech(UK)Limited.
Advantage of financial budgets:
 It assists in controlling the revenue and expenses of company.
 It shows the financial performance of a company.
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 Financial budgets help the management in preparation of financial statements.
Disadvantage of financial budgets:
 Quantitative data once entered in financial budgets can be changed easily, it provides less
flexibility. This budgets are papered on the future activities which are not certain and affective.
Operating Budgets: this budgets are the future estimation of the operational activities
(Adler, 2013). Operating budgets focuses on the revenue that company will be earned from its
daily operations and sales of the products. It assists the manager to evaluate the operating
performance of Tech(UK) Limited.
Advantage of operating budgets are:
 It helps in planning for the allocation of money for short as well as long-term. It helps the manager in order to control the future and present expenses.
Disadvantage of operational budgets:
 Operations budget has to be change with the changes in financial budget which a tough
task to do.
B). Budget preparation process
Budget preparation process is an important task which helps in evaluating the estimated
future expenses and revenue of the current year. Preparing budgets involves the following
process:
 In order to prepare budgets, proper estimation of sales, production level, expected cost
and available resources from each department should be estimated. The manager should
provide estimation of future activities of the departments.
 The reports submitted by various departments of Tech(UK) limited will be evaluated to
determine the potentiality of the plan in order to allocate the cost and resources
accordingly (Chiu and et.al., 2018).
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 After budgets plan are prepared, it will be communicated to all the departments of the
organisation and their responsible managers. It will also help Tech(UK) limited in
making changes if required.
 The final budget will be presented to the management adopted and plan of operations in
coming period.
 As a feedback in the budgeting process, performance report will be made to inform
departmental manager and top management of Tech(UK) limited about the performance
of the budgeted plan.
C). Importance of budget as a tool for planning and control process.
Budgeting can be defined as the process of planning for the future activities based on the
assumptions from the past year performance of a company. Budgeting is essential in order to
control the business activities and expenditure in Tech(UK) limited. Budget is an important tool
that assist the management of organisation in order to plan and control the future actions. It helps
in planning for the estimated revenue and expenditure of the company and also helps in finding
variances between actual and budgeted performance (Bouten. and Hoozée, 2013). Through
controlling the expenses, management can maximize the revenue of the business. Budget is an
effective tool that assist the manager to make proper plans for each activities and control with the
help of variances.
TASK 4
Explaining ways through which companies can respond to its financial problems which leads to
the sustainable success.
Management accounting system is very important to increase the profitability, smooth
operations of business activity and controlling the expenditure of organisation. As per the
scenario of Tech(UK) Limited, which has incurred the loss of 1.5 million pound it has going
through financial problem. The company can use management accounting techniques in order to
respond to such issues. Tech(UK) Limited as use the following approaches:
Balance-scorecard:
It is a performance matrix tool that are used in strategic management in order to identify
and improve various internal function of the organisation. It is a set of the performance target
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and results that helps in identifying the organisation performance that helps in meeting
organisational objectives (Horton and de Araujo Wanderley, 2018.). Balance score card is an
effective tool which helps in providing feedback to the management regarding different activities
in organisation, which assist the management in taking decisions that will improve the
productivity. With the increasing in the productivity, Tech(UK) Limited can improve its
financial performance which leads to resolve its financial crises.
Balance-scorecard has four perceptive:
 Financial perceptive which assist in increasing the financial performance and achieve
financial goal of the company.
 Customer perceptive assist in measuring customer satisfaction that leads to increase the
customer retention and market share.
 Internal process perceptive assists in improving the operational performance of the
company which helps in increasing profitability.
 Learning and growth perceptive includes the improvement of organisational culture,
work environment etc. It will help in increasing the productivity of the employee that can
work in increasing the profitability of Tech(UK) Limited.
However, another organisation Nisa Ltd, UK based retail company also uses management
accounting approach in order to respond its financial problem. The company is going through
fraudulent in financial transaction from the data in computer which are affecting financial
performance. Nisa ltd has used following approach:
Financial Governance:
It is one of the main techniques that helps in controlling and managing the financial
position of an organisation. Financial governance is the process that manage, collect and control
the financial transaction and data of Nisa Ltd. This approach is effective as it assists the manager
to track and monitor all the financial transaction and also to control the disclosure of the
company's financial information (Grabel, 2018). It helps the management to get accurate and
timely information of financial data which assist them in making strategies to increase the
financial performance which help in responding to the financial problems.
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CONCLUSION
By summing up the above report, it can be concluded that management accounting is
essential process in order to improve the efficiency of the business operations. management
accounting is the process to prepare and present the financial information to the management
which assist them in taking decisions regarding improving organisational performance. The
above report has concluded the integration of management accounting system in Tech(UK)
Limited. It can be analysed from the report that management accounting system and report are
very essential in decision making process, report has identified different types of budgets that are
prepared in company. Calculation of Income statement as per marginal and absorption has been
included in report. Different management approach in order to respond to financial problem by
different companies is explained in report.
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REFERENCES
Books and Journals
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Banerjee, B., 2012. Financial policy and management accounting. PHI Learning Pvt. Ltd..
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Pearson.
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management accounting change. Management Accounting Research. 24(4). pp.333-348.
Chiu, C. H. and et.al., 2018. Optimal Advertising Budget Allocation in Luxury Fashion Markets
with Social Influences: A Mean‐Variance Analysis. Production and Operations
Management. 27(8). pp.1611-1629.
DRURY, C.M., 2013. Management and cost accounting. Springer.
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Developmental Finance in an Age of Productive Incoherence. MIT Press.
Herzig, C. and et.al., 2012. Environmental management accounting: case studies of South-East
Asian companies. Routledge.
Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Horton, K. E. and de Araujo Wanderley, C., 2018. Identity conflict and the paradox of embedded
agency in the management accounting profession: adding a new piece to the theoretical
jigsaw. Management Accounting Research. 38. pp.39-50.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Lambert, C. and Sponem, S., 2012. Roles, authority and involvement of the management
accounting function: a multiple case-study perspective. European Accounting
Review.21(3). pp.565-589.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.
Ward, K., 2012. Strategic management accounting. Routledge.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.
ONLINE
What is Management Accounting?. 2019 [Online] Available
through:<https://www.myaccountingcourse.com/accounting-dictionary/management-
accounting>.
What is standard costing?. 2019 [Online] Available
through:<https://www.accountingcoach.com/blog/what-is-standard-costing>
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T Y P E S O F M A N A G E R I A L A C C O U N T I N G R E P O R T S . 2 0 1 9 [Online] Available
through:<https://www.completecontroller.com/types-of-managerial-accounting-reports/>.
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