Management Accounting Techniques and Reporting for KEF Ltd

This report provides a comprehensive analysis of management accounting principles and their application within KEF Ltd, a medium-sized manufacturing company in the UK. The report explores various management accounting systems, including price optimization, inventory management, and cost accounting, detailing their advantages and applications in organizational contexts. It delves into different reporting methods such as performance, budget, accounts receivable, and inventory management reports. The report further examines cost analysis techniques like absorption and marginal costing, preparing income statements and evaluating the advantages and disadvantages of budgetary control tools like zero-based and master budgets. Through the preparation of financial reports, the study demonstrates how data is interpreted to perform complex business operations, offering insights into KEF Ltd's financial strategies and decision-making processes. The report emphasizes the integration of management accounting systems and reports to enhance organizational efficiency and achieve strategic goals.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is a field of accounts which benefits in preparation of multiple
reports and accounts so that organisation can attain reliability and productivity while performing
business operations. This will allow a firm to take strategic decisions so that high outcomes can
be achieved (Abdelmoneim Mohamed and Jones, 2014). This assignment is written for KEF Ltd
which is a medium sized manufacturing company which is operating in UK. This report is given
to cover about multiple kind of management accounting systems and reports and their role in
performing organisational processes. Also, different kind of costs will be used to prepare
financial and income statements. With the help of budgetary tools, appropriate budget for firm
will be prepared and forecasted. At last, different techniques will be adopted so that financial
issues of an organisation can be resolved in an efficient manner.
TASK 1
P1 Mention about management accounting and need of different management accounting
systems in an organisation
Management accounting is termed as an activity of analysing, summarizing and
interpreting final statements prepared on annual basis by an organization. These accounts include
income statement, cash flow statement, balance sheet etc. It makes easy for the manager to
identify actual financial position of an organization which motivates them to make corrective
actions for future improvement (AlMaryani and Sadik, 2012).
Price optimization system: It is a system which bring out the information about the actual
perception of customers towards the pricing decisions taken by an organization for their products
and services. Using of such system by KEF Ltd facilitates their manager to recognize the aspects
on the basis of which willingness to buy depends. It makes easy for them to frame an effective
pricing strategies which can bring profitable return to both customers and an organization. Hiring
a researcher to identify the actual satisfaction level of customers will be the most effective
decision of KEF Ltd as it estimates an organization about the effectiveness of their current
pricing policy for their offerings (Bennett and James, 2017).
Inventory management system: This type of system emphasize on maintaining and
managing inventories in a firm so that cost of inventories can be optimised desirably. This
system can be used by organisations to increase their efficiency of inventory management. In
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case of KEF Ltd, inventories involves raw material, finished goods, spare tools, processed goods,
WIP etc. To manage all the record of inventories, this tool can be used efficiently. By this,
manager of company will be able to identify which stock is required and available to company
for manufacturing purpose.
Cost Accounting System: This system emphasize on the profitability analysis by
projection and estimation of cost associated with multiple services and products. This system
involves activities of summarising, recording, analysing and classifying various expenditures and
costs which are concerned with the manufacturing of products. In case of KEF Ltd, this system
can be used by manufacturing manager to optimise their costs so that high revenues can be
earned (Bloomfield, 2015).
P2 Different methods used for management accounting reporting
Management accounting reporting: It refers to an activity of recording, summarising
and storing financial data of an organisation with a purpose of using at the time of making an
effective decision for achievement of organisational goals and objectives thus important for KEF
Ltd to prepare the same on timely basis. There are various kind of reporting system which
includes the following:
Performance report: It is the report prepared by an organisation with a purpose of
maintaining track record of performance of different business functions. It can be used by KEF
Ltd to compare and analyse the performance level of employee’s as well as business so that an
effective decision could be made relating to providing bonus and incentives to employees on the
basis of their contribution towards achievement of organisational goals and objectives (Wood,
2016).
Budget report: It is another kind of report which is also necessary to prepare by an
organisation with the purpose of allocating budget to different departments according to their
requirements based on given objectives. Such kind of report is prepared by KEF Ltd to measure
the performance level of different functions. It gives direction to departments to spend money
according to the given budget so that wastage of funds could be minimised (Demski, 2013).
Account receivable report: This is the report containing information related with list of
debtors whose payments to an organisation are still due. It is prepared by such organisation who
avails option to provide credit to others. Thus, KEF Ltd can use this report for making decision
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to recover the due amount of debtors either by changing existing credit policies or ending up
their loyalty cards so that an organisation can be protected from any financial losses.
Inventory management report: This is the report which contains information related with
current inventory level an organisation has at present to meet customers’ requirements. It is more
beneficial for KEF Ltd to prepare such kind of report as it enables their manager to keep track
record of material used to manufacture products and services for targeted customers. It makes
easy for management to make decision regarding ordering further inventory if faces shortage in
warehouses which help them to retain loyal customers by supplying ordered products on time.
M1 Analyse varied advantages of management accounting systems along with applications in
organisational context
Different benefits associated with management accounting systems in respect with KEF
Ltd are stated below:
 Price optimisation system: With the use of this system, manager in KEF Ltd can
identify the preference and opinions of people for various products. This will benefits the
company in increasing maintaining their operational costs with best price so that
customers of firm can be segmented in appropriate manner.
 Cost accounting system: By using this system, effectiveness of organisational process
can be acknowledged so that modifications in organisational work can be attained. By
using this system, KEF Ltd can reduce their costs so that profitability of company can be
maintained (Lukka and Vinnari, 2014).
D1 Critical evaluation of how management accounting reports and system are integrated for
performing organisational processes
To perform organisational work with efficiency, company is needed to use management
accounting systems and reports in an integrated manner. For example, manager of firm can use
inventory management system to prepare reports about inventory. With the help of these reports,
manager of company will have actual status about the stocks of inventory and manufacturing
work will be performed efficiently. If these processes will not work in coordination then
organisational work can not be performed properly.
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TASK 2
P3 Calculate costs by using cost analysis techniques like absorption and marginal costing to
prepare an appropriate income statement
Costs: Cost is the cash amount given up for an asset. Its includes all costs necessary to
get an asset in place and ready to use. The cost incurred during the production of a products is
called manufacturing cost in the KEF Ltd which include the costs of direct material, direct labour
and manufacturing overhead. Direct material is the materials used in the construction of a
product (Kaplan and Atkinson, 2015). Direct labour is that portion of the labour cost of
production process that is assigned to a unit of production. Manufacturing overhead cost includes
units of production process that is based on variety of possible allocation system such as by
direct labour hours or machine hours incurred (Maas, Schaltegger and Crutzen, 2016).
Marginal Costing: It is method of calculating net profitability by considering only
variable cost and ignoring fixed cost. Due to this, the financial statement of an organisation
contains more profit than actual thus adopted by small and medium sized organisation.
Absorption Costing: It is another method which considers both variable and fixed costs
due to which it shows actual profitability in the financial statement of an organisation. Due to
this, it is mostly used by large sixed organisation with an objective of retaining their loyal
stakeholders.
(i) Production cost per unit:
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Thus production cost per unit is £ 46.
Marginal costing:
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Particulars Per Unit
cost (in
£ )
Total amount(in £)
Direct Expenses:
Material 12 18000 x 12 216000
Labor. 20 18000 x 20 360000
Variable pro. overheads. 8 18000 x 8 144000
Total production cost 40 18000 x 40 720000
Thus aggregate amount of production cost is £ 720000.
(iii) Aggregate cost of sales in respect of June:
(iv) Budgeted profit and loss statements.
Profit and loss account by absorption costing method for month of June
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Profit and loss account using marginal costing method in respect of month of June
Preparation of final account after June
Absorption costing
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Marginal costing
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