Management Accounting Report: Financial Analysis and Techniques

This report delves into the crucial aspects of management accounting systems, essential for businesses of all sizes. It explores various accounting systems and reporting methods, including performance, accounts receivable, and inventory management reports. The report examines costing methods like cost-volume-profit analysis, flexible budgeting, absorption costing, and marginal costing, analyzing their impact on net profitability. It further discusses the merits and demerits of different budgeting types and the application of the balance scorecard method to address financial issues within Tech Imda Ltd. The report provides a comprehensive analysis of financial transactions, planning, and decision-making processes within an organization, offering valuable insights into effective management accounting practices.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and their essential requirement.....................................................1
P2: Different types of reporting method.....................................................................................3
M1: Benefits of accounting system ............................................................................................4
D1: Critical analysis of management accounting reporting method...........................................4
TASK 2............................................................................................................................................4
P3: Methods of costing use in net profitability..........................................................................4
M2: Analysis of management accounting techniques.................................................................7
D2: Apply and analyse data of business activities......................................................................7
TASK 3............................................................................................................................................8
P4: Merits and demerits of various types of budget....................................................................8
M3: Evaluation of planning tools................................................................................................9
D3: Critical analysis to overcome financial issues.....................................................................9
TASK 4............................................................................................................................................9
P5: Balance scorecard method....................................................................................................9
M4: Analysis of financial issues...............................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
This particular project report is all about explaining crucial aspects related with
management accounting systems. It is an essential part for every business organisation, whether
operating in small or large scale need to use effective system. All financial and non-financial
transaction are recorded into their respective format by using appropriate tools and techniques.
This project report provide vital information about different types of accounting system and
reporting. With the help of various costing methods to analyse net profitability of an organisation
are discuss underneath. Merits and demerits of various budgets those are used in planning
process are explain in this project. Further, this provide valuable information about use of
balance scorecard to overcome all financial problems those are arises in Tech Imda Ltd (Hilton,
and Platt, 2013).
TASK 1
P1: Management accounting and their essential requirement
Nowadays, it has been seen that management is always trying to search for an effective
system which can lead to record all necessary transaction those are incurred during the time. The
primary motive of every department to make use of data in effective manner to increase overall
profitability for Tech Ltd. According to the mentioned case, it has been observed that company
has found that their performance are not going in right direction because of which plenty of
issues are arises in an organisation. To deal with all those, management has decided to appoint a
new trainee management accountant that can help the company face all crucial implications
(Wickramasinghe and Alawattage, 2012). It is an important function which is use to make use of
accounting data for the purpose of making effective planning, organising and evaluating their
overall growth for an organisation. While, accounting is said to be systematic recording of
financial data which summarise in order to make proper transferring information in their
respective made format.
Management accounting is a set format which includes partnering in effective company
decision-making, devising planning and delivery expertise at the time of financial reporting. This
seems to a appropriate system and help managers to take crucial decision in order to attain their
aims and objectives (Management Accounting, 2017). There are various similarities which are
been seen in between management accounting and financial accounting. Both of them are having
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their importance that make them difference from one another. This is a appropriate process of
evaluating process of business cost and operations to prepare internal accounting report, record
to take crucial decision in respect to attain overall growth for an organisation.
Basis Management accounting Financial accounting
Meaning Accounting to this particular accounting
systems which is used to deliver crucial
data to the managers to prepare effective
plans and policies.
In this accounting, which assist in
targeting over preparation of financial
statements for Tech Imda in order to
deliver crucial interest to the concern
parties.
Necessity There is less essential for an
organisation to make proper recording
of different accounting data.
This would be provide significant
financial statements to make use of
different accounting data.
Aims This will assist management in crucial
planning and make appropriate decision
through providing specific detail
information on various matters.
Under this report, delivery of financial
data is to external parties to control
external impacts.
Format This seems for particular form of an
organisation to make a well systematic
format to record accounting data.
It is important for every company to make
use of valuable financial transaction in
different statements.
Examples Management accounting reports often
consists of details of companies total
cash, recent generation of sales income
and current state of account payables.
There are certain examples such as
balance sheet summarises the value owns
and owes as of a particular date. Financial
accuracy is being govern by both local and
global accounting standards.
Importance of using management accounting system:
It is an important accounting process of preparing management report and account that
would provide accurate and timely information about financial and statistical data to managers to
make short-term and long term obligations. It will guide and advice management at every single
steps to take valuable decision regarding increasing profitability for the company.
Types of accounting system
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Cost accounting system: It refers as an effective design which is used by the firm to
estimate the cost of their products for increasing profitability for an organisation. It is used by
producer to record production activities which are used as perceptual stock system. It has been
used to assist manager to understand the costs of operating a business in order to increase
efficiency for an organisation.
Actual costing Normal costing Standard costing
It is the recording of products
costs that are based on actual
cost of material and labour
cost.
It is used to make valuation of
producing products with the
actual material and direct labor
cost.
It is an estimated cost of
performing an operation of
products under normal
condition.
Examples: It is the cost accounting system which will be used by Oil refineries, chemical
producers etc.
Inventory management system: It is an essential software method for tracking stock
levels, orders, total sales and invoice bill. It can assist to used in the production to create work
order, material bills and other manufacturing related aspects. The primary motive of using this
system is to manage and control inventory position of the company.
 LIFO: It is said to be the cash flow assumption that can be helpful for the companies in
moving costs of products from stock kept by the company. Last stock would be first
purchase and dispatch first.
 FIFO: It happens to be the oldest stock products that are recorded as sold first. The cost
associated with the stock that was buy first is the cost expenses first.
Examples: There are certain crucial examples such as integrated stock , prices of raw material
and effective internal costs over stocks of the company.
Job costing system: It is an effective system for assigning production costs to an
individual product or flock of products. Basically, the job order costing system is mainly helpful
only in the product which is being produce are completely different from one another (Bovens,
Goodin and Schillemans, 2014).
 Batch costing: It is a form of particular order costing which is more similar to job
costing. Each of them are number in the form of identical units.
 Process costing: It is usually vital method of assigning cost to units of production in
companies developing large quantity of products.
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Examples: It is used as building construction industry hence each building must be unique.
P2: Different types of reporting method
In accordance with increasing more effective outcome for Tech UK by using valuable
methods of reporting. The main aim of managers is to make sure that every data those are being
taken from every financial department must be analyse in their respective statements. It has been
seen that these reports are more crucial for an organisation because on that basis most of the
investors and stakeholder would be able to make their future capital investment decisions. The
financial position of the company would be analyse in an effective manner in order to maintain
the position during the last couple of year. On the basis of that there are various important
aspects those are essential for increasing overall profitability for an organisation. There are
various types of accounting reporting system use by the company. Some of them are discussed
underneath:
Performance report: It is one of the important report which is used to make proper
comparison of the actual performance with the previous one. They need to reach to a valuable
solution to incur more effective ways to increase overall productivity of an organisation. For this
purpose, management can uses various key performance indicators and other effective tools and
techniques for the company (Christ, 2014).
Account receivable report: This report will provide important data regarding total lists
of unpaid customers invoices and credit memos. Through this, company would be able to make
easily valuation of total time of recovery regarding overdue payment can examine in more
effectively.
Inventory management report: Such kind of accounting report is more helpful for an
operational stage of department as they are working totally on overall capacity of total inventory
position. On the basis of total position of stock which they can delivery in accordance to increase
desire output. There are various tools and techniques available in order to manage their total
inventory position. Such as stock turnover ratio, ABC costing and other important method.
Job cost report: This particular report is useful for the production management in order
to determine total cost a company is going to incur on the production of an individual and group
of products. It happens to be an important aspect for the department to make use of financial
transactions in an effective manner.
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M1: Benefits of accounting system
Every organisation is using appropriate accounting systems in order to record their
crucial financial transaction in more effective and safe manner. All the above discuss accounting
system are having their own importance which will make them different from one another. Such
as cost accounting would be liable to analyse total cost and expenditure Tech Imda is use during
the production process. While some other like inventory management and job cost are having
major influence to the department.
D1: Critical analysis of management accounting reporting method
It has been determine that every data collected by the manager for the purpose of
preparing reports analyse in an effective manner. All important report which are discuss in the
above report are providing valuable information to the company. This will assist investors to
make crucial decision regarding their capital investments in various projects of the company.
Performance report are needed to be analyse in regular basis.
TASK 2
P3: Methods of costing use in net profitability
Cost is an essential aspect for an organisation which is related with production of
products and services. It is directly related with the company. This seems to make use of
microeconomic aspects in their business operations to get more valuable results during the period
of time (Zang, 2011). In context to this, there are various cost related aspects are needed to taken
into consideration. Some of them are discuss underneath:
Cost volume profit(CVP): It is an essential tools which is help for measuring different
alternation in costs and total volume which would affect operating incomes of an organisation.
Flexible budgeting: This seems to be related with adjusted or flexes aspects that changes
in more effective manner as compare to static budget.
Absorption costing: This particular costing method is applicable over the production of
product and service by considering all factors. It will consists of both variable and fixed cost.
Marginal costing: According to this particular costing techniques which is use by
manager during the time of producing an additional product. As this costs is mainly related with
variable cost and fixed costs are apportioned (Chen and et. al., 2011).
Income statement on the basis of Marginal costing method:
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Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the begining
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
Net loss -2875
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
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Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: under this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit using absorption costings ￡Amount £Amount
Sales value 52500
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Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
(30000)
(5000)
17500
17875
Net loss -375
M2: Analysis of management accounting techniques
There are various types of tools and techniques which are helpful in accounting process
of an organisation. Product cost tools are more reliable in increasing overall growth for the
company. Standard costing are use as to make comparison of outcomes in respect to budget one.
While marginal cost techniques is more effectively useful for the management is order to
increase overall growth for the company.
D2: Apply and analyse data of business activities
In respect with evaluating positive result for the institution manager of Tech (UK) will
require to make use of both absorption and marginal costing techniques. With the help of this
costing method, they are able to get various outcome for the company. The outcomes are
indicating that both approaches are providing negative results during the time. It impact of
difference are arise because of fixed cost implications.
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
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From the above analysis, it has been seen that the net profit getting from marginal costs is
about 2125. The differences is arises because of fixed treatments.
TASK 3
P4: Merits and demerits of various types of budget
Planning is an important part for every business concern in order to analyse their budgets
in more effective manner. It will be formulate by using information about total sales and revenue
generated by the company during the time. Some budget are:
Operation budget: An operational budget is said to be proper estimation and evaluation
of projected income and expenses over the period of time. This will create accurate image for
calculating total sales, production and labour cost or management expenses.
Advantage: These are mainly create on weekly, monthly or annual basis. This will use to
make comparison to data in more effective manner (Otley and Emmanuel, 2013).
Disadvantage: This type of budget consist of various aspects such as experiences
manager that may attempt to implement budgeted slack.
Cash flow statement: It is an effective means of projecting about total inflows and
outflow comes into the business within a definite period of time. It would be helpful to a
company to determine whether sufficient amount of cash is available with Tech UK to operate
their daily operations.
Advantage: This type of cash is responsible for evaluation, whether cash balance would
remain sufficient to fulfil continuous obligations for the company.
Disadvantage: It would cause distortions. This seems to be not equate to profit for the
company. It relies on estimation of data (Lukka and Vinnari, 2014).
Rolling budget: It is known as one of the effective update which consists of a new
budget as recent budget period get completed. It involves additive extension of existent budget
model.
Advantage: It is used to reduce primary elements of uncertainty in budgeting because
they are having detail information of planning and controlling on coming future period of time.
Disadvantage: It used to consider more time, effort and money while preparation of
budget for the company (Akbar, 2010).
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Fixed budget: It happens to be utmost important budget that cannot be changes during
sales or other activities which is being increasing at the same period of time.
Advantages: This is used to measure success of small business transactions that are done
during an accounting period of time.
Disadvantage: It has been found that it does not continuous or work of unpredictable
activities.
Process of budget:
 In the initial process, proper prediction of budget need can be examine.
 On the basis of companies total estimation all income and expenditure collected from
various department are send to the upper level.
 After taking prior permission from upper authority, process of budget development get
started to implement.
 Completion of budget, it has been again set to top management for the further approval.
 At the end, certain reviews would be collected out of budget from various employees and
staffs.
Pricing system:
There are various types of pricing methods which are discuss underneath:
 Price skimming: It is an essential pricing method that assist in enhancing total sales
generated from products and services. In initial stage, prices are more high.
 Economic pricing: It is an effective techniques for an organisation which is used to set
effective price as low for their different products in order to attract most of the people
(Bodie, 2013).
M3: Evaluation of planning tools
It is necessary to determine necessary aspect for every business enterprises. By this,
future estimation can be examine through attaining by taking simple steps in more effective
manner. There are certain effective ways through which budgets can be managed. Such as
forecasting tools which is helpful to identify total estimation of cost and expenses. Contingency
tools are use to analyse overall risk of the company.
D3: Critical analysis to overcome financial issues
In respect to increase profitability for Tech UK, it is crucial to make evaluation of their
financial problem those are going to affect their business operations. In order to deal with every
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