Managerial Accounting Report: Systems and Budgeting Analysis

This report provides a comprehensive overview of managerial accounting (MA) principles and their application within Let's Grow Ltd, a UK-based manufacturing company. It begins by defining MA and highlighting its role in strategic decision-making, emphasizing the difference between MA and financial accounting. The report then delves into various MA systems, including cost accounting, price optimization, inventory management, and job costing, explaining their significance and benefits. Different types of MA reports, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports, are presented, along with their importance in organizational planning, control, and performance evaluation. A detailed cash budget for the upcoming six months is prepared and analyzed. Finally, the report examines the uses and applications of planning tools like cash budgeting and zero-based budgeting in managerial accounting, discussing their advantages and disadvantages, and concludes with an evaluation of the company's financial state based on the forecasted cash budget.

MANAGEMENT
ACCOUNTING

INTRODUCTION...........................................................................................................................3
a. Explaining different systems of MA with their significance and benefits...............................3
b. Presenting different types of MA reports and their importance..............................................4
c. Preparing cash budget for upcoming 6 months........................................................................6
d. Analyzing the uses and application of planning tools in managerial accounting....................7
e. Explaining MA systems that helps in resolving financial problems........................................9
f. Evaluating financial state of let’s Grow Ltd based on forecasted cash budget......................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
MA can be defined as a systematic procedure of providing several financial information
and resources to the business managers which helps them in making strategic decision that
further contributes towards the achievement of organizational goals and objectives. Let’s Grow
Ltd is a manufacturing company based in United Kingdom and the current study will emphasize
on the importance of managerial accounting and how it can contribute towards the success and
growth of the organization effectively and efficiently. The report will also include a brief
discussion about tools & techniques of MA that helps in solving business related problems.
a. Explaining different systems of MA with their significance and benefits
Meaning of MA
MA can be defined as the process of developing organizational goals through identifying,
measuring, analyzing, interpreting and sharing the information to business managers. Its main
motive is to extract internal information from multiple sources and then help managers by
making such information available to them (Ghasemi and et.al., 2016). Furthermore, the
information helps the directors and managers to take strategic decisions in regards to pricing,
sales, cost reduction etc. The major difference between managerial and financial accounting is
that the financial accounting involves collection of accounting information for the creation of
financial statements and accounting reports which is then utilized by the external parties whereas
under MA the reports are developed for the internal members of the company to improve the
operations of the business and increase its overall profitability.
Essential requirement of MA systems are as follows-
Cost accounting system- Cost accounting can be defined as the framework used by
companies to decide the cost of its products and services. Once the cost is estimated then the
company can add its profit margin and predict the final price of its goods and services. It is
considered to be as the most important MA system as it directly contributes towards the
profitability and growth of the enterprise. Moreover, the cost accounting system also helps in
predicting the closing value of its materials, work-in-progress and finished goods in order to
prepare correct financial statements. Cost accounting system is further divided into different
types like standard costing, activity-based costing, lean accounting and marginal costing.

Price optimization system- Price optimization system is concerned with calculating how
the demand of a product or service varies at different price levels and then it includes combining
the data with information about costs and inventory levels to decide new prices that will improve
the future profits of the company (ПАНЧЕНКО, 2018). The optimization system includes three
critical elements like pricing strategy, value of product for both manufacturer and consumer, and
strategies that manage all elements affecting profitability. This system of MA has various
benefits like it helps the firm in making quick decisions, automating the entire process and also
helps in increasing the annual revenue of the company.
Inventory management system- The inventory management system can be defined as the
combination of technology and processes to ensure the adequate monitoring and maintenance of
raw materials, finished goods and company assets. It is imperative for every organization to have
an integrated inventory management system so that it can maintain a track record of every
inventory item and ensure complete transparency in the business. Inventory management system
not only helps in improving the cash flow system of the business but also ensures better reporting
and prediction of sales of goods & services (Taylor and Scapens, 2016). Furthermore, it
minimizes the storage costs, labor costs, dead stock and also improves the firm’s relationship
with its vendors and suppliers. Thus, it is recommended for every enterprise to have an
integrated & efficient inventory management system.
Job costing system- The job costing system is an imperative tool of MA as it is
concerned with accumulating the costs associated with several jobs within the organization. Such
information is important as it helps in determining the accuracy of company’s system which
helps in quoting prices that allow a reasonable amount of profit. The job costing system also
provides relevant information about direct materials, direct labor and overheads.
b. Presenting different types of MA reports and their importance
The managerial accounting report is used for the purpose of planning, regulating,
decision making and for measuring the business performance. These reports are very important
for the growth of the organization and managers analyze these reports to study the overall
performance of enterprise and how it can be improved through improved coordination and
cooperation between the members of the company.

Different types of MA reports are as follows:
Budget reports: Budget MA reports play a crucial role in measuring the success of an
organization as it helps in monitoring the overall performance of the business, department wise
to get a closer and detailed look about the way operations are performed. A budget report is
always prepared on the basis of past experiences and mistakes so that the company can
acknowledge in case any problem arises (Shevelev, Sheveleva and Gvozdev, 2017). The main
objective of budget reports is to measure the actual performance of the company with its
budgeted performance and then identify the deviations so that the company can take corrective
actions in the future. Such reports also guide the managers to provide better incentive to
employees, cut costs and perform better negotiation with the suppliers and other key partners.
Account receivable Aging reports: Accounts receivable reports are critical for every
business that heavily relies on extending credit facilities to other parties. Systematic breaking
down of remaining balance of firm’s clients helps the managers in identifying the defaulters as
well as find problems in the collection process of company. If the company has a large number
of defaulters then it needs to implement tighter credit policies because it is imperative for every
business to have regular cash flow so that the day to day activities can be performed easily.
However, there is always some amount of bad debts that a company needs to write off annually,
but it cannot become a regular habit (Shields and Shelleman, 2016). With the help of Account
receivable Aging reports, managers have complete information about who owes the business
what.
Cost Managerial Accounting reports: The cost managerial accounting reports computes
the final cost of all the goods and service manufactured by the organization over a period of time.
It includes the cost of all raw materials, overheads, labor and other costs taken into consideration.
The report helps the managers in making easy comparisons between the cost & price of the
product and monitoring the profit margin accordingly. Moreover, the cost accountants and the
production managers also interpret the cost of different items that have incurred during the
production and whether it can be eliminated or minimized to a certain extent so that the business
can escalate its profits accordingly. Thus, cost managerial accounting report plays a critical role
in reducing the inventory waste, overhead and labor costs which further leads to optimum
utilization of resources within all the departments of the corporation.

Performance reports: The performance reports are created for the singular objective of
reviewing the performance of the company and its employees both collectively and individually
at the end of annual year.The following information is used by business managers to identify the
strengths and weaknesses of the employees and then provide those tasks accordingly. Moreover,
the top-level management also provide training & development to the team members to ensure
better growth of employees which ultimately contributes towards the accomplishment of goals
and objectives of the business effectively and efficiently. The members are also awarded for their
commitment and dedication towards the enterprise which increase their motivation and work
productivity systematically. Thus, it can be said that the role of performance reports is crucial for
every organization as it helps in keeping an accurate measure of their implemented strategies and
ideas towards the set targets.
Other managerial accounting reports: Other MA reports include project reports,
competitor’s analysis, supplier performance and inventory management reports. In most cases
these reports are outsourced to professionals instead of internally producing as it helps the
business to focus on its core activities (Amara and Benelifa, 2017). Also, the ideal choice for the
company is to let professionals make the reports as they can use there skills and knowledge
adequately to prepare accurate and authentic reports.
c. Preparing cash budget for upcoming 6 months
Particulars March April May June July August
Revenue (received in
same month) 30000 36000 24000 28000 32000 34000
Revenue (received in
following month) 96000 120000 144000 96000 112000 128000
Total Revenue 126000 156000 168000 124000 144000 162000
Less: expenses
Purchases 50000 50000 70000 80000 90000 100000
wages 30000 30000 30000 30000 30000 30000
Rent (paid quarterly) 12000 12000
Depreciation 2000 2000 2000 2000 2000 2000
Variable overheads 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000
Total expenses 134000 127000 150000 166000 166000 178000
Cash surplus / deficit -8000 29000 18000 -42000 -22000 -16000
Opening cash balance 20000 12000 41000 59000 17000 -5000

Closing cash balance 12000 41000 59000 17000 -5000 -21000
d. Analyzing the uses and application of planning tools in managerial accounting
Cash budget- A cash budget involves an estimation of all cash inflows and outflows
incurred in a business over a specific period of time. Every organization predicts the cash budget
by analyzing its sales and production, also including the several expenses that will be incurred
during the process (Nespeca and Chiucchi, 2018). Thus, cash budget helps in identifying whether
the company has enough cash to continue its financial operations or not. In case, there is not
enough liquidity then business has to raise capital by issuing shares or obtaining debt or loans
from the financial institutions.
Advantages Disadvantages
Cash budget helps the organization to budget
better because the management prepares it with
a lot of details and attention, also it tracks
several habits of the business and after
considering these factors it prepares the cash
budget. Thus, it helps in better and easy
budgeting.
Cash budget definitely limits the spending
power of a business which can be a major
disadvantage for the company because in case
of an opportunity the business won’t be able to
capitalize on it due to lack of funds or fixation
of budget. Thus, it can lead to huge loss for the
organization in long run.
Using a cash budget, helps the management in
easily identifying its potential deficits and
future obligations that it needs to pay off
(Amara and Benelifa, 2017). It further helps the
organization in planning the sources to raise
finance from like creditors, issue of shares or
loans. This reduces future cash problems for
the business.
The cash budget is prepared to meet future
needs by analyzing the past experiences which
means that there is no guarantee about the fact
that firm will incur similar cash flows in the
coming year. Hence, it’s a huge risk for the
company.
Cash budget helps in smooth communication
of the financial health of business. The
stakeholders can review the financial
performance of company by having a look at
firm’s cash outflows and inflows.
The cash budget also forces cost to be the
primary factor in decision making which
means that the business has to first focus on
financial aspects rather than the reviewing the
potential of idea.

Zero- based budgeting: Zero based budgeting can be defined as an effective approach to
start a business from scratch where the budget is newly prepared which means that it is not based
on previous budgets (Christina and et.al., 2018). The zero-base budgeting begins by company
identifying its goals and objectives, then developing strategies to achieve them, identifying new
ways to fund business process and finally prioritizing of the funds.
Advantages Disadvantages
The zero-based budgeting helps an
organization in allocation of resources
effectively and efficiently department wise, as
the approach completely ignores the previous
budget numbers instead focuses on actual
figures.
Since the budget needs to be prepared from
scratch, it requires huge manpower to plan the
concept and prepare the budget (Christina and
et.al., 2018). Also, many departments do not
have large human resource to develop the
budget which makes it difficult to implement it
adequately.
This budgeting method analyses the needs of
business by focusing on different departments
and their cash flow to compute their actual cost
and budgetary requirements. It helps in cost
elimination and gives accurate picture of the
standard performance.
It is a very time-consuming process and, in
most cases, shifts the focus of management
from other productive activities to preparing of
budget which creates problem for the company
in long run.
This approach leads to completion of tasks in a
more cost-effective manner
Implementing a budget from scratch requires
huge expertise and funds which is not easy to
allocate for firms in some situations.
Activity based budgeting: It is another method of budgeting that uses ABC (activity-
based costing) to prepare budgets after including overhead costs. Activity based budgeting does
not use previous year’s budget to arrive at present year’s budget.
Advantages Disadvantages
It helps in removing all the unnecessary activities
in the business as the budget is prepared by deep
Activity based budgeting requires complete
understanding of the business model of company

research and analysis. Thus, it saves firm’s funds
through removing all the bottlenecks.
and if the budget manager is not able to
understand it completely then it can lead to failure
of budgeting method.
Removing of bottlenecks leads to reduction in
price of goods and services which further
improves the company’s relationship with its
customers and also increases its market segment
in the industry.
The cost involved in implementing activity based
budgeting is high as it requires a lot of skilled
employees and the company has to bear the
expense of their training and development which
is very high and it has an adverse effect on the
other financial activities of business.
The budgeting method evaluates each and every
aspect of cost carefully to reduce the operational
cost and thus increase the profitability of business.
It focuses on short term goals and objectives
therefore it is not suitable for a company that has
a long term visions and objectives to achieve.
e. Explaining MA systems that helps in resolving financial problems
Key performance indicator-The key performance indicator can be defined as a
measurable value that showcases the effectiveness and efficiency of a company in accomplishing
its business goals and objectives. KPI’s are heavily used by companies at multiple levels to
evaluate their current position and success to reach the set targets (Curry, Hersinger and Nilsson,
2019). There are two types of KPI’s used by the companies like High-level KPI’s that focus on
the entire performance of the business and low level KPI’s that has its emphasis on specific
departments like sales, marketing and finance. The main objective of KPI’s is to provide
information about a set of things that an organization needs to do right to execute its strategy.
Variance analysis- Variance analysis is a systematic study of comparing the actual
performance of the company with standard performance and then identifying the deviations and
taking corrective actions accordingly. This is mainly done to rectify the errors and ensure that the
organization follows the budget blueprint and achieves its target goals.
Benchmarking- It is a process of measuring the overall performance of company’s
products and services against the best products in the same industry (Taylor and Scapens, 2016).
Benchmarking involves comparing the actual product produced by the company with standard
industry product, analyzing the differences and then implementing the changes in firm’s products
to improve the performance.

Balanced scorecard- It is a strategic performance scale to identify and then improve the
internal functions of business which results in better performance of the company. It is mainly
used to provide feedback to the organization which helps them in making better informed
decisions.
Financial governance- Financial governance can be defined as the manner through
which an organization collects, manages reviews and controls the financial information of
company (Shields and Shelleman, 2016). It is stated to be a singular most important system for
all financial procedures from close to disclosure.
ABC Ltd Lets Grow Ltd.
This company adopts key performance
indicator tool and financial governance in order
to overcome the challenges of problems
relating to funds. These techniques help the
firm in increasing the efficiency and
effectiveness of the business operations.
On the other hand, it makes use of
benchmarking and balanced scorecard in order
to achieve competitive edge against its rivalry
and also focusing on main perspectives of the
business which in turn helps the company in
gaining success.
f. Evaluating financial state of let’s Grow Ltd based on forecasted cash budget
It has been analyzed from the cash budget that in the coming six months, 4 months the
company will be earning profits as it is having sufficient cash balance and profits as compared to
its expenses. However, in last two months, the firm would result or incurring a loss as its
expenses will increase with a higher value than its total revenue. This shows that financial
position of Lets grow Ltd will be seen as getting poor with the passage of the months due to rise
in expenses with greater value.
CONCLUSION
From the above study it can be concluded that managerial accounting is indeed a critical
as well as crucial tool for the success of every organization. It not only helps in the better
working of internal management but also contributes towards strategic decision making that
further helps the business in achievement of its goals and objectives systematically. The above
report provided complete information about the financial performance of Let’s Grow limited

through its cash budget and also gave details regarding how it can be improved by implementing
management accounting tools like cost accounting, inventory management and job costing.
There are certain systems that can also be used by Let’s Grow ltd to improve its financial
performance like use of Key performance indicators, Variance analysis and Benchmarking.
Thus, at the end it can be stated that Management accounting is an essential system that
considers both qualitative and quantitative factors to improve the overall performance of an
enterprise.

REFERENCES
Books and journal
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Influence of MA System to Managerial Performance (Study at PT Bank Mandiri
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280.
Curry, A., Hersinger, A. and Nilsson, K., 2019. Operations managers’ use of (ir) relevant MA
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