Financial Analysis: Management Accounting Report for Meggit PLC

This report provides a detailed analysis of management accounting practices at Meggit PLC, a UK-based engineering organization. It covers various aspects of management accounting, including different types of managerial accounting systems like price optimizing, cost accounting, and inventory management systems, along with their essential requirements. The report also explores different methods utilized for management accounting reporting, such as budget reports, account receivable ageing reports, job cost reports, performance reports, and order information reports. Furthermore, it defines the advantages of management accounting systems, including job costing, price optimizing, and cost accounting systems, along with their applications within the organizational context. The report also delves into cost calculation and measurement using different cost analysis techniques to formulate effective income statements, and it discusses various planning tools used in budgetary control, along with their merits and demerits. Finally, the report examines how companies are adapting management accounting systems to resolve financial problems, emphasizing the role of planning tools in addressing financial issues and achieving sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirement for different type of management
accounting systems......................................................................................................................1
P2 Mention various methods utilised for management accounting reporting ............................2
M1 Define the advantages of management accounting systems along with their applications in
organisational context.................................................................................................................4
D1 Critical evaluation of management accounting systems and reporting are integrated with
process of company.....................................................................................................................5
TASK 2............................................................................................................................................5
P3 Calculate and measure costs by using different techniques of cost analysis to formulate
effective income statement..........................................................................................................5
M2 Apply different management accounting techniques and formulate financial reporting
documents...................................................................................................................................8
D2 Prepare a financial report which properly apply and interpret data for different business
activities......................................................................................................................................8
TASK 3............................................................................................................................................9
P4 Analyse the merits and demerits of various kinds of planning tools used in budgetary
control ........................................................................................................................................9
M3 Evaluate the use of various planning tools along with their application of forecasting and
preparing budgets......................................................................................................................10
TASK 4..........................................................................................................................................11
P5 Describe by comparison how companies are adapting the management accounting system
to resolve financial problems....................................................................................................11
M4 Management accounting system can lead to the sustainable success in relation to solving
the financial issues....................................................................................................................14

D3 Planning tools for accounting respond accurately to solve the financial issues that leads to
the sustainable success..............................................................................................................14
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15
.......................................................................................................................................................15

INTRODUCTION
Management accounting is defined as the procedure of preparing accounts and
management reports which offers timely and accurate financial data needed by the managers of a
firm to make short term and daily basis decisions. With the help of management accounting,
weekly and monthly reports for internal audience of a business firm is prepared. By using these
reports, sales revenue, available cash flows, amount of orders can be acknowledge in a proper
manner. This assignment is based on Meggit PLC which is a Britain based Engineering
organisation which specially deals in Aerospace equipment. Organisation is headquartered at
Bournemouth Airport, UK. This engineering company was established in 1974 and employees
more than 11,700 employees as per the latest report (Cheng, 2012). This assignment is going to
include about management accounting and the needs of different kind of managerial accounting
systems within an organisation. Different tactics and methods which are used for management
accounting reporting are discussed. Beside this, cost and expenses are calculated by using
different cost analysis techniques so that an accurate income statement can be prepared. Various
kind of planning tools for budget control and mentioned along with their merits and demerits. At
last, use of management accounting to solve financial problems is carried out.
TASK 1
P1 Management accounting and essential requirement for different type of management
accounting systems
Management accounting is the process of identifying about the business costs and
operational cost for preparing financial reports and accounts which helps managers' in decision
making. The main motive of management accounting system is to take a better and accurate
decisions by controlling on the organisation performance, operational activities and development
process. This accounting system is only used by the organisation for maintaining a better
environment in the internal team. In context of Meggit PLC, management accounting help them
to take effective decision to order to accomplish their organisational goals and objectives. There
are various systems of management accounting which are discussed with their essential
requirement as below:-
 Price Optimising system: This system is used by the organisations for deciding the
prices of their multiple products and services. It helps various organisations to know that
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how the demand will vacillate with the changes in the prices of the products and services.
The Meggit PLC use this system for manage their products prices according to the
market segments. Moreover, it also help them in determining pricing structure for initial
pricing, discount pricing, and promotional pricing (Christ and Burritt, 2013). Cost accounting system: This system helps the organisation to recognise the cost of
products and services and help them to maintain the organisational profitability. By using
their system they can decide an effective price of their products and services so they able
to attract a large number of customers with their effective prices. These cost data will
help the organisation to compare between the estimated cost and actual cost which
enables to the management to decide the reasons behind this difference so they take
effective decisions. There are two types of cost accounting system which are as follow:-
Job order costing: This costing method is perfect for those who are indulge in the
production of unique and special products as it help them to identifying their manufacturing costs
of every activity. This method is also used by the industries to check the cost of production if
their prices are increased by their estimated data then they able to control on this by adopting this
method and can maintain their profitability.
Process costing: This system is perfect for those whose production is a process involving
in different departments. It will help them to know about the manufacturing cost of their each
production process.
 Inventory management system: This system is help the organisations to maintain their
inventory according to the demand. The reason behind using this system is to maintain
the effective flow of goods and services so they able to meet from the expectation of the
customers. This system is beneficial for the Meggit PLC as it helps them to track the
records of their inventory which make easy for them to track the supply and demand of
the inventories in the market. It also helps them to advance management of inventories
and also help them to make a plan regarding to the inventory required in the the company.
Furthermore, it assist them to how they can reduce their cost and maintain their appropriate
inventory in the organisation (Garrison and et. al., 2010).
P2 Mention various methods utilised for management accounting reporting
There are different kind of managerial accounting reports which benefits the management
of an organisation is preparing proper account statements so that strategically advantageous
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decisions can be taken. These report helps the manager of an organisation in attaining reliable
and accurate financial or statistical information. There are different kind of management reports
which can be prepared by the manager in Maggit Plc so that all accounts and transactions can be
mentioned in a proper manner. In this context, some reports are mentioned below:
 Budget reports: A budget report is defined as an internal report which is used by
management of a company to compare estimated projections of budget with actual
performance within a specific period. In context with Maggit Plc, a budget report is
prepared to compare the difference in estimated and actual performance of company
within a financial year. Budget report of a company follow same format as income
statement. Manager in Maggit Plc can use budget report to give incentives to workers so
that they can feel motivated to deliver their best performance. Future budgets are also
forecasted in accordance with these reports so that overall objectives of company can be
formulated in a proper manner (Kober, Subraamanniam and Watson, 2012).
 Account receivable ageing report: It is a report which lists the unused credit memos
and unpaid consumer invoices with the ranges of date. It is a primary tool which can be
used by collection personnels in Meggit Plc to identify those invoices which are overdue
for payment. This kind of managerial accounting report is related with the management
of accounting receivables for those business organisations that engaged in increasing
credits to the clients. This report will helps the concerned company on analysing about
the credit policies so that old and bad debts can be reduced and liquidity of company can
be maintained in a proper manner.
 Job cost reports: These managerial accounting report is related with the identification of
profitability, expenses, costs of a particular job. This report is considered as the starting
place for data that is contained in other reports. With the help of this report, each job can
be listed on which work is performed so that total incurred cost can be acknowledged.
This report will benefits Meggit Plc in evaluating the costs even if the project is in
progress. This will assists in eliminating those aspects which are not adding any value to
the company. By this, projects handled by Meggit Plc can be make workable and
profitable.
 Performance report: It is a report which is prepared by business organisations so that
performance of a particular activity or entire project can be acknowledged in a proper
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manner. In context with Meggit Plc, an annual performance report can be prepared for
every employee which is working in organisation to acknowledge their contribution in
the success of company. Other than this, performance report can be used by concerned
company to access the success rate of a product or project along with mentioning of the
measures to adhere budgetary constraints. In general, these reports are prepared on yearly
basis but an organisation can create them on quarterly and monthly basis too (Lukka and
Vinnari, 2014).
 Order information report: This type of report assist a business organisation in
managing the trends of business in an effective and ineffective manner. There are
different kind of reports which can be prepared under such management accounting so
that while placing different orders, low cost can be achieved. Due to this, expenses of
revenues will be less and high amount of revenues can be utilised.
M1 Define the advantages of management accounting systems along with their applications in
organisational context
There are various merits of different accounting systems in relation with Meggit Plc.
Some of the benefits and applications in context with concerned company is discussed below:
 Job costing system: This system benefits an organisation in predicting different kinds of
costs and expenses during the production or manufacturing processes. This will allow the
manager and workers in Maggit Plc to prevent from duplications of efforts and energy as
if work is performed once it will be reflected again when required. Beside this, job
costing system will helps the company in evaluating the quality of work which is done.
 Price optimising system: With the help of this accounting system, attitude and
perception of consumers towards different prices of services or products of company can
be acknowledged. This system will benefit Maggit Plc in maximising their operating
profits with best prices. Beside this, it will helps in segmenting customers in a systematic
manner (Qian, Burritt and Monroe, 2011).
 Cost accounting system: By taking help of this system, an organisation can measure the
effectiveness of processes and carry out needed modifications as per requirements. This
system will allow Maggit Plc in reducing and fixing prices as per requirement. Beside it,
this system will offer important information which is required for planning.
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D1 Critical evaluation of management accounting systems and reporting are integrated with
process of company
In order to gain high benefits, it is essential for Meggit Plc to have an appropriate
integration between management accounting reporting and systems as these aspects will benefits
the company in making accurate decisions and procedures. Due to this organisational objectives
& goals can be attained in a desired manner. Properly maintaining transactional records in
management accounting reports is not possible without any accounting system like price
optimisation, inventory management or job cost system etc. for example, inventory management
system will help the manager in Maggit Plc in providing required information about present level
of inventory so that inventory management report can be prepared in a proper manner (Renz,
2016).
TASK 2
P3 Calculate and measure costs by using different techniques of cost analysis to formulate
effective income statement
In context with business organisations, cost is referred to the amount of capital or money
which is spent on producing a particular service or good. It is a monetary value which defines
expenditures associated with raw material, supplies, products, equipments, labour etc. There are
different kinds of cost related with budget and accounts of company. In context with Maggit Plc,
some type of costs are discussed below:
 Absorption costing: It is referred as a technique that is used for calculating costs which
is invested for the purpose of producing or manufacturing products and services. It
involves both fixed and variable costs. This is the reason, it is also acknowledged as full
costing method.
 Marginal costing: It is a method which is also used to calculate net profitability of
company including only variable cost. It is most adopted method especially by small and
medium large organisation as using such costing method shows more profitability in
financial statement of an organisation (Shah, Malik and Malik, 2011).
Maggit Plc can use both type of costs to achieve their objectives in a proper manner along
with formation of an appropriate income statement. In relation with concerned company, income
statements are mentioned below:
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Annex (A)
Budget 2019 2020 2021
Cost
Centre
Budgeted
production
overhead
costs in £)
Basis of
production
(overhead
absorption)
Cost
per
Hour Hours Cost Hours Cost Hours Cost
A 66000 22000 3 24200 72600 26620 79860 27500 82500
B 75000 15000 5 16500 82500 18150 90750 19500 97500
C 83600 41800 2 45980 91960 50578
10115
6 51500
10300
0
Annex (B)
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
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Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
Annex (c)
Year X PV@ 12%
Dis Cash
Flow Y PV@ 12%
Dis Cash
Flow
0 -5000 -8000
1 2500 0.893 2232.143 1500 0.893 1339.286
2 1000 0.797 797.194 2000 0.797 1594.388
3 1000 0.712 711.780 2500 0.712 1779.451
4 500 0.636 317.759 1000 0.636 635.518
5 1500 0.567 851.140 1000 0.567 567.427
6 1000 0.507 506.631 2500 0.507 1266.578
Total 5416.647 7182.647
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Payback Period = Initial Investment
Average Cash Flow
Project X = 5000 = 4
1250
*Average Cash Flow = 7500 = 1250
6
Project Y = 8000 = 4
1750
*Average Cash Flow = 10500 = 1750
6
NPV: -
Project X = Dis Cash Flow – Initial Investment
= 5416.647 – 5000
= £416.647
Project Y = Dis Cash Flow – Initial Investment
= 7182.647 – 8000
= - £817.353
M2 Apply different management accounting techniques and formulate financial reporting
documents
Techniques which are associated with management accounting are very useful in
maintaining the financial reporting statements and documents like cash flows, balance sheets,
profit and loss accounts and statements etc. without the help of accounting tools like cost
accounting systems, financial statement analysis, it is not possible for organisations like Maggit
Plc to acknowledge their financial position within marketplace.
D2 Prepare a financial report which properly apply and interpret data for different business
activities
Each organisation like Maggit Plc is needed to prepare their financial reports like balance
sheets, profit and loss accounts, cash flow statements in a proper manner. This will benefits them
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in acknowledging their actual financial position within marketplace. In this context, the company
is required to interpret their different tractions which takes place while perusing different
business activities. This will helps in acknowledging the actual capital which is invested in a
specific business operation or activity (Suomala and Lyly-Yrjänäinen, 2012).
TASK 3
P4 Analyse the merits and demerits of various kinds of planning tools used in budgetary control
Budgetary control is referred to a tool which is used by business firms so that
organisational goals and targets can be achieved by using budget in a proper manner. In order to
control and monitor financial operations, each company used budgetary control. These tool give
overall estimation of funds so that future expenses of Maggit Plc related with labour, material,
overhead, manufacturing can be acknowledged. Some of the planning tools associated with
budgetary control are mentioned below:
Contingency planning: This plan is formulated by an organisation so that future
problems or situations can be overcomed in a proper manner. It is also called as Plan B which
implies that if any misshapenness will take place suddenly and company is not prepared for it
then this plan B will helps the Maggit Plc in dealing with uncertainties by appropriate means.
This plan is mainly used to resolve problems within workplace (Ward, 2012).
Advantages of contingency planning
 This tool will allow the concerned company in overcoming the problems of workplace in
a systematic manner.
 Organisations can use this planning tool as a strategy to eliminate potential risks which
can hinder the growth of company.
 With the help of this plan, employees are able to share their plans and ideas due to which
their knowledge will increase (Nitzl, 2016).
Disadvantage of contingency planning
 This type of planning tool can create problems between employees and managers due to
ideological differences.
 Implementing this plan is time consuming as strategy formulation takes time.
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