Management Accounting Report: Merlin Financial Consultancy Analysis

This report provides a comprehensive overview of management accounting, exploring its various systems, reporting methods, and practical applications within the context of Merlin Financial Consultancy. It delves into cost accounting, including actual, normal, standard, job, process, batch, and contract costing. The report examines inventory management and price optimization techniques. Furthermore, it analyzes different management accounting reporting methods, such as budget reports, performance reports, accounts receivable aging reports, and cost managerial accounting reports. The report also evaluates the benefits of each system and their integration within an organization's processes. The report also analyses the planning tools used for budgetary control, and their advantages and disadvantages. The report highlights how organizations use management accounting to address financial challenges, using Merlin Financial Consultancy and Equilibrium Assets Management as comparison cases, and provides a conclusion and references.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
P1. Management accounting and its different types of system....................................................1
P2 Explain different method of management accounting reporting...........................................3
M1. Evaluation of benefits of various management accounting systems....................................4
D1 Management accounting system and management accounting reporting are integrated with
organisation process.....................................................................................................................5
TASK 2............................................................................................................................................5
P3 .Appropriate techniques of cost analysis to prepare an income statement.............................5
M2 Management accounting techniques and financial reporting documents.............................8
D2 Financial reports which applies to interpret many business activities .................................9
TASK 3............................................................................................................................................9
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control..........................................................................................................................................9
M3. Usage of different planning tools for preparing and forecasting budgets..........................11
P5 Organisations are adapting management accounting systems to respond to financial
problems.....................................................................................................................................12
TASK 4..........................................................................................................................................14
P5 Comparison Between Merlin Financial Consultant and Equilibrium Assets Management. 14
M4 Management accounting in response to financial problem can lead organisations to
sustainable success ....................................................................................................................15
D3 Various Planning tool to resolve financial problems...........................................................15
CONCLUSION..............................................................................................................................15
REFRENCES.................................................................................................................................16

INTRODUCTION
Management accounting consists of two words “management” and “accounting”. It is the
study of managerial concepts (Bruynseels and Cardinaels, 2013). This is a kind of system which
is helpful providing monitory and non monitory informations to the companies to make future
decisions and policies for future. Generally these reports are prepared for the internal purpose
and for internal decision-making. Management accounting consists many reports which are
required by management for many purpose to the companies. There is no specific time period to
prepare management accounting reports, these can be prepare according to the organisation need.
To understand the concept and practice of management accounting Merlin Financial Consultancy
company is selected. It was founded in 1988. This company deals in various financial products
and services like fixed deposits, mortgage loan, financial advices etc.
In the project report detailed information about the management accounting, its types,
benefits are described. In addition this report highlight on various planning tools of budgetary
control and their advantage, disadvantage, different costing techniques. It describes the way in
which organisations manage with financial problems with the use of management accounting
techniques to achieve objectives and goals.
LO1
P1. Management accounting and its different types of system.
Accounting is a process of recording financial transactions in a systematic manner which
is helpful for the organisations (Chandar, Collier and Miranti, 2012). This is a systematic process
of recording, analysing and presenting statements of finance. Basically the main objective of
accounting is to provide data for preparation of various financial statements. This is done in a
particular time period which is known by accounting period. Accounting is of many types.
Management accounting is a part of accounting which is described below
Management accounting- Management accounting is a kind of system which is related to
providing important financial and financial information to the management for making future
policies and plans. This accounting system is useful for internal purpose and to make internal
decisions for the organisation. It is not done in a particular accounting period, it is done when it
is needed by the organisation. This accounting system is not compulsory for the companies, it is
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depend on the companies whether they want to do or not. So management accounting system has
its own importance in internal management of organisation.
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Management accounting Financial accounting
Management accounting helps in the internal
management of the business.
This accounting system is crucial for financial
management of the business.
It contains monetary and non monetary
informations.
It includes only financial or monetary
information.
This accounting system is prepared on the
basis of organisation's needs. It is not
mandatory.
Financial accounting is a compulsory for all
kind of companies.
Management accounting is done without any
specific accounting period.
This accounting system is needed to be done
according to the accounting period,
This accounting system includes various kind
of reports which are useful only for internal
parties not for the external users.
Its reports are useful for both the parties
including internal and external parties like
shareholders etc.
Cost Accounting System- Cost accounting system is also known by costing system. It is
a type of system which is related to estimate the cost of all products and services (Granlund and
Lukka, 2017). This is very important for the companies that they should have appropriate idea
about the estimation cost this will help in to check which products are profitable and which ones
are not. Merlin financial consultancy applies this method in checking about the cost of their
various financial products like fixed deposits, bonds etc. In addition they applies it in tracking
the estimation of total cost of services.
Competitors determines their prices by calculating various kind of costs. The Merlin
financial consultancy computes different kind of costs which are followings:
Actual costing- Actual costing is a kind of costing system that calculates those costs
which occurs actually in the production. It includes costs like actual labour cost, material cost,
overhead costs etc.
Normal costing- Normal costing system is an effective way of calculating the production
costs fairly. This includes direct material cost, direct labour cost and overhead cost. The addition
of these costs results as the total production cost.
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Standard costing- This costing system is also known by the target costing. It estimates
the future costs that can be occur in the production. The main aim of this costing system is to
keep control the cost of production.
Job costing- Job costing system is a method of calculating the each units cost. This
method computes the cost by calculating the each job's cost that assigned in the job. It helps in
analysing the each units cost individually.
Process costing- Process costing system is useful in calculating the cost of different
process of production. This costing system is suitable for those organisations which produce
products into different processes. Merlin financial limited use this tool for calculating the cost of
different financial products and services.3
Batch costing- Batch costing system works as the same framework of job costing
system. This costing system divides the products into different batches that helps in calculating
each units cost.
Contract costing- Contract costing system is applied in the large projects and contracts.
This is beneficial for controlling the different cost of projects. Basically it is used by the
companies when they deal a contract or project.
Inventory Management System- Inventory management system is a kind of system
which is related to tracks the movements of services and goods (Ismail and King, 2014). This is
very important tool of management accounting system. It is helpful for the Merlin financial
consultancy in managing their financial products and services. This helps them in tracking the
movement of financial services. Like if company wants to check about the process of a fixed
deposit service then they may apply to this system in checking the documentation, clarification
etc.
Price Optimisation- Price optimisation is method of analysing that how customers will
react on different pricing of products and services. It provides a framework to set the level of
price at which organisation may achieve their goals and objectives. In addition it sets the level of
price which is also suitable for customers. Merlin financial consultancy uses this method of
pricing. Under this method they determine the pricing level of their financial products and
services at which they can gain maximum profit. This pricing method increase the satisfaction
level of their customers.
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Job Costing System- Job costing is a kind of system which calculate the total cost of
products or service then assign cost to the each unit of product. It is very helpful for the
organisations in analysing total cost and expenses and as well as assigning the cost individually.
Merlin financial consultancy uses this system in calculating the cost of their financial products
and services like cost of documentation in financial services, agent charges and many more. It
helps them in analysing the total cost.
P2 Explain different method of management accounting reporting.
Management accounting reports are those reports which are helpful in
measurement of performance. On the basis of these reports management plans their future
activities and strategies. So it is very necessary that these reports should be prepared without any
mistakes. Merlin financial consultancy makes various financial reports for their performance
analysis and to make effective strategies. They prepares following reports:.
Budget report- Budgets reports contains the estimation of income and expenses for a
particular time period. On the basis of these reports an organisation compares their actual
performance with budgeted targets. This helps companies in making future plans and policies.
These reports consists only financial data (Kastberg, and Siverbo, 2013). The basis of these
reports is the previous year's data. Merlin financial consultancy makes these reports in making
comparison between the actual income and budgeted income. This helps them in making
effective planning if their revenue is low. In addition, it is also important for them in analysing
financial position.
Performance report- Performance reports are helpful in analyse the performance of
organisation and as well as of employees. It review the performance. This is also important in
selecting the employees who are eligible for rewards. Merlin financial consultancy uses this
report in analysing the performance of the employees and organisations. This helps company in
improving the quality of service providing to the customers.
Account receivable ageing report- This type of report is helpful for those companies
which makes their transactions on credit. It consists many information within it like amount
which is due by customer, date on which transaction took place etc. This removes the headache
of financial manger to keep remember about the credit transaction. They can use this report in
checking about total debt collection from customers. Merlin financial consultancy uses this
report in checking that how much amount they needed to recover from customer. In addition it
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also help finance department to focus more on important activities because it makes the work
easy of financial manager.
Cost Managerial Accounting Report- Cost managerial accounting report is helpful in
making comparison between selling amount and expenses done by the company. It provides a
basis for analyse the profit and loss of the company. This report calculates the total expenses
which become a basis for comparison. Merlin financial consultant make this report to analyse
that how much profit or loss they are getting from their different financial products and services.
It also helps in making strong strategies for those services and products which are not beneficial.
M1. Evaluation of benefits of various management accounting systems.
Management accounting system Advantage
Cost accounting system  Helps in measurement and
improvement of efficiency of services
and products or company.
 Beneficial in recording of total cost of
various financial services.
Inventory management system  Inventory management system is
helpful in saving time and money of the
company because it brings efficiency in
services
 This system is helpful in tracking the
position of various financial services
Price optimisation system  It is advantageous for company in
analysing the customers reaction on the
different pricing. It provides a
framework.
 This system is easy to use for the
company. It consumes less time and
cost of the company.
Job costing system  It helps in checking the profit earned
through an individual activity as well as
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it also defines the cost of each
individual activity.
 This is important in minimisation of
cost of different products and services.
D1 Management accounting system and management accounting reporting are integrated with
organisation process.
Management accounting system and management accounting reporting both have link
with each other (Kolk and Perego, 2015). The reason behind this link is that if a company wants
to make an accounting report then that company needed many kind of data from the management
accounting systems. Like while making cost managerial accounting report, company needs,
many information and data from the cost accounting system. Management of Merlin financial
consultant makes many kind of reports with the help of link between accounting reports and
accounting system. So this link is very important for companies in making reports and tools of
accounting.
TASK 2
P3 .Appropriate techniques of cost analysis to prepare an income statement
Absorption costing- Absorption costing is also known by full costing method. This
method helps in calculating total cost of production and after that assign the cost in each
product's unit (Li, 2013).
Marginal costing- Marginal costing method is a kind of costing system which considers
the variable cost as the unit cost and fixed cost as the period cost.
Income statement by absorption costing method
Particulars Amount
Sales (25*10000)
Less- Cost of goods sold:
Direct labour-30000
Direct labour-50000
Variable manufacturing overhead-20000
250000
140000
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Fixed manufacturing overhead-40000
Gross Profit
Less- Selling and manufacturing expenses:
(Fixed+ Variable selling and manufacturing
expenses)
Net Income
110000
60000
50000
Income statement by marginal costing method
Particulars Amount
Sales(25*10000)
Less- Marginal cost of sales:
Direct material-50000
Direct labour-30000
Variable manufacturing overhead-20000
Variable selling and manufacturing
overhead- 30000
Contribution
Less- Fixed cost:
(Fixed manufacturing + Fixed selling and
manufacturing overhead)
Net Income
250000
130000
120000
70000
50000
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Interpretation- From above solved numerical, it has been recommend that in both
methods, net income is same. In absorption method net income is of 50000 and in marginal
method net income is of 50000.
Income statement by absorption costing method (when 5000 units are sold)
Particulars Amount
Sales(5000*25)
Less- Cost of good sold:
Direct labour-30000
Direct labour-50000
Variable manufacturing overhead-20000
Fixed manufacturing overhead-40000
Gross loss
Less- Selling and manufacturing
expenses:
(Fixed+ Variable selling and manufacturing
expenses)
Net loss
125000
140000
(15000)
60000
(75000)
Income statement by marginal costing (when 5000 units sold)
Particular Amount
Sales(5000*25)
Less: Marginal cost of sales:
125000
130000
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Direct material-50000
Direct labour-30000
Variable manufacturing overhead-20000
Variable selling and manufacturing
overhead- 30000
Contribution
Less- Fixed cost:
(Fixed manufacturing + Fixed selling and
manufacturing overhead)
Net loss
(5000)
70000
(75000)
Interpretation- From above solved numerical it has been recommend that by applying
both method of costing company is facing net loss in both condition. Company is facing net loss
of (75000) in absorption method as well as in marginal costing method.
Financial reporting document with labour and material variances:
Budgeted Actual Variance
Units 1000 1100 100(F)
Hours 3000 3400 400(A)
Units per hour 3 3.09 0.09(F)
Labour 15000 17680 2680(A)
Labour rate per unit 15 16.07 1.07(A)
Labour rate per hour 5 5.2 0.2(A)
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