Nelson College, HND Business, Management Accounting Report Analysis

This report provides a comprehensive overview of management accounting principles and their application within a business context, using a case study scenario of Marshalls. It explores the requirements of different management accounting systems, including cost accounting, inventory management, job costing, and price optimization, highlighting their advantages and disadvantages. The report also details various types of management accounting reports, such as budget reports, cost reports, and performance reports, illustrating their significance in monitoring and evaluating a company's financial performance. Furthermore, the report includes an income statement comparing marginal and absorption costing methods, offering insights into their impact on profit calculation. Finally, the report examines the advantages and disadvantages of planning tools used for budgetary control and discusses how organizations adapt their management accounting systems to address financial challenges.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
P1 Management accounting requirements of different types of management accounting
systems.........................................................................................................................................3
P2 Different types of management accounting reports................................................................6
P3 Prepare an income statement using marginal and absorption costs.......................................7
P4 Advantages and disadvantages of planning tools used for budgetary control........................9
P5 How organisations are adapting management accounting systems to respond to financial
problems....................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting (MA) perform series of functions defined as identification,,
analysing, recording and presenting financial information to the management for decision
making, planning and controlling functions. The present report is based on case study scenario
which explain about the various strategies pertaining to MA systems and their requirement in
business. The report will also discuss about the various kinds of management reports and
advantages of it. Further the project will highlight the marginal and absorption techniques of
costing. In addition to this it will also outline advantages and disadvantages of budgetary control
tools used for planning. At last comparison of management accounting system used for solving
financial problem will be undertaken.
MAIN BODY
P1 Necessity of management accounting in various types of accounting systems
MA refers to identification, analysis, interpretation and presentation of accounting
information in order to take decision for management of business (Abdusalomova, 2019). It
helps managers in the preparation of rules, policy, regulations and decision making process in
day to day dealings of company.
Role and Principle of management accounting
 Relevance: the information on which management accounting is based must be relevant
and accurate (Ameen, Ahmed and Abd Hafez, 2018.). Management accounting take into
account accurate information relating to enterprise which assist in improving the quality
of decision making by management.
 Influence: in management accounting emphasis is laid over communicating financial
information to managers and if there will be any issue then this will affect decision
making. Hence, the communication of information affects the working of management
accounting to a great extent.
 Credibility: Management accounting experts are being ethical, responsible and aware
about the rules and regulations of corporate governance. If this is present, then the
information will be credible and can be used in taking effective decision.
Various kind of management accounting system

Management accounting system used by different types of organisations in day to day
operations of business. MA systems and their role pertaining to organisational process belongs
to Marshall are discussed below:
Cost Accounting System: This system assists the firm in identification, estimation of
price of product, for valuation of stock, profitability and cost control (Jbarah, 2018). This
accounting system will individually measure and record the cost then comparing it with actual
results and prepare reports to assist the management of company. This system is the main key of
managerial accounting because it helps in analysing the tools like budgetary control and others
which are used for correct ascertainment cost of product. The chosen firm uses job based costing
and transportation costing system for measuring equipment, structural assessment of its cost of
product. The direct and indirect cost related to the manufacturing needs to be considered by the
accountant in this system. The benefit of using this system is find out per unit cost of product of
Marshall and based on its price can be set.
Advantages Disadvantages
 It eliminates wastages and losses.
 It helps in reduction of cost
 It assist in control
 Complex system
 It requires additional step for checking
accuracy
 Involved huge cost as it requires highly
skilled accountants
Inventory Management System: It refers to a process of ordering, storing of raw
material, WIP and producing finished goods and assure that right stock is produced at the right
place and time. Organisational process integrated by Marshall can be achieving by efficient and
effective flow of inventory in the firm. The main objective inventory system for Marshall is to
understand the present inventory level and minimize over and under stocks situations. The main
functions of inventory management system for Marshall is to request purchase orders, receiving
that order then relocating and adjusting inventory and at last disposing of inventory. This system
is using different methods for valuation of inventory like FIFO, LIFO, and AVCO.
Advantages Disadvantages
 It integrates with accounting system  It reduced physical audits

 It helps in future forecasting
 It reduced the risk of overselling
 hackers may hack the information
 High storage cost
Job Costing System: This system helps in assigning manufacturing cost to the individual
job or batches of the product. By using this method Marshall calculate each job cost separately.
So this assist company in finding out individual profit or loss on each job (Rasyid, Sugiarto and
Kosasih, 2017). It enables management to select those jobs which are more profitable. Job
costing helps in managing and controlling costs, by comparing actual cost with standard cost and
see the variances for correct decision making. Marshall also uses job costing system when
products are different and calculation of cost of separate project or contract job is required.
Advantages Disadvantages
 Each job’s profitability is easily
determined
 It assists in determine productivity
 It helps in creation of budget of the
company.
 A lot of paper work required
 It does not help in control cost
 It is labour intensive technique
Price Optimization System: This system is used to determine the demand of customer
and possibilities of paying prices to get a product. It will help Marshall in identifying multiple
product price at a same time and also determine variation of demand at a different price level.
This system is used by retails for co-ordinate with demand and supply for attainment of
organisational goals and objectives. The chosen firm uses price optimization strategy for
identifying demand of the product at different prices and then company decides the price by
studying the changes in the market.
Advantages Disadvantages
 Time saving
 It will increase turnover rte.
 Better and quick decision making
 Customer expectation
 Risk management
 It sometimes shows lower quality

P2 Different types of management accounting reports
Managerial accounting report assist small owners and managers for monitoring the
overall performance of firm (Napitupulu, 2018). These reports are prepared frequently as needed
by manager and is prepared quarterly, monthly, half-yearly and daily. Various types of MA
reports are underlying below:
 Budget Report: Budget report is financial document used in identifying income and
expenses of future. This report is generally prepared by comparing actual performance
with budgeted performance. Further, this report plays a very important role in measuring
company's financial performance. These reports help Marshall in forecasting future
budget in firm to combine the efforts of different functional departments against overall
goal and objective of the company.
 Account Receivable Ageing: This report is very important tool for managing cash
inflow, outflow and extend credits to customers of Marshall. If company have many
defaulters, then the company may need not provide credit policies to those customers.
Company always prepare a bad debts report of those customer so it is easy to written off
them first.
 Cost Managerial Accounting Report: In Marshall cost of a product is calculated from
costs of direct raw materials, labour, overheads and other additional costs. For calculation
of per unit cost of product total costs of goods is divided by total units produced (Diouf
and Boiral, 2017). Cost reports of Marshall summarizes all the information and help cost
manager in calculation of per unit cost of manufacturing products and provide internal
report system.
 Performance Report: This report is prepared for review of performance of each
employee as a whole. The variation of difference from actual and budgeted report are
evaluated and information related to variations was discussed in performance reports.
Performance report are prepared by Marshall on yearly basis, however management
accountant can prepare this monthly, half-yearly or quarterly basis.
 Job Cost report: This report concerned with calculation of cost, expenses, and profit of
each job. Each job cost is identified first and then analyse the actual cos of job while the

project is in progress. Hence, Marshall can assess those areas of waste and eliminate it
may bring forth more profits with minimum waste at a same time.
 Order Information Report: This report will assist management of Marshall to know
about current trends and changes in their business efficiently and effectively. In order
information report different types of report are prepare which help Marshall in decision
making for achieve low cost on placing of orders.
 Manufacturing Report: Marshall prepare this report and it assist in easy calculation of
manufacturing and inventory cost. These report includes labour and overheads cost and
wastage material cost of inventory through which managers can easily differentiate each
assembly lines cost on their particular department.
 Special Report: Management find difficulties in decision making and other reports not
give actual information to handle all problems. Under this circumstances, special reports
are prepared. These reports are needed for special purposes only as per the need of
situation. If available accounting information may not be sufficient, then special data will
be collected. It may needed put extra staff for compiling these reports and also involve
co-ordination of different departments and levels of management.
P3 Income statement using marginal and absorption costs.
Income statement (Marginal costing)
For the month October 2019
Particulars Amount(£)
Sales Revenue (25 per unit x40000 units) 10,00,000
(-) Marginal cost of sales
Direct material cost (10 per unit x40,000 units)) 4,00,000
Direct labour cost (30x40000 units) / 60) x 8 1,60,000
Variable production Overhead cost (2 per unit x40,000 units)) 80000
variable selling expense cost (4 per unit x40,000 units)) 1,60,000
Contribution 2,00,000

Fixed Cost : manufacturing overhead -1,50,000
Fixed admin and distribution cost -50000
Net Profit 0
Income Statement (Absorption Costing)
For the month October 2019
Particulars Amount(£)
Revenue (25x40000) 10,00,000
(-) Cost of goods sold
Direct material cost (10x40000) 4,00,000
Direct labour cost (8x20000) 1,60,000
Variable production overheads cost (2x40000) 80000
Fixed Manufacturing Overhead -150000 -1,50,000
Gross Margin 2,10,000
(-)selling expenses -1,60,000
(-) Fixed Admin and distribution expense -50000
Net Income 0
From the above calculation it was evaluation that marginal costing produce contribution
of £ 200,000. On the other hand, absorption costing produces a gross margin of £ 2,10,000. For
calculation of cost absorption costing is more appropriate because it considered both fixed and
variable expenses of a product (Pina, Lozano and Serra, 2017.). Furthermore, it was analysed
that marginal costing examined variable cost only and it also give lower profit than absorption
costing. In addition to this absorption costing provides overall firms profitability while marginal

costing outlined each product contribution. It also reflects that cost per unit remains same either
in change of production level in marginal costing. In contradictory side in absorption costing due
to the fixed expenses cost per unit decrease when production level increase.
P4 Pros and Cons of planning tools utilized for budgetary control
Budgetary control is the system of controlling costs which includes preparation of
budgets, interrelate the work departments and establishing responsibilities. Furthermore,
comparison of actual performance is done with standard performance for finding deviation. After
that variances between them is examined and corrective actions are taken. The main purpose of
budgeting is to achieving financial and operational goal of the organisation.
Planning tools of budgetary control are underlying below
Zero Based Budgeting: This is a popular technique used by Marshall at time of
budgetary control. In this technique every next year budget is prepared on zero base (Ostaev and
et.al., 2019). If at the end of year estimated income is not equals to estimated expenses, then
difference between them is seems to be zero.
Advantages of zero based budgeting
 Coordination and communication: This budgeting provides better coordination and
communication with in the department by participating them in decision making which
enhance motivation of employees.
 Efficiency: This budgeting does not look at the previous budget as it calculates actual
numbers so it helps in allocation of resources efficiently.
 Accuracy: This budgeting helps reduction of cost to a fixed limit as it provide true and
fair picture of cost statement in context to standard performance.
Disadvantages of zero based budgeting
 Time consuming: ZBB is a time consuming process because it starts from zero base and
did not recognise previous year data.
 Lack of expertise: It provide proper explanation for every line item and calculation of
every month cost is sometime difficult and required training for the managers.
Flexible Budget: It is a budget or financial plan of estimated cost and revenue for
different level of output (Heald and Hodges, 2020). It fixed standard for calculation of variances

from actual performance of the company. It is a kind of variable budget that predicts the actual
manufacture activities in business entity
Advantages of Flexible budgeting
 This budgets act as a standard by setting expenditures at different level of activity and
also identify variable expenses.
 It helps in better control and correction by glorifying operational inefficiency and error
 It is good tool for analysing the performance of managers as it closely aligns to
expectations at any level of activities.
 This budget is more flexible than static budget because it can be easily modified
according to market situation and environment.
Disadvantages of Flexible budgeting
 It requires more planning to identify expenses because all expenses are figure out at one
place.
 For formulation of flexible budget expert workers required and availableness of that
workers become a challenge for the organisations.
 It depends upon a forecast of the past business and if any error or mistakes in the
previous books of accounts then it does not show correct results.
 Fixed and flexible cost ascertainment held on arbitrary basis, hence flexible costs are less
relatable for find out actual budget cost.
Fixed Budget: It is a financial document which remains constant throughout a financial
period either changes taken place in the volume of sales, revenue, no of units produced. It does
not vary with the change in actual output, and it prepared for single level of activity.
Advantages of Fixed Budget:
 Easy implementation: It is easy to implement this budget in organisations because it
allows the company to compare its expenses and revenue and implement the strategies in
future.
 Helps in measure profits: It helps in measure both short and long term profits because it
allocates the same amount of money for necessities on a regular basis. So profit
measurement is easy in this case as everything remains unchanged.
 Helps in future planning: By using previous records of this budget mangers plan their
budget proposal which helps in future planning and forecasting.

Disadvantages of fixed budgets:
 It is based on previous data so new firms face many problems whole implementing fixed
budget
 Fixed budget is recognised as an unproductive tool of cost control because it is not
considered changes.
P5 Adoption of management accounting systems for respond financial problems.
Financial problem is a situation in which firm is not able to meet its requirement in terms
of money. It can also be defined as issues or problem faced in managing and allocating money
within company. Some financial problems which are faced by small businesses are lack of
working capital, debt repayment, inconsistent cash flow, access to funding etc.
For instance, Lack of Working Capital is a problem faced by small businesses. If any firm is
facing problem of insufficient working capital, then it shows inability of company to meet out its
financial obligation (Abd, Ramli and Abdul, 2020.). It is necessary for the organisation to meet
out its short term obligation on time maintaining good creditworthiness in the society.
Management accounting systems used for respond financial problems
Benchmarking: It is the process of comparing business products, services and processes
to its competitors for finding out key differences. It also identifies gaps in an organisation
process in order to achieve competitive advantages. Marshall use benchmarking for determining
the capabilities of its products or services in comparison with its competitors. After that
evaluation of variances is done in order to improve its performance by making different
strategies.
Variance Analysis: It is a quantitative technique of finding out deviation between actual
and budgeted performance of an organisation. When existing results are higher than standard, a
favourable variance arise (Heald and Hodges, 2020.). On the other side when they are not up-to
standard an adverse variance arises It helps Marshall in understanding why fluctuation arise and
what should be done to reduce the adverse variance. Marshall use this technique which helps its
managers in making efficient and forward budgetary decisions. This would enable management
to fix the responsibilities to the right person at a right time. this in turn will help company in
solving financial problem with efficiency.
Key Performance Indicator (KPI): It measure and indicate how effectively firm
achieving main organisation objectives. KPIs focus on the overall financial performance of the

company which provides information about expenses, profit, cash flows, and sales, in order to
achieve financial goals and objectives of the business. The chosen firm use this KPIs for
calculating financial performance of the business. Every financial professional needs to know
about these KPIs i.e. GP, NP, Current and quick ratio, return on assets and equity ratio etc. By
using this KPIs firm evaluate the overall financial growth and performance of the company.
under this Marshall uses a specific indicator and measure the performance against that indicator
in order to solve financial problem.
Marshall Sustonable
For solving financial problem Marshall use
benchmarking for determining the capabilities
of its good and services from its competitors.
This assist Marshall in finding out differences
which needs to improve by the firm
For solving financial problem Sustainable use
specific key performance indicator through
which measure the performance. Sustainable
sets an indicator and comparing its actual
performance against that indicator
CONCLUSION
From the above report it was summarised that management accounting is defined as a
process of recording, identifying, Summarising accounting information in order to take
managerial decision in business. Current report was based on Case scenario of Marshall which
defines about different accounting systems like cost accounting and inventory management
system. The above study reflected that budgetary report, performances report are various types of
accounting report used by the company. With assistance of above report income statement was
prepared by using techniques of marginal and absorption costing. Further it was highlighted that
different tools of planning are ZBB, fixed and others. At last the report outlined different
methods of solving financial problems like benchmarking and variance analysis.

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Online
Management accounting- meaning, advantages and disadvantages. 2019. [Online]. Available
through: <https://cleartax.in/s/management-accounting>
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