Management Accounting: Analysis of Nero Ltd's Financials

This report provides a comprehensive analysis of management accounting practices within Nero Ltd. It begins with an introduction to management accounting, emphasizing its importance in decision-making, cost analysis, and financial planning. The report then delves into different types of ...Read More

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is the tool that is used by the manager for the purpose of
managing the internal process (Eaton, Grenier and Layman, 2019). Managers of the firm used
this tool in the business by analysing books and journals to develop annual report and evaluate
financial stability of organisation. This will be known to as evaluating the business cost or
operation for maintaining and preparing the financial accounts, reports and records as well. this
would help into manager decision making process for achieving the business objectives both
long and short term.
Thus the current report will be analysing management accounting for Nero Ltd Company
under which different type of accounting theories will be discussed with naming their merits and
demerits. Further, various type of costing, budgetary planning tool will be analysed in this report.
In addition to this report will also be explaining management accounting system which is
adopted by Nero Ltd for reducing the financial problems into company.
LO1
Importance of management accounting for decision making process
Importance of management accounting
Management accounting is termed to as collecting of financial information and data so
that company could get advice and proper guidelines in terms of development and organisation
of the business functions (Simunic and Biddle, 2019). This is very much important as will act as
bridge between the financial or other sections of business. Management accounting will also be
controlling business and its functioning the main task will be of assuring long time success of
company.
 Management accounting helps to manager for conduct the relevant cost analysis in order
to reduce the cost and expenses by set the future activities in the business.
 This tool helps to reduce the financial problem by controlling the expenses.
 Financial statements help to determine the budget-related decisions.
 Financial plan helps to target the market by making the special budget that helps to firm
for they can bring more profit from the long-term perspective.
 Financial plan help to evaluate the real cost of product. Thus, this plan aids to make
proper explanation and control whether it’s additional suitable to produce items within or
purchase them from the producer.
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Explain the management accounting and different types of system.
Management accounting is the tool that manage the financial activities of the business by
analysing and preparing the budgets. Thus, accounting and cash statements aids to analyse the
income and expenses of the firm. Therefore, management accounting describes the real position
of the firm, the mangers of the firm making the statements for the purpose of taking the decision
easily related to the firm performance it helps to managing the funds and other activities.
Types of management accounting
Management accounting system is refers to identify the overall business financial
activity. Thus, it is the best process that helps to firm for identify the production and operational
coat of overall departments. Financial plan is the process every firm used in the business to
managing the overall cost of the firm. Thus. Nero Ltd used the different types of tools in the
business to determine the real cost of product and also determine that whether firm produce the
raw material internally or purchase the raw material through different suppliers, Thus, it helps to
firm for analysing the budget related decision.
Cost accounting system — This tool is aids to determine the actual cost of the raw material and
products it helps to estimate the cost of their products for profitability analysis, inventory
valuation and control (Astuty, 2019). Thus, Nero Ltd used this tool in the business to identify the
actual cost of the production by analysing the cost of raw material. Thus, by managing all
activities of costing firm need to implement this Strategy in the business for making the goods by
transferring the raw material into finished product.
Inventory management system —This is a system under which all order and stock need to be
tracked down for deliveries and sales for all manufacturing industries for creating the working
order and other production related documents as well. This is specifically termed to as including
about shaping and placing of stocked goods. It will be required at various other location for
supplying the network and planning for the production of goods and stock materials as well.
Thus inventory management systems which help into process of storing and ordering that is used
by company. There are different statements like that of LIFO and FIFO that are used by Nero Ltd
that could better understood for tracking order for goods statements which would help into
decision making process.
Job costing system — This system is helps to identify the particular departmental cost. It
includes the collection process of information which is allied with cost along with specific job of
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production and service. Thus, there are different types of information needed in the business for
managing the job cost system, which is direct labour, overhead and direct materials. This system
is helpfully for analysing and determine the specific cost of particular task.
Evaluate the benefits of management accounting systems.
Management accounting system helps to identify the production cost, managing the raw material
and also mange the particular department cost. There are different advantages and benefits of
using the management accounting systems in the business. Such as -
 This all system determiner the actual cost of the production that helps to Nero Ltd for
taking the best decision regarding the process of production
 This systems help to identify the expenses of particular department. So, firm can identify
the expenses and take corrective action to reduce the expenses. (Dai, Free and Gendron,
2019)
 This systems measuring the performance of the firm to enhance the profitability of the
firm.
Different methods of management accounting reporting
Budget reports
Budget is the financial report which helps to determine the future performance of the firm. This
report helps to the Nero Ltd by comparing their actual performance with the standard
performance. Thus, firm can take the right actions to reducing the gaps between actual or
standards. Therefore, by using the budget firm can mange the All income and expenses and make
suitable decision. Thus, the internal users used the budget report to identify the cash inflow and
outflow it helps to reduce the gap between both.
Account receivables Ageing reports
It is the report made by the business if they are involved in the activity of the extending credit.
The amount which is being given as credit to the customers for the specific time periods helps
the mangers in identifying their defaulters who would not pay the money and also helps in
finding the issues in the complete process of collection by the company(Steccolini, 2019).
Performance report
This report helps to measure the actual performance of the firm by comparing the income and
expenses level. Thus, the main purpose of preparing the budget which is reviewing the
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performance of each staff member in order to take decisions regarding their appraisals, and other
organization need.
LO2
Types of costing.
Marginal costing — It is the costing method which defined as technique of costing, this cost is
arisen when quantity of product is additional and which is increased by one unit. In other words,
Marginal cost is the additional cost which incurred for carrying production function which is
related to an additional unit of output which is produced. This cost includes all types of cost
which is Direct labour, Variable overheads, Direct expenses and Direct material. Thus, Nero Ltd
used this costing method in the business to manage the production. For example, when the
marginal cost is less than sale price, then firm produce the product and sale the product to earn
the profit. If the marginal cost is higher than the price, it would be loss for the firm. Therefore,
with the help of marginal costing firm can increase their production and level of profitability and
price which can be determined and helps in making difference between variable and fixed cost.
Absorption costing — This is the tool of management accounting That provides aid to Nero Ltd
in ensuring of managing the overall production cost of the firm. Thus, this costing method
includes the all cost which incurred to carry on operation of production or function of
manufacturing. Therefore, there are different types of cost which include in the absorption
costing such as cost of finish good produced is included with the cost that is associated with
variable manufacturing overhead, fixed manufacturing overhead, manufacturing overhead and
direct labour. Thus, Nero Ltd used this method of costing that helps in preparation of financial
report and income tax reports.
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Interpretation
On the basis of analysis as per marginal costing, the company NERO Ltd attain profit of
£177000 in the May. While in absorption costing company not much earn profit. This variation
in between both the cost occurs because in marginal costing fixed cost is not considered and
selling price taken into consideration. On the other hand, in absorption costing fixed cost is
considered along with consideration of production price. The purpose of profitability and cost in
assessment of company should focuses on adoption of marginal costing over absorption costing.
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By taking into consideration of marginal costing in the company Nero Ltd can assess to
appropriate cost and profit and also become able to execute proper financial planning.
LO3
Pros and cons of different types of planning tools used in budgetary control.
It is the tool that helps to firm for identify the actual performance of the enterprise (Alamri,
A. 2019). Thus, this tool refers to managing the budgets, the manager of the firm can used this
tool to control and monitor the different cost and income. On contrary, manager of the firm use
the budget control techniques to achieve the financial goals. Thus, to achieve the financial goal
firm can evaluate the actual performance with standard one so it helps to firm that they take the
decision according to the result and make changes as it is needed.
Activity based budgeting
Through this, business is able to manage cost of each department. The Nero Ltd used this
method to identify direct and indirect cost of company. It includes the overhead cost as well as
associate cost of the business. Thus, this budgeting method is not considered the past year
budget. Firm can make this budget every year to determine expenses of each division.
Advantages
 Activity based budgeting is helps to identify the managing the cost of particular activity.
 In this method, firm understanding overhead.
 It is easy for staff to use this method.
 Here, unit cost is taken into consideration rather than overall cost.
 It is easily integrated with different operational management technique and improvements
can be made.
 It includes scorecards
Disadvantage
 This method is expensive and consumes a lot of time.
 In this the collective data is leads the misunderstanding among the people
Zero based budgeting.
It start initially with zero. Thus, this method is considered all the cost in the budget that
makes the budget effective (Tashakor, Appuhami and Munir, 2019). Thus, this is another tool,
in this report firm needs to justify each and every expense before adding it to the actual budget.
On contrary this budgeting start with zero base which not consider the past year budget and, the
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main purpose of this method is that the reduction of unnecessary cost by analysing where costs
can be cut. Thus, Nero Ltd used this method to minimise additional cost of business.
Advantages
 Nero ltd applies this method it helps to identify the decision units.
 The main purpose of this method is eliminating the extra cost
 This data is collected by employees so it reduces the level of misunderstanding.
Disadvantage
 It is also time consuming as there is a lot of paper work done.
 This method useful for short term perspective not for the long term perspective.
Incremental budgeting — This is another method budgeting that helps to manage the business
activity. Thus, this budget only added the incremental value in the report that helps to identify
the actual cost of the firm (White, L. 2019). Thus, this method used the last year budget so to
analyse the actual amount firm making a small changes in existing budget which helps to
arriving a new budget.
Advantages
 It is easy to implement because the calculation process is not much complicated.
 Here, if there occurs any change it can be observed instantly.
 In this budget the funding requirements are fixed or with little gap in this method it is
feasible for business.
Disadvantage
 This method is not innovative because it only considers the past year budget it not helps
to reduce the cost.
 The manager of the firm spends more money which h is not required while making this
budget.
LO4
Compares in which organization could use management accounting to respond to financial
problems
In order to resolve issues related to finance Nero ltd used various types of tools such as
Benchmarks, KPI’s, Budgetary target to identify variances and problem
Benchmarks — It is the procedure to measure the performance of Nero Ltd products and
services. Thus, this tool helps to identify the internal opportunity of the firm for improvement
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(Alamri, 2019). Therefore, benchmarking is the best process that helps to compare the
organization process. Nero ltd used this method to identify the gaps between different process.
Thus, it is the tool that determine the comparison between different business process. It helps to
take the competitive advantage by compare the product and services with competitors. Thus, this
is the best tool that helps to Nero Ltd for enhance the profitability of the firm by eliminating the
financial problem.
Key performance indicators — It is the another tool that helps to business to attain long term
goals. There are many companies whose using this tool in the business at multiple levels in order
to improve the performance of business. There are two types of method, many firm used to
reduce the risk. For example, high level of KPI focused on overall performance of the firm. On
the other side, low level of KPI is only focused on performance of departments.
Budgetary target to identify variances and problem -
It compare actual performance with standards one to reduce the gap (Weetman, 2019). Thus,
Nero Ltd makes this budget in order to identify the variances. Thus, there are favourable or
unfavourable. Favourable performance indicates the positive report. On the other side,
unfavourable performance indicates the loss. Therefore, to reduce the variances firm can solve
the financial problem.
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CONCLUSION
Hereby, it is summarised that MA is process of managing the overall financial activity of
the firm. Thus, it helps to forecast the future and eliminating the problem that helps to firm for
development of its business. There are various types of accounting system like cost, inventory
and job. Besides this, there are two ways of costing that are marginal and absorption. Also, there
are various accounting tools used in budgetary control. It includes activity based, zero based,
incremental based, etc. In that each one is having several pros and cons. Furthermore, there are
various ways to resolve financial problems. For this business can use benchmarks, KPI’s, etc.
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