Report on Management Accounting for Nero Ltd's Financials

This report provides a comprehensive overview of management accounting practices, focusing on their application within Nero Ltd. It begins by highlighting the significance of management accounting in the decision-making process, detailing various types of management accounting systems, and critically evaluating accounting reporting methods. The report then delves into the practical application of these concepts, presenting statements of profit and loss using both absorption and marginal costing techniques. Through this analysis, the report demonstrates how management accounting tools can be leveraged to improve financial performance and guide strategic decisions. The report also examines inventory management, cost accounting, job costing, and price optimization systems, providing a holistic understanding of how Nero Ltd. can enhance its operational efficiency and profitability. This analysis underscores the importance of accurate financial reporting and effective cost management in achieving sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
Section 1...........................................................................................................................................1
1. Importance of management accounting in decision making process......................................1
2 Different types of management accounting systems................................................................3
3.Critically evaluate accounting reporting:.................................................................................4
4.Statement of profits and loss as per absorption and marginal costing:...................................5
Section 2...........................................................................................................................................7
Part A..........................................................................................................................................7
Part B.........................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is the most important task for getting the sustainable success
which are used in order to run business functions effectively. Under this report, Nero Ltd uses
management accounting tools so that the its functions can be made effectively. Management
accounting also lower the costs of the product so that the firm can lower the cost of the product.
Under this report, various financial problems are addressed by using various tools which
are helpful to address these problems effectively (Ward, 2012). Various budgeting tools are also
made under this. Which are used to make the business operations effectively. Various
management accounting systems are used under this, which are implemented in order to run
business operations smoothly. However, for implementing management accounting systems,
Nero Ltd needs to recruit professional management accountant so that it can lead to gain
competitive advantages over the other firms (Zimmerman and Yahya-Zadeh, 2011).
Section 1
1. Importance of management accounting in decision making process
Management accounting includes set of activities by which management reports and
records can be designed easily and effectively. It provides financial and statistical related
information to the manager in an accurate and timely manner by which he becomes able to take
short and long term related decisions (Macintosh and Quattrone, 2010). In order to get desired
result, it identifies, measures and interpretate the data appropriately and accurately by which
organisation can move towards the way of success.
Some people have perception that financial and management accounting are same thing
but both are different from each other because management accounting provides information
within the premises of company while financial accounting provides data outsider people.
Difference between management and financial accounting are given below-
In financial accounting, annual reports or records are maintained which are given to
different stakeholders like shareholders, suppliers, lenders, financial analyst etc. so that they can
know about the economic condition of the company. In this, balance sheet, cash flow and income
statement are prepared by which stakeholders take decision to invest in this company or not.
These documents contain information for a specific period of time and on annual basis. It is very
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important instruments which should be prepared by every organisations in every conditions. In
this, transactions are based on past experience whatever has been done in previous days.
On the other hand, managerial accounting provides information to the management so
that they can drive the company into the right direction as well operations can be carried out
effectively and efficiently (Baldvinsdottir, Mitchell and Nørreklit, 2010). In this, no past related
activities are written down but future and present trends are disclosed because manager has to
take decision for daily routine activities which is taken on the basis of future market trends so
that expected result can be obtained. Management accounting plays an important role in Nero
Ltd. in the following way that are described below-1. Helping forecast the future- Forecasting is very helpful in taking important decision in
an effective manner because it provides answer of various questions like it should enter
into new market? etc. So by providing answers of these critical questions, management
accounting will help in analysing future trends in business.2. Helping in make or buy decision- With the help of this, decision related to purchase of
material can taken easily and effectively. While deciding about this question, availability
of cost of production will be considered (Lukka and Modell, 2010). So it can be said that
management accounting develops an insight by which operational and strategic
judgement can be taken easily and effectively. In short, it can be said that management
accounting is very helpful in taking decision related to manufacturing because it analyse
all possible outcome and will select to that which will provide more profit to the
company.3. Relevant cost analysis- With the help of management accounting, management becomes
able to know about various things like what should be sold or not. For example- Nero
Ltd. Which is a small enterprise, does not know that on which market, attention should be
given for attaining desired result. In this situation, accounting manager will help who will
analyse the costs that differ between advertising alternatives for each products. This
procedure can also be known as relevant cost analysis.4. Activity based costing techniques- After designing products or services, it is necessary
that organisation should determine their target market to whom it will serve their
merchandise (Bodie, 2013). With the help of activity based costing techniques, Nero Ltd.
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Can identify the best way for serving to their customers in an effective and efficient
manner.5. Utilizing the data- With the help of management accounting, manager collects various
kinds of information which can be used in the growth of business. This data aids in
preparing budgeting, financial statement projections and balanced scorecards by which
organisation moves towards the way of success. By giving their full concentration on
data, manager can make judgement for improving the process of firm.
6. Analysing rate of return- Before investing amount in any kind of investment, it is
necessary that organisation should analyse all expected rate of return. It can be evaluated
with the help of management accounting by which company can invest their amount in
more profitable investment.
2 Different types of management accounting systems
Management accounting is a wider concept which includes finance and management with
business skills or techniques by which value can be created for an organisation. In today
competitive environment, management accounting is very important because it records all
financial or non-financial related information that helps in taking effective decision (Parker,
2012). In simple terms, it can be defined as a process by which management reports or records
are prepared that provides accurate and timely statistical information to manager whenever is
required. With the help of this data, short term and day to day related decisions can be taken by
management effectively and successfully. By getting support from managerial accounting
systems, Nero Ltd. Can reach to its decided destination within stipulated period of time. Mainly,
these systems help in concentrating on identifying production of goods or services related cost.
Traditional cost system, lean accounting, transfer pricing etc. are covered under this system that
assist in reducing cost of production. Various types of management accounting systems are
described below-
 Inventory management system- In order to manage inventory of firm effectively and
efficiently, management of Nero Ltd. Can use this accounting technique which will help
in utilizing available resources in an optimum manner. On the other hand, it will also
provide support in determining required level of stock as well as in getting knowledge
about unit maintenance.
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 Cost accounting system- Cost involves various types of elements which should be
included in the calculation of value of products or services because it will help in
managing cost in an appropriate and effective manner (Otley and Emmanuel, 2013). It is
observed that with the help of this system, organisation can take effective and successful
decision.
 Job costing system- By using this technique, management of Nero Ltd. Can control all
existing jobs in most beneficial and appropriate manner. For achieving same,
organisation has to incurred various types of expenses so that proper system can be
introduced in the company and unnecessary elements can be avoided from the premises
of enterprise. Overall, it can be said that by using this technique, cost can be minimized
and profitability of company be maximized.
 Price optimization system- It is a mathematical technique by which organisation can
easily know about responds of customers regarding various prices of products. It can
collected through various ways (Tucker and Parker, 2014). Price is very important tool in
today competitive environment that aids in achieving competitive advantages over its
rivals. There are direct relation with demand and price because if values of products or
services will be high then demand will be lower and vice versa. If production cost will be
modified then price of goods will also be altered.
In order to get desired result, Nero Ltd. Should follow above mentioned techniques by
which profitability of company can be maximized. This systems are very helpful in attaining pre-
specified targets as well in taking effective and attractive business decisions. So it is
recommenced that organization should c9oncentrates on these techniques for getting success in
the market.
3.Critically evaluate accounting reporting:
Under this research, NERO Ltd recording of monetary transactions should be possible
through utilizing proper accounting framework. Under which most compelling outcomes is
occurred by the organization amid the year (van der Steen, 2011). The monetary transactions
which are brought about amid their routine transactions should be record as per the set
arrangement. The organization is required to record transactions, before going to financial
records. Operational budget plan and execution reporting are the two fundamental powerful
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reporting framework which is used to put forth examination of the monetary records. These costs
which are incurred by the organization for manufacturing of goods, recorded into the
organization financial statements. With the persistent examination of reporting framework an
organization would expand its goodwill and also its performance.
4.Statement of profits and loss as per absorption and marginal costing:
Statement of profit and loss using absorption costing
Quarter 1
No. Of units £/unit £ £
Sales 66.000 1 66.000
less Cost of goods sold
Opening inventory 0 0.85 0
+Production 78.000 0.85 66.300
66.300
-closing inventory (12.000) 0.85 (10.200) (56.100)
Gross profit 9.900
less Expenses
Selling &Administration costs (5.200)
Profit 4.700
-Under absorption (2.800)
Reconciled profit 1.900
Quarter2
No. Of
units
£/unit £ £
Sales 74.000 1 74.000
less Cost of sales
Opening inventory 12.000 0.85 10.200
+Production 66.000 0.85 56.100
66.300
-closing inventory (4.000) 0.85 (3.400) (62.900)
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Gross profit 11.100
less Expenses
Selling &Administration costs (5.200)
Profit 5.900
Statement of profit and loss using marginal costing
Quarter 1
No. Of units £/unit £ £
Sales 66.000 1 66.000
less Cost of sales
Opening inventory 0 0.65 0
+Production 78.000 0.65 50.700
50.700
-closing inventory 12.000 0.65 (7.800) (42.900)
Contribution 23.100
-fixed costs (16.000)
-selling &administration (5.200)
Profit 1900
Quarter 2
No. Of units £/unit £ £
Sales 74.000 1 74.000
less Cost of sales
Opening inventory 12.000 0.65 7.800
+Production 66.000 0.65 42.900
50.700
-closing inventory 4.000 0.65 2.600 (48.100)
Contribution 25.900
-Fixed costs (1.600)
-selling &administration (5.200)
Profit 4.700
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b) Due to the treatment of fixed costs under this question, changes has been occurred. The profits
covered under absorption costing just of over and under absorption. This is elaborated hereunder:
For quarter 1
Amount of absorbed overheads= Absorbed =(66.000×£0.20)=13.200
Total fixed cost=16.000
Under absorption(2.800)
For quarter 2
Absorbed overheads= 74.000×0.20=14.800
Total Fixed cost =16.000
under absorption=-1200
C). Reconciliation statements:
This is made for assessing the profits for the firm via implementing absorption and marginal
costing methods:
Particular Q1 Q2
Profit under absorption 4.700 5900
(2.800) (1200)
Profits under marginal 1.900 4700
From the above mentioned methods, the firm achieved different results. As, if the firm is
implementing absorption costing, company would attain a net profits at quarter 1 and quarter 2 is
4700 and 11200, while net profits as per marginal costing is 1900 and 4700. Hence, in order to
render to optimum revenue with minimum costs are need to opted by the firm.
Section 2
Part A
There are various apparatuses which are utilized as a part of business with the goal that the
exercises are completed in arranged ways. All the assignment are controlled and arranged in
indicated ways so they doesn't influence the working of firm operations. All the business
exercises ought to be assessed in legitimate angles with the goal that they can be executed in
appropriate ways (Fullerton, Kennedy and Widener, 2013). The best instruments which helps in
accomplishing them is budgeted plans. This instrument is utilized as a part of request to
anticipate about the future circumstances about how cash will be earned and where the costs
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must be made. This is useful in assessing about the salary explanations which will be connected
with feasible arrangements and strategies. Research exercises are useful in finding about the
genuine actualities which can be utilized as a part of the procedure.
Sales budget: The sales budget is the estimation of sales and sales expenses for a
specified period of time. The company with the help of it, makes the strategies regarding sales
expenses and then allocate. This assists the firm for making business objectives essential and
also needs to make their business operations effectively. This is the main objective which are
used in order to functions firm effectively. IMDA tech needs to make their sales budget
effectively and analyse it with the actual budget so that variance can be found and also make
strategies in order to overcomes these variances.
Benefits of sales budget: With the help of sales budget, company will made sales
forecasting and then do acts accordingly. The sales related expenses are also planned in order to
meet out the budgeted figure (Figge and Hahn, 2013). The company also needs to make their
business operations effective. Sales budget is required by each organisation so that the
management of the company needs to make their business operations effective. Company's
actual results are compared to the estimated budgeted figure and then find out variable in order to
overcome them in most effective manner.
Drawbacks of sales budget: The sales budget is not always appropriate, as, this only
makes the predictions about the budgeted figure. But, this not always represents the correct
value. The company needs to make their business operations effective but, by considering these
value, company can not get its pre-set objectives.
Static budget: Under this budget, all the anticipated values are framed about inputs and
outputs which are conceived earlier the time in question started (Giovannoni, Maraghini and
Riccaboni, 2011). When compared to the actual outcomes which are attained after the final
results, the static budgets are mostly vary from the actual outcomes.
Benefits of static budget: The key benefits of this budget is that it is so effective in
order to implement within the firm. As, there is no need to update it on a regular basis throughout
the accounting periods which they intends to opt. In addition to this, this budget is able to offer
sound investigation into the firm's costs and revenues at the time of variance analysis is
performed. This enables the firm to analyse whether it is overestimating or underestimating its
expenditures and revenues hence, company can vary its strategy going forward.
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Disadvantages of static budget: Benefits of static budget: This budget main drawback
is that it can not be mould as per the situations of the firm (Granlund, 2011). If a firm frame a
budget which is totally based on fixed level of sales volume and it increases, in that situation,
company cannot allocate extra resources to keep up.
Process of preparing budgets:
Now, the budget is prepared by many firms which they implement as a tool of comparison of
actual figure with the estimated budgeted figure (Hiebl, 2014). The procedure for making a
budget is greatly controlled and adhere a fixed schedule, Hence, the completed budget is willing
to use by the firm in the starting of the next financial year. These are the steps which are
required to adhere when preparing a budget:
1. Refresh budget assumption: The organization needs to accept about the company's
business condition which is made on the premise of past records.
2. Audit bottlenecks: Identify the limit level of essential bottleneck which restricting firm
from delivering further deals, and expound how this influence any additional income
development.
2. Accessible financing: Firm needs to decide the measure of funding which is accessible at
the season of spending period, that may decrease the development designs.
3. Step costing focuses: Identify the progression which occur amid likely scope of business
action in the inevitable business time frame, and expound the measure of expenses and
furthermore think about the action level where they will happen.
4. Casing spending bundle and enable the administration to issue the sum which is required
for spending bundle.
5. Getting income gauge: The organization would accomplish the benefits estimation from
the business administrators, verify it with the organization's overseeing executive, and
after that scatter it to different divisional chiefs (Hutaibat, 2012). They execute the
income data for making their own particular spending plan.
6. Getting divisional spending plans: Getting spending plans from whole divisions with a
specific end goal to check the blunders, and contrast with the bottleneck, financing and
step costing limitations. Organize the financial plan as needs be.
7. Upgrade budget model accordingly.
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