Detailed Management Accounting Report: O'Keefe Construction Analysis

This report provides a comprehensive analysis of management accounting principles applied to O'Keefe Construction Limited, a civil engineering company based in London, UK. It explores the role of management accounting in decision-making, planning, and control, highlighting its importance in contrast to financial accounting. The report details various management accounting systems, including price optimization, inventory management, cost accounting, and job costing, and explains how these systems are utilized to generate crucial financial and non-financial reports such as inventory management reports, cost accounting reports, accounts receivable aging reports, and performance reports. It also compares and contrasts absorption costing and marginal costing techniques, demonstrating their impact on profit calculation through income statements for both methods, and evaluates the advantages and disadvantages of budgetary control planning tools, such as fixed budgets, for effective financial management. The analysis includes detailed calculations and interpretations, showcasing the practical application of management accounting in a real-world business context.

MANAGEMENT
ACCOUNTING

INTRODUCTION
The MA is a systematic process of managing the qualitative and quantitative data in form
of reports (Marr and Gray, 2012). The main purpose of this accounting system is to helping
companies in taking crucial decisions and making effective plans by providing a suitable
framework. Eventually, it is not essential for the organisations in compare to financial
accounting system. To understand about MA, a civil engineering company “O'Keefe
construction limited.” is selected. The organisation is located in London, UK and provides the
civil engineering services to their clients. Along with in the project report, understanding of
MAS and MA techniques for producing the financial reports are included. As well as pros and
cons of planning tools and way sort out monetary issues by help of management accounting
systems is also mentioned.
ACTIVITY 1
PART (A)
Management accounting and its types.
This is an accounting system which is aligned with the preparation of reports including
qualitative and qualitative data. These prepared reports are being used by managers in process of
corrective steps taken about allocating resources (Prencipe, Bar-Yosef and Dekker, 2014). One
of important thing that makes this accounting different from the other accounting is that it does
not includes any particular laws and accounting concepts. Like in respective company they apply
various types of MAS and some of these are demonstrated below such as:
 Price optimisation system- It is associated to providing a suitable framework for the
purpose of setting the price of products and services. Basically, this system is needed to
companies to satisfy the customers by selling the products and services at an effective
price. Overall, it is needed for allocating prices of products as per the cost and
considering a suitable amount of profit. Herein, the aspect of above organisation they are
applying this accounting system with an objective to set the estimated price of their
construction projects. Due to this they are able to communicate about total price of their
projects with their customers.
 Inventory management system- It is associated with the process of better management
about inventories by tracing quantity of raw material and prepared products(Proctor,

2012). Apart from it, this is beneficial in managing an effective balance between the need
and offering of stock. So the inventory management system's essential requirement is that
it is useful in taking decision about purchasing of materials and it is done as per given
information by this accounting system. For example, in above respective company, they
are using this accounting system for managing resources like concrete, cement, iron etc.
of their different construction projects.
 Cost accounting system-It is related to managing and reducing the cost of various kind of
activities. Without this, it can be tough to business entities to get complete information
for cost. Like in respective company it is beneficial for them because on basis of it they
estimate the overall cost of their construction project. As well as it helps them in
controlling the cost of their projects so that they can take benefit from the construction
project.
 Job costing system- This is associated to assigning cost of job to various types activities
in an effective manner. It is suitable for manufacturing and construction industries.
Along with this system is required to the managing job cost of various activities. This
accounting system consists three kind of information such as:
Direct material- It enables to trace the cost of material during completing any task or
activity (Brock, Hinings and Powell, 2014).
Direct labour- As well as this tracks the cost of labour that occurs in a particular job.
Overhead- Apart from it, this keeps record of different kind of overheads.
In above respective company O'Keefe construction limited which is operated in construction
projects and it is beneficial for them in assigning the cost of job of various kind of activities of
construction project.
Reports of the management accounting.
Under the MA reports, information regards to financial and non financial aspects is
included that is useful for decision making process. Organisations prepare various kind of reports
for the purpose of making competitive plans and strategies as per the information provided by
these reports. Such as in above company, they produce below mentioned reports that are as
follows:
 Inventory management reports- These are kind of reports that contains information about
the available inventories in the warehouses (Ruch and Taylor, 2015). As per this report

organisations, take decisions to purchase of raw material. These reports useful for
manufacturing and construction industries. Like in above company, they produce this
report for the purpose of manage their raw material of construction. Along with on the
basis of it, they purchase new material. Eventually, without this report it will be tough to
above mentioned company because they will not be able to manage requirement and
supply of raw material. In result it may occur as a high cost of construction project.
 Cost accounting reports- These are related to providing information about cost of
different types of activities of organisation. Basically, a complete cost accounting report
consists information like cost centre, distribution of fund, summary of cost and cost
reconciliation etc. It is so because necessary information derives from this accounting
system. For example, in the above company they produce this report to get complete
information about cost of their various construction projects. It consists detailed brief of
allocation of cost in different activities, total incurred cost etc. Apart from it, this report is
also beneficial in analysing the actual profit by comparing the actual cost by standard
cost.
 Account receivable ageing report- This is related to providing information about the total
due amount by debtors which is going to be receive by the company (Serena Chiucchi,
2013). By this report, companies can find out about how much amount of money is
needed to be collected from debtors. One of the key feature of this report is that it
consists date on which credit transaction proceeded and due to this companies can
calculate the interest with ease. Herein, the above company they produce this report that
helps them in keeping record about number of debtors and amount is due by them. Along
with this report not only includes information about debtors but also it consists
information about creditors too.
 Performance report- It is a type of report that is associated with containing information
about performance of various activities and employees. By preparation of the
performance report companies can track the record of performance that may help in
further planning. Like above organisation produce this report with an objective to
evaluate and manage the performance of their engineering projects.
Advantage of various kind of management accounting systems

Below, benefits of management accounting systems are mentioned:
Management accounting
system
Benefits & Application
Price optimisation system It is associated with the process of setting price of products and
services at an effective price level. In above company, this
accounting system is applicable for them in estimating right price
of their civil projects.
Inventory management
system
It is important to keep the record in a systematic manner about
inventories which is recorded in stores. In chosen civil engineering
company, they take benefit of this accounting system in tracing
quantity of raw material like cement, concrete and many more.
Cost accounting system This is useful in managing the cost of activities. Same as in above
respective business entity it is applicable for them in minimising
and tracking the cost of their construction projects.
Job costing system As well as this accounting have its importance for getting
information about the allocated cost in various activities
(Lindholm, Laine and Suomala, 2017). For example, in above
company they eliminate cost of job by applying this accounting
system.
Management accounting system and reporting are interrelated with organisational process.
MAS and reporting are aligned with procedure of companies. It is so because activities
and functions of companies are performed by different kind of accounting systems
(Stechemesser and Guenther, 2012). Like in respective company, they use accounting systems
such costing system, job costing system, inventory management system etc. All these help them
in their construction projects. Additionally, the accounting reports provide them necessary
information. Such as performance report makes aware them about effectiveness of their project
same as cost report helps them in minimising the costs.
PART(B)
ANNEX(A)

Methods of costing to prepare the income statements: There are mainly two types of costing
techniques which are as follows:
 Absorption costing- Under this accounting technique, all types of cost mainly fixed and
variable are assigned and absorbed completely in process of producing income
statements.
 Marginal costing- It is a costing technique that is associated with producing income
statement by taking both the costs in different manner. In this, sunk cost is considered as
period cost (McVay, Kennedy and Fullerton, 2016). On the other side flexible cost is
taken as unit cost.
Question 2.
(a) Profit statements by marginal costing technique:
Income statement under marginal costing method
Particular Amount (in £)
Total sale (4500x95)
Less- Total variable expenditures
Less- Closing stock
427500
252750
21000
Contribution
Less- Fix expenditure (180000/4)
195750
45000
N.P
Working note:
Calculation of total variable expenditures-
DL- (5000 units @ £ 15 per unit)= 75000
Add: DM- (5000 units @ £ 18 per unit)= 90000
Add: Variable production expenses- (5000 units @ £ 9 per unit)= 45000
Add: Other variable charges- (@10% of 427500)= 42750
252750
Calculation of closing stock

Direct labour-(500 units @ £ 15 per unit)= 7500
Add: DM- (500 units @ £ 18 per unit)= 9000
Add: Variable production cost (500 units @ £ 9 per unit)= 4500
21000
Income statement under absorption costing technique of quarter one
Particular Amount (in £)
Total sale (4500 units @ £95 per unit)
Less: COGS
427500
189000
GP at normal
Add: Over absorption cost
238500
6800
G.P. at actual level
Less- Fixed expenditures
Less- Selling and distribution expenditure (9.5*4500)
245300
45000
42750
NP 157550
Working note:
Calculation of cost of goods sold:
V.C. = 42
Production Expenses (42*5000)= 210000
Less- Value of closing inventory (@10 % of production cost)= 21000
189000
Calculation of under absorption cost:
Particulars Amount
Each quarter standard production cost 5500
Fix production expenditure 75000
Fix production expenditure each unit 13.64
Actual expenses 68200
Absorption cost 6800

Income statement under absorption costing technique of quarter two
Particular Amount (in £)
Total sales (3000 units @ £95 per unit)
Less: COGS
285000
147000
GP at normal
Less: Under absorption cost
138000
5476
G.P. at actual level
Less- Fixed expenditures
Less- Selling and distribution expenditure
132524
45000
28500
Net profit 59024
Working note:
Calculation of cost of goods sold:
VC for each unit= 42
Opening inventory= 21000
Add- Production expenses (42*5900)= 247800
Less- Closing inventory= 121800
147000
Calculation of over absorption:
Each quarter standard
production 5500
Fix production expenditure 75000
Fix production expenditure
for each unit 13.64
Actual expenditure 80476
Absorption cost -5476

Interpretation- On the basis of above solved numerical it can be analysed that net profit
is different in each method of calculating the net profit. In the absorption costing method, the NP
is of 157550 as well as in the marginal costing method it is of 150750. Hence, it can be
interpreted that company's NP is more in compare to marginal costing method.
ANNEX (B)
Question 1.

ACTIVITY 2
PART (A)
Pros and cons budgetary control's planning tools