Management Accounting Report for Business: Ovation System Analysis

This report provides a comprehensive analysis of management accounting, focusing on the Ovation system, a UK SME. It begins by defining management accounting and outlining its essential requirements, followed by an exploration of different types of management accounting reports such as budget reports and performance reports. The report then evaluates the benefits and limitations of inventory management and cost accounting systems. Furthermore, it provides a critical evaluation of the integration of management accounting systems. The report also discusses the advantages and disadvantages of various planning tools for budgetary control, including variance analysis, zero-based budgeting, and ratio analysis. It presents a practical application of a planning tool through a budget forecast and preparation. Finally, the report evaluates how organizations adapt management accounting systems to respond to financial problems and analyzes how this response leads to sustainable success. The report concludes with a summary of the key findings and insights.

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MANAGEMENT ACCOUNTING
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MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
P1 Management accounting and essential requirements of its types.........................................1
P2 Different types of management accounting reports...............................................................2
M1 Evaluation of benefits of management accounting systems.................................................2
D1 Critical evaluation of management accounting reports integration of management
accounting system.......................................................................................................................3
P4 Advantages and disadvantages of different types of planning tools for budgetary control...3
M3 Application of planning tool for budget forecast and preparation........................................5
D3 Evaluation of planning tool for resolving financial problems lead to sustainable success...6
P5 Evaluating how organizations are adapting management accounting system for responding
financial problems.......................................................................................................................6
M4 Analysing how to respond financial problems then management accounting lead to
sustainable success......................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is field of accounting which helps in analysing and offering
information related to cost to internal administration with objective of controlling, planning and
decision making. It is articulated with reference to Ovation system which is UK SME as this
report would discuss about different management accounting systems with their essential
requirements and managerial reports as well. In the same series, it will present application of
various planning tools implied in management accounting. Lastly, this report would state
comparison in methods in which organization use management accounting for responding
financial problems.
P1 Management accounting and essential requirements of its types
Management accounting is referred as accounting information directly developed for
managers in business. The Chartered Institute of Management accountants (CIMA) has stated
that management accounting is procedure to accumulate, identify, measure, preparation,
interpretation, communication and analysis of information that implied through management for
plan, control and evaluate within business unite and for assuring proper use of accountability
with context of its resources. (Jamil and et.al., 2015) Financial accounting should comply with
different accounting standards but managerial accounting does not comply with any standards
when there is compilation for purpose of internal consumption. Management accounting systems
are replicated as confidential internal reports which aid managers in decision making. The types
of management accounting are stated below:
Inventory management system: This is combination of technology as hardware and
software along with procedures and processes which observe maintenance and monitor the
stocked goods as these goods are assets of company, supplies and raw materials or even finished
products ready to be sent to end consumers or vendors (Inventory management system, 2019).
Generally, this system helps in determining inventory item along with its linked information like
asset tags or barcode labels. It gives central database along with point of reference for every
inventory, coupled with capability for generating reports, analysing data, predicting future
demand and many more to Ovation system.
Cost accounting system: This is replicated as method of accounting where each cost is
involved in performing any project, procedure are noted and analysed as well. This analysis lead
to undertake strategic decision by management. It is rational and conscious procedure by
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accountants for accumulation of cost and relating these cost to particular departments or products
with context of effective management action to Ovation system. This system establishes actual
cost, standard cost and budget as this is set of multiple procedure which is elaborated for purpose
of refining raw data into usable information for decision making to management and
ascertainment of products cost along with service and its profitability.
P2 Different types of management accounting reports
Managerial accounting reports is directly concerned with offering information for
purpose of internal decision making as form of these reports directly differs as it depends on
information as per requirements of company. These reports are implied for regulating, planning,
measuring performance and decision making and continuously produced according to
specifications. The types of management accounting report are stated below:
Budget report: These reports are replicated as very common managerial accounting
report implied in small business is a budget. Budget is known as profit plan as it is formal
qualitative plan for company's future. Generally, budgets are designed on yearly and monthly
basis and performance of employee is compared to budget. The particular practices of budgeting
could vary among the organizations but usually organization are in desire of employee
participation with process of budget creation. It is prepared on basis of experiences as great
budget always cater for unforeseen circumstances which might arise (Quattrone, 2016). Thus,
they guide managers to give the best employee incentives, cutting cost and negotiating with
suppliers and vendors.
Performance reports: These reports are created for reviewing performance of company
and it is formed for every employee at term end. Generally, managers imply these performance
reports for undertaking key strategic decisions related to organization's future. In this aspect,
individuals are awarded with context of commitment to company and every under performers are
laid off and dealt as per requirement. These reports offer deep insights into operating in company
and performing with certain capacity but it is not happening, so these reports could point towards
flaws in setup. Thus, these reports are very vital for every organization to keep appropriate
measure of strategy towards their mission.
M1 Evaluation of benefits of management accounting systems
Inventory management system
Benefits Limitations
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 Improves cash flow
 Decrement in labour cost and dead
stock
 Better forecasting and reporting
capabilities
 enhance transparency
 Better organization
 Presence of too much slow moving
inventory in stock undertaking valuable
storage space and consuming bottom
line
 Inaccurate records which arise through
manual documentation errors.
 Unexpectedly running out of stock of
important inventory item which delay
supply chain because of back orders
(Lavia López and Hiebl, 2014).
Cost accounting system
Benefits Limitations
 Substitute losses and inefficiencies
waste via fixed standards.
 Facilitate decisions of short term basis
and in depression period.
 Need to maintain cost records results
heavy expenditure.
 On basis of rigid cost accounting
system, every purpose is not served.
D1 Critical evaluation of management accounting reports integration of management accounting
system
Integrated management accounting system helps in integrating every reports and process
in whole framework and enables business to operate as one unit with unified goals. On the
contrary, it is combination of whole data then it raises risk of giving too much information on
financial side as in simple words, it leads to data overload and forms interlink of reporting
activities of different functional areas of business such as point of sales, back and front office
and stores.
P4 Advantages and disadvantages of different types of planning tools for budgetary control
Budget is vital part of planning and controlling and it shows as important mechanism, for
evaluation of performance. The budget is document is directly designed for assessing
expenditure and income over a specific duration usually previous year and changed for
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accommodating any forecast variations (Hopper and Bui, 2016). As per CIMA, budget is stated
as quantitative and financial statement approved and prepared before defined period and policy
pursued with objective to attain a given objective. The advantages of budgeting as a tool for
planning and control are stated below:
This forces management for studying about issues on basis of timely implementation and
generates sense of caution and care in line managers. It also guides management on basis of
formulating and planning policies and empowers management for decentralizing obligation with
absence of losing business control. The different planning tools are stated below:
Variance analysis: This is an act to compare standards with actual as companies set
standards where actual performance would be judged. The area of setting standard is replicated
as one aspect of budgetary control. The Ovation system must use this planning tool with
consideration of both pros and cons:
Pros Cons
 It aids for budgeting activity in efficient
manner as management is in desire of
lower deviations through planned
budgets.
 This act as control mechanism and
analysis of big deviation on key items
helps organization for knowing causes.
 This helps in facilitating all assigning
responsibility and involves control
mechanism on departments as per
requirement.
 This is an activity is based on financial
outcome which is released on later after
closing quarter, there might be presence
of time gap which impact remedial
action undertaking capability to certain
extent.
 In case, budgeting is not undertaken for
consideration of detailed analysis of
every factor, the budgeting exercise
might be loosely performed with bound
for deviating through actual numbers.
Zero based budget: This method targets for determining efficient and alternative method
for company who directly opt for best utilization of resources (Shields, 2015). Ovation system
must consider both pros and cons prior to adapting this:
Pros Cons
 Any departmental head could not  This method is very time consuming as
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elaborate expenses with context to past
expense or record, so if in past because
of extraordinary expense any
department has high amount so
manager could not claim high amount.
each department has to design new
budget.
 This could be replicated as very tedious
task for justifying expenses.
Ratio analysis: It is replicated as analysis and interpretation of figures directly appealing
through financial statements as it helps to determine problem areas and up brings attention of
management to such areas (Ratio Analysis, 2019). Ovation system must imply both its pros and
cons as well:
Pros Cons
 Financial statements are simplified as
this helps for comparing enterprises of
different sizes with each other. This
assists in trend analysis as this
incorporates as compared to single
enterprise over a period (Dekker,
2016).
 It seems to be complicated as it
illustrates the associations among prior
data as users are highly concerned
about future and current data.
M3 Application of planning tool for budget forecast and preparation
Particulars
Janu
ary
Febr
uary
Marc
h April May June July
Augu
st
Septe
mber
Octo
ber
Nove
mber
Dece
mber
Cash inflows
Opening cash
inflow 5350 5950 7921 9966
1208
4
1427
3
1653
4
1886
5
2126
5
2373
3
2626
7
2886
7
Sales revenue
1035
0
1055
7
1076
8
1098
4
1120
3
1142
7
1165
6
1188
9
1212
7
1236
9
1261
7
1286
9
Other income 2350 2350 2350 2350 2350 2350 2350 2350 2350 2350 2350 2350
5

Total cash
inflows
1805
0
1885
7
2104
0
2330
0
2563
7
2805
1
3054
0
3310
4
3574
2
3845
2
4123
4
4408
6
Cash outflows
Material 2850 1584 1615 1648 1680 1714 1748 1783 1819 1855 1892 1930
Labour 2350 2350 2350 2350 2350 2350 2350 2350 2350 2350 2350 2350
Other expenses 2550 2652 2758 2868 2983 3102 3227 3356 3490 3629 3775 3926
Administration
expenses 4350 4350 4350 4350 4350 4350 4350 4350 4350 4350 4350 4350
Total cash
outflows
1210
0
1093
6
1107
3
1121
6
1136
4
1151
7
1167
5
1183
9
1200
9
1218
5
1236
7
1255
6
Cash deficit /
surplus or closing
cash balance 5950 7921 9966
1208
4
1427
3
1653
4
1886
5
2126
5
2373
3
2626
7
2886
7
3153
0
D3 Evaluation of planning tool for resolving financial problems lead to sustainable success
The consideration of zero based budget, it consists of causal relationships in different
activities and results as per requirement of expenses of its resources. This would lead to develop
driver based planning budgeting model and benefits for replacing existing financial analysis and
planning process. On contrary, ratio analysis as important aspect for investors and creditors
which is very significant to find sustainable rate of growth.
P5 Evaluating how organizations are adapting management accounting system for responding
financial problems
In this aspect, there are various organization which are adapting management accounting
system to respond financial problems such as cash flow problems resulting inability for repaying
daily running cost, unable for repaying creditors and increase in overdraft (Zaleha Abdul Rasid,
Ruhana Isa and Khairuzzaman Wan Ismail, 2014). There is description of Ovation system and its
top rival Oxalis group both are facing issues related to cash flow. On basis of staff Ovation has
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high number of employees as 70 and Oxalis group has 40 employees but in terms of revenue
Oxalis is leading, So in this aspect, its solutions for resolving cash flow issues, increased in
overdraft and inefficiency for repaying suppliers are stated below:
Ovation system must adopt benchmark
Benchmarking is replicated as mode of discovering about the best performance attained
on specific organization by a competitor or it might be entirely unique from whole industry. This
information must be used for determining gaps in process of organization for attaining
competitive advantage (Benchmark, 2019). It should lay emphasis on best practices and strives
for improvement on continuous basis related to cash position. In the same series, it should
partner for sharing information and required to maintain competitive edge and adapt on basis of
customer requirements after examination of the best management of cash.
Oxalis group should adopt key performance indicator
Key performance indicators are highly censorious for ensuring project team with
performance data it requires for purpose of sustaining improvements. With this adaption of KPI,
management could evaluate success of project against established objectives of cash flow
position. KPI helps in undertaking decisions and guides the need of collecting data so this could
create target performance levels and indications about improvement has been lost and gained to
use in data. The Oxalis group must give major focus on Acid test ratio which replicates about
businesses' ability for repaying current liabilities with quick availability of cash, increased in
overdraft and inefficiency for repaying suppliers.
M4 Analysing how to respond financial problems then management accounting lead to
sustainable success
The Ovation system could gain sustainable success for responding financial problems to
identify social and environmental trend impacts ability and creates value over time. The
development of key performance indicator, provides support to strategic and sustainable
objective along with reporting strategy to ensure relevant disclosure of both financial and non
financial information (Alsharari, Dixon and Youssef, 2015).
CONCLUSION
From the above report it had been concluded hat management accounting is very
significant for every business as it had played major role in Ovation system. Moreover, it had
articulated that both inventory and cost accounting system are very important for manufacturing
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organization. There is evaluation of planning tool such as KPI and benchmark which are used for
solving problem of cash flow. Henceforth, it could be summarised that adaption of management
accounting system for solving financial problems lead to attain sustainable success.
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