Management Accounting Report: OVATION SYSTEMS Financial Strategies

This report delves into the core concepts of management accounting, providing a comprehensive overview of its principles and applications within the context of OVATION SYSTEMS. It begins by defining management accounting, outlining its essential requirements, and differentiating it from financial accounting. The report then explores various management accounting systems, including cost accounting, inventory management, job costing, and price optimization, assessing their benefits and integration within an organization. Task 2 focuses on costing methods, comparing and contrasting absorption and marginal costing, and applying break-even analysis. The report also covers financial reporting, the application of management accounting techniques, and the accurate interpretation of financial data. Finally, Task 3 examines planning tools, evaluating their advantages and disadvantages in preparing, forecasting, and analyzing budgets. The report concludes by analyzing how management accounting techniques can address financial problems, promoting sustainable success, and identifying the role of planning tools in achieving organizational goals.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
Task 1...............................................................................................................................................4
A. Explain the management accounting and give the essential requirements of the different
types of management accounting system ...................................................................................4
B. Providing the different types of management accounting report used by the OVATION
SYSTEMS...................................................................................................................................5
C. Assessing the benefits of the different types of management accounting systems ...............6
D. How management accounting system and management accounting reporting is integrated
in an organization. ......................................................................................................................8
Task 2...............................................................................................................................................9
A. Explain the absorption costing and marginal costing methods .............................................9
B.1 Solve the following problem with marginal and absorption costing methods.....................9
B.2 . With the use of break even analysis solve the following question...................................10
C . Apply the range of management accounting techniques and produce appropriate financial
reporting documents accurately................................................................................................11
D. Produce financial reports that accurately apply and interpret the data for the business
activities shown in the scenarios in Task 2 above.....................................................................12
Task 3.............................................................................................................................................12
A. Explain the advantage and disadvantages for different types of planning tools..................12
B. Show the application of the planning tools for preparing, forecasting and analysing
budgets. ....................................................................................................................................14
C. Compare how the organization is different in adopting management accounting system
with responds with the financial problems...............................................................................14
D. Analyse how your management accounting techniques could respond to financial problems
and lead the organization to sustainable success.......................................................................16
E. Evaluate how planning tools could be used to solve financial problems and lead the
organization to sustainable success...........................................................................................16
Planning tools helps in identifying the social and environment trends which can provides
companies' ability to create value over time. ...........................................................................16

CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
To solve the financial and managerial issues in the organization there are lots of tools and
techniques management accounting have. Management accounting plays an important role in the
to achieve the organizational goals. The present report will provide the meaning of management
accounting and the essential requirements of the management accounting system and their
implement in business accounting. The report will also depict the uses of marginal and
absorption costing and importance of break-even analysis in an organization to find out the
financial health of the organization apart from that this assignment will provide benefit and uses
of different planning tools with their benefits and drawbacks.
Task 1
A. Explain the management accounting and give the essential requirements of the different types
of management accounting system
Management accounting is process of identifying, interpreting, analyzing and
communicating all the financial information in the shadow of the OVATIONS SYSTEMS goals.
In between financial and management accounting there lies only one basic difference I.e the
information provided by management accounting aims at assisting the managers in decision
making, while in the financial accounting targets at providing information to the outsiders which
are related with organization (Ax and Greve, 2017). Managers of the organization requires the
financial information and accurate statistical data day by day to interpret day to day short run
decision. Management needs report which is contained by the management accounting.
Accounting is the process of finding, measuring, and communication profitable data to
permit the decision and judgments by the users accordingly American accounting association.
Management accounting system help in varying their application (Cooper, Ezzamel and Qu,
2017). Inside the organization various departments are there and each are fashioned to provide
the information which the management needs for assessing the decision. Management
accounting is consisted of the various system which are discussed under -
Cost accounting system
To do the valuation of inventory, profitability analysis and cost control for the
approximate cost of product OVATION SYSTEM applied the framework named costing system
or cost accounting system. In this system of accounting the allocation of cost is done by the
managers with the help of activity based costing or traditional costing system. Approaching the

actual product, cost is an important function of management accounting (Eldenburg and et.al.,
2016). Cost accounting is the system which focus on the reducing the cost of production with
the help of weighing the inputs' production cost plus fixed cost. It is a key concept of the
management accounting as it provides with the analytical tool like variance analysis, budgeting
tool, marginal costing etc to take the decision.
Inventory management
It is the method to inspecting, controlling, oversee the ordering, storage and the uses of
the ingredients which OVATION SYSTEM apply in the production of goods it sells. This
system of inventory management uses the various application like bar code scanners, desktop
software, etc in consumable, stocks and goods (Fullerton, Kennedy and Widener, 2014). It
includes all the information regarding the inventory from the raw material to the selling. It helps
in improving the bottom line of the company, enhances the inventory accuracy and the work
flow of an organization.
Job costing system
Job costing system is the system of allocation of the cost of manufacturing to the
independent batches or items of the product. When goods processed are different from one
another the job costing system is applied (Kihn, and Ihantola, 2015). Information obtained from
this is important for determining the correctness of estimating system of company to quote the
price. The three kinds of information job costing requires that are labor, direct material and lab
our.
Price optimizing system
Price optimization is the technique give to the organization to determine how the
consumer will react at different pricing of product and services through different channels. It
also helps in deciding the cost which the OVATION SYSTEM determines will be best to fulfill
its goals and objectives (Management Accounting: Meaning, Functions and Characteristics,
2017).
B. Providing the different types of management accounting report used by the OVATION
SYSTEMS
The internal information received by the financial accounting is focused by the
managerial accounting. It is applied for the planning, analysis, controlling and decision making
in the organization (Malmi, 2016). It is depended upon the financial statements such as, balance

sheet, income statements etc. The organization needs various reports like budget, cost report,
performance report etc.
Cost reports
Management accounting helps in calculating the cost of the products and services. By
taking into consideration all raw product expenses, labour, cost plus any other cost. After taking
all the expenses and cost the sums are then divided into amounts of good manufactured. This all
data is presented in the cost report. This report helps the managers to identify the capability of
cost to its cost value of the products and services with the selling price. It assesses the managers
to control the loop hole of cost and develop the plan for profit margin.
Budgets
Budget estimates all the expenses of the organization. Budget is the very important
element of management accounting. Budget is the systematic procedure which is consisted of all
the past expenses upcoming expenses so that the goals and objectives can be received. For an
OVATION SYSTEM it is necessary while attempt to attaining its goals whereas staying In
budgeted amount. If the amount exceed the variance in actual and standard cost takes place.
Performance report
The accountant managers takes the help of budget to compare the actual outcomes of
revenues and expenses to budgeted amount (Nitzl, 2018). The variances occur and evaluated
when the new budgets is prepared including all the essential information is listed on the
performance report. Performance report is actually the evaluation of the performance presented
in the systematic format. Mostly these reports are made every year, but some organization make
them monthly or quarterly. Performance reports assist mangers in future planning of demands for
the production and cost enhancement
C. Assessing the benefits of the different types of management accounting systems
Following are the benefits of the different types of management accounting system.
Management
accounting systems
Benefits
Cost accounting
system
 It validates the concern to measure its efficiency, to continue and
to improve it.
 It ascertains both the activity I.e profitable and non profitable.

 It helps the managers to guide in the reduction of prices.
 Cost accounting helps in the information of proper planning.
 It provides the ability to the managers to take the decision.
Inventory
management system
 It helps in balancing the overall inventory management of an
organization in systematic way.
 Inventory balance I.e if the organization have good inventory
management it will help the OVATION SYSTEM to find out
how many inventories firm requires for the production.
 Inventory management system helps in accurate planning of the
demand curve, keeps right amount of the products.
 It increases the employee efficiencies. It consists of various tools
like inventory management software, bar code scanners to utilize
all the resources and time.
 It helps in the retention of the customer in an organization.
Job costing system  It provides the extent for control of the costs by applying suitable
steps. The cost may be discover at any stage of the job
 It jobs costing method profit earned from each job is entitled
separately.
 On the basis of past records in job costing the cost can be
estimated by the management
 The comparison of actual cost of previous job with present job
executed.
 Through compilation of historical cost in job costing trend
analysis can be explained.
Prize optimization
system
 The prize optimizing system provides the opportunities to
concentrates on various goals. It helps in reap of financial
benefits the financial benefits.
 It helps the management to work parallel with all the categories
 It helps to take the decision quickly

 It monitors results and upgrade the input data to maintain the
accuracy
Managerial accounting helps the OVATION SYSTEM to do effective planning and
working with the help of various types of management accounting system. These system plays
an important role in the organization to assessing the good decision making so that firm can
accomplish its goals and objectives.
D. How management accounting system and management accounting reporting is integrated in
an organization.
The management accounting systems and the reporting are in organization for the
supporting of the competitive advantages by the processing communicating and collecting the
information which are required by the management for the efficient planning, controlling and
evaluating the processes of the business and company strategies (Otley, 2016). The top
accountant of the organization is the controller of these two techniques which helps the
management to reach the goals and objectives. Following are some important facts which helps
organization in the integration of management techniques-
Helping forecasts the future
The word forecasting delivers the meaning that is related to the future. Before starting the
venture many questions arises in the mind of the owner like should company invest more
equipment, should the company should diversify in different market or not. The answer of all
question are provided with the help of management techniques and reporting system.
Helping in make or buy decision
To control the cost and exceed the profit of the organization it is very important to do
right decision-making regarding whether to buy or to do the production to reduce the cost.
Through these techniques, insights will be developed which will be enable decision-making
making at strategic and operational levels.
Helps to understand the performance variances
In every organization there is a set standard for each and every activity. The
discrepancies in the business performance is the variance between what is set and what is
actually achieved. This reporting and system techniques helps to identify the cause behind the
variances and appropriate solution.

Task 2
A. Explain the absorption costing and marginal costing methods
For the valuation of the inventory the two approaches are their, they are marginal costing
and other in absorption costing. Marginal costing is a method of valuation of inventory is done
by bifurcating variable cost and fixed cost. In the marginal costing only the variable cost are
charged to operation, whereas fixed cost cannot be taken into consideration and are charged to
Loss and profit account for the period. In marginal costing the variable cost includes all the
variables which are change with change in their out put. It is a principle costing technique for the
decision making. The basic reason behind this is the marginal costing approach permits the
attention of management to be focused on the changes which results from decision under the
consideration (Saeidi and et.al., 2018). It finds out the Marginal production cost and depicts its
effect on change in profit in the output units. It is the movement in the total variable cost and
fixed cost, due to the production of an additional unit of output.
Talking about the absorption costing, it is known as full costing technique in which both
the cost whether fixed or variable are taken into consideration are absorbed by the total units
produced. It basically used for the purpose of reporting that is financial and tax reporting. It is
method of valuation of inventory in which all the production expenses are distributed to the cost
centers to identify the cost of production. Therefore, it is a traditional method for inventory
valuation.
B.1 Solve the following problem with marginal and absorption costing methods.
Income statement (Marginal costing)
Particulars Details Details Amount
Sales 600*55 33000
Less COGS
Direct material (800*7) 5600
Direct labour (800*6) 4800
Variable production cost (800*2) 1600
Variable sales overheads (800*1) 800 12800
(-) closing stock
Direct material (200*7) 1400

Direct labour (200*6) 1200
Variable production cost (200*2) 400
Variable sales overheads (200*1) 200 3200 9600
Gross profit 23400
Less: production overheads 3200
less: administration cost 1200
less: selling cost 1500 5900
Net profit 17500
Income statement (Absorption costing)
Particulars Details Details Amount
Sales 600*55 33000
Less: COGS
Direct material (800*7) 5600
Direct labor (800*6) 4800
10400
(-) closing stock
Direct material (200*7) 1400
Direct labour (200*6) 1200
2600 7800
Gross profit 25200
Less: production overheads 3200
less: administartion cost 1200
less: selling cost 1500 5900
Net profit 19300
B.2 . With the use of break even analysis solve the following question
Break-Even analysis

Particulars Formula Figures
Selling price per unit 40
Variable cost per unit 18
Contribution per unit
Selling price per unit - variable
cost per unit 22
Fixed cost 6000
BEP (in units) Fixed cost / contribution per unit 273
BEP (in value or monetary terms)
BEP (in units) * selling price per
unit
10909.0909
090909
C . Apply the range of management accounting techniques and produce appropriate financial
reporting documents accurately.
From: MOA
To: GM
Subject – providing the details about the favorable management accounting technique which are
need to be implicated.
Sir,
With context in providing the productive information which could be the mirror of the
high productivity as well as proper allotment of costs. There are two types of managerial
techniques that are absorption costing and marginal costing which will help the organization in
finding the sufficient profit for the OVATION SYSTEM. Therefore , in this case the method of
absorption will be suitable for the best outcomes because it consists all the cost incurred while
doing the production of the units. Moreover, there are many techniques which are useful to the
management accounting techniques like:
 financial planning
 cash flow statements, historical checking
 analyzing the financial accounts

 Communicating the information etc.
 Revaluation of the accounts.
On observing both the techniques it is clearly seen that in marginal costing the profit of
an organization is comparatively low as compared with the absorption costing. There is a profit
of 19300 absorption costing and 17500 in marginal costing techniques. Therefore, it is
confidently said that the use of absorption costing is much more fruitful to the organization
(Suomala, Lyly-Yrjänäinen and Lukka, 2014). As it is a full cost method and depicts the
adequate net profit. In marginal costing all the variable expenses are taken into consideration like
direct material, direct labor and production overhead. And in absorption costing method all fixed
as well as variables expenses are taken into account. There are various reporting techniques
which are to be implemented in the organization are as under
cash flows
startup costing
Balance sheet
Budget and forecast table.
D. Produce financial reports that accurately apply and interpret the data for the business activities
shown in the scenarios in Task 2 above
Interpretation
The above question is calculated by applying marginal costing and absorption costing
techniques. By executing these techniques it is clearly observed that profit is more from the
absorption costing techniques as comparatively to the marginal costing. Hence, the individual
interpretations of each of the techniques are listed below -
Marginal costing
By applying this technique it is clearly observed that organization does not achieve much
profit. The profit is achieved in marginal costing is 17500 which is comparatively low than next
technique. This technique follows the use of only the variable costs into the operations (Malmi,
2016). It does not take any fixed expenses into considerations.
Absorption costing