Comprehensive Management Accounting Report: Ovation Systems Ltd

This report provides a comprehensive analysis of management accounting principles applied to Ovation Systems Ltd, a company specializing in video surveillance products. The report delves into the phenomena of cost accounting, exploring the essential requirements of various management accounting systems such as price optimization, job costing, and cost accounting. It details different methods for management accounting reporting, including budgeting reports, performance reports, and job cost reports. Furthermore, the report computes costs using appropriate techniques of cost analysis, specifically marginal and absorption costing, to prepare income statements. The report includes calculations for cost per unit, preparation of income statements under both costing methods, and analysis of material cost variances. The analysis helps the company in making financial decisions.

Management Accounting

INTRODUCTION
Management Accounting can be explained as the procedure of accumulating, measuring,
preparing, identifying financial data and information within enterprise so that manager can
control, plan and evaluate to take better decision. Management accounting is used only for
internal purposes and within department’s performance such as project, processes and
departments. This is widely implemented in the small and big scale firm because it aids in
accomplishing group objectives (Abernethy and Wallis, 2018). Along with this it arranges and
organize resources, accumulate factors of production and integrates available resources in
effective manner to meet the desire set standards. The assignment is concerned with Ovation
Systems Ltd which is a client company who provide high quality video surveillance products
to police, military and other governmental agencies. In the year 2009 firm was awarded The
Queen's Award for innovation. The goods range includes rugged and small audio and video
recorders. This report includes phenomena of cost accounting and focus on essential
requirements of several types of management accounting systems. Moreover, calculate costs by
using appropriate tools and techniques. Along with this design income statement by using
marginal and absorption costs. Additionally, comparison is dome on executing management
accounting system in different company to handle financial problems (Agrawal and Cooper,
2017).
LO 1
P1) Discuss the phenomena of cost accounting along with this study the essential necessities of
diverse sort of management accounting systems.
According to American Accounting Association, management accounting refers to as
application of suitable methods in processing economic data of an enterprise in order to frame
plans to achieve deserving objectives (About Management Accounting, 2018).
Management accounting is also well known by other names like, cost accounting and
managerial accounting. Cost accounting is stated as involving all those activities which provide
financial information to the top level management to guide them to formulate tactics in order to
function business operations smoothly. Management uses gathered financial knowledge and
numerical data for ascertaining product and cost of various job. By effectively implementing
managerial accounting in Ovation Systems Ltd. they will be able to deliver fast and immediate
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information to the mangers regarding product and services and day to day budgeting assist firm
to take best decision in order to rise company’s operational effectiveness and efficiency.
There are distinguished kinds of management accounting system and are mandatory
needs for the administration. Price optimization, job costing system and cost accounting system
are types of accounting system in the global market (Agrawal, 2018).
Price optimization: Business associates by adopting this kind of management
accounting system in the working environment is able to measure the suitable prices for their
innovative product that is offered. It is a mathematical evaluation in order to examine how
targeted consumers will react to several prices for product and services through various channels.
Price optimizing helps administration to determine the best prices so that Ovation Systems Ltd is
able to maximize operating profit. By this act huge customer base can be raised for the high
quality video surveillance products designed for departments of police, military and other
governmental agencies. Price optimization helps business administration to meet the set goals
and objectives in the set time duration. This is more useful for business dealing in retail sector.
Advantages of price optimizing:
 Price optimization in an organization provide consistency to the business (Ax and Greve,
2017).
 It aids in gathering authentic and reliable data which reduces the chances of error in the
working premises.
 Firm by effectively implementing this in business administration assist in automating the
entire process. That results in positive results.
Job costing system: Ovation Systems Ltd adopts job costing system effectively and
efficiently in their working environment as it assigns and collect manufacturing costs of a single
unit of output. It is used in any industry because it is usefull in checking cost of production
exceeds the overhead price. in order to gain profit for complete process (Weetman, 2019). This
aspect is more worthful when it is adopted to produce sufficiently varied goods and services
from one another and has significant cost. By systematically executing this in the business it
leads in accumulating huge revenue, management decisions, financial reporting and project
estimating. In order to get satisfactory results, it is very important to choose the most suitable
costing system as per their business type and product in the cut throat competitive world.
Advantages of Job costing system:
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 Job costing system assist the firm to calculate the revenue gained on single jobs.
 This directly aid the company to better understand weather specific jobs are desirable to
pursue in the near future.
 It prevents duplication of work as it aids in measuring of similar job. By doing so firm
quoting the price of a job always depends upon the previous job pricing.
Cost accounting system: This system is used by Ovation Systems Ltd because cost
accounting system assist in determining cost of the goods for profitability investigation, cost
control and inventory valuation (Azudin and Mansor, 2018). In the era of neck to neck
competitive world all medium and large scale businesses rely on cost accounting in order to
render data which financial accounting provides. By performing this system appropriately
business function will run smoothly in the global market. Along with this emerging needs of the
customers for video surveillance products and other rugged and small audio and video recorders
will be full-filled accordingly.
Advantages of cost accounting system:
 Cost accounting system helps in fixation of prices for the goods and services.
 In an organization this directly assist in expansion in production.
 Firm is given proper information for planning and framing unique tactics to increase sales
volume.
 It guides business administration how to reduce prices of the product and services in the
cut throat competitive world (Turner and Witteman, 2017).
Inventory management system:
P2) Discuss several methods used for management accounting reporting.
This is termed as process of providing information to distinguished stages of management
so that corrective measures can be taken for improvements. By effectively executing
management accounting reporting in the Ovation Systems Ltd distinguished benefits can be
garbed such as, it helps in setting price for the goods and services, guide in formation of budget,
aid in planning, assist in controlling business activities etc.
Budgeting report: Organization adopts this in the working premises as it helps them to
measure overall performance of enterprise (Beyer and Marinovic, 2018). By designing budgeting
report company manage cash amount of every single activity. It aids report to do comparison
between estimated and actual budget in order to keep proper control on various outcomes. Better
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incentives and benefits are given to the staff members in order to reduce the cost which provides
complete satisfaction to workers.
Performance reports: Ovation System Ltd is executing performance report so as to
examine the performance of the business administration and their staff members. This directly or
indirectly aid enterprise to take the quick and smart decisions in order to upgrade workforce
productivity and profitability ratio. By appropriately scanning this report Ovation Systems
determine the efficiency of their tactics towards stated aims and objectives. The effectiveness
motivates workers to work day and night in order to attain the companies set standards.
Job costs reports: Organization by taking job costs report within the enterprise is able to
investigate the cost of each individual project (Booth, 2018). It leads in providing benefit to
Ovation Systems Ltd as they are capable enough to find higher earning areas. Moreover, by
using this progression and succession of the project areas can be determined. This helps in
measuring and monitoring the wastage of precious time and money in the low margin areas in
the global market
Therefore, for Ovation Systems Ltd all the reports discussed above are beneficial for
them in the intense competitive world. All the reports discussed above has helped business
administration to operate the business function smoothly. As well as timely guide them to take
appropriate decisions for the betterment of employees and employer
LO 2
P3) Compute costs using appropriate techniques of cost analysis to prepare an income statement
Computation of costs by using appropriate techniques of cost analysis to design an
income statements are explained as follows:
Cost: It is considered as the backbone of Ovation Systems Ltd. Without sufficient
amount of funds business cannot be functioned properly in neck to neck competitive world.
Marginal costing and absorption costing are two methods that are studied so as to figure out the
approximation cost. By doing so accordingly the unique tactics are designed to over the
deficiency of funds in the global market. To create tough competition for rivalry in the
competitive market place business associates need to be financially stable in nature (Bui and De
Villiers, 2017). Here, the brief discussion about marginal and absorption cost are done as under:
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Absorption costing: In the competitive world absorption costing refers to as all the
manufacturing costs are allotted to the units produced. Here, finished product costs involves
costs related to direct labor and direct materials. This costing takes into consideration all cost of
production which are, factory rent, fixed costs of operation and cost utilities in the factory
(chaltegger, 2018). Also, it covers costs such as, direct materials and direct costs like, property
taxes and manager's salary.
Marginal costing: It is very important aspects of Ovation Systems Ltd as this is a change
in total costs which increases when quantity produced is raised by one unit. It is calculated by
taking total change in the costs of producing more products and dividing by change in quantity of
products produced. By carrying out marginal costing numerous benefits are given to the working
environment such as, useful data is provided for marginal decision making process, cost
comparisons become more meaningful, cost and profits are not vitiated (Cooper, and Qu, 2017).
Calculation of cost per unit
Absorption Cost per unit May (in £) June (in £)
Direct labour cost 5 5
Direct material cost 8 8
Variable expenses 3 3
Fixed indirect production 8 10.53
Total Absorption Cost per unit 24 26.53
Assessment of stock
Particulars May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
Preparation of income statement by Absorption costing:
Particulars May June
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(in £) (in £)
Sales 50 15000 25000
Less: Cost of Goods sold (COGS)
Opening inventory
Direct labour (DL) 5 2500 1900
Direct material (DM) 8 4000 3040
Variable cost of production 3 1500 1140
Fixed indirect expenditure related to production 4000 4000
Ending inventory -4800 2122.4
Total cost of goods sold 7200 7957.6
Gross profit (GP) 7800 17042.4
Selling & Distribution expenditure 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
Net profit (NP) 1050 9792.4
Per unit cost evaluation under marginal costing
Particulars May (in £) June (in £)
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
Inventory assessment
Particulars May June
Inventory at the beginning of period - 200
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Production (in units) 500 380
Sales (in units) 300 500
Stock at the end of period 200 80
Preparation of income statement under marginal costing:
Particular May June
(in £) (in £)
Sales revenue 50 15000 25000
Less: Marginal COGS
Opening stock - 3200
DL 5 2500 1900
DM 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000
S & D expenses 4000 4000
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Adm. Expenditure 2000 2000
Sales commission cost 750 1250
N.P. -550 5750
Material cost variances:
Particulars Formula Figures
Material price variance (MPV) (SP-AP) * AQ (10 - 9.5) * 2200
= £1100 F
Material usage variance
(MUV)
(SQ-AQ)*SP (1000-2200)*10
= £12000 A
Valuation of closing stock using LIFO
Mentioned in appendix 1.
Valuation of closing stock by using weighted average method:
Mentioned in appendix 2.
Interpretation: From the mentioned statement it can be concluded that £5750 is of
marginal costing and £9700 is of net profit in an administration. From this it can be summarized
that absorption costing is much effective and better than marginal costing in the neck to neck
competitive world. Ovation System Ltd is implementing both according to the needs and
demands prevailing in the dynamic environment. However, in this case business activities are
conducted according to the budget allotted in order to decrease the charges of cost. This act make
business financially strong and stable in nature that aid in raising market value in the global
market (Di Vaio and Varriale, 2018).
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LO 3
P4) Discuss advantages and disadvantages of various kind of planning tools which are utilized
for budgetary control
Master budget: Ovation System Ltd uses this budget in the working environment as it
involves all kinds of small fund within. Large companies mostly adopt this in order to keep
confidential data and information in a one single document. Master budget is associated with all
the activities which are, sales, operating expense, income, expenses, and assets. Additionally,
master budget represents financial plans, cash forecasting and financial statement and assist
company to frame strategies accordingly. Here, are some benefits and drawbacks which are
discussed as:
Advantages Disadvantages
 All the budgeted information is
accumulated in one report this is one
of the biggest advantages which is
given by master budget (Englund and
Gerdin, 2018).
 Expenses related to all the budgets is
determined so that additional cost can
be get rid of from any of the budget.
This helps in getting productive results
in the cut throat competitive world.
 Numerous budgets are covered under
master budget which creates huge
confusion. This directly reduces overall
workforce performance of the
employee's.
 Master budget does not specify all the
activities clearly such as, if the
administration want to know how much
marketing department is growing and
expanding then clear picture is not
provided.
Flexible budget: Ovation System Ltd adopts flexible budget in the working environment
because this assist them to change their budget according to their demand and preferences.
Flexible budget showcase incomes, expenses and cost at numerous stages of level. This is more
appropriate for administration as it compare to Static budget, in this particular budget all the
necessary modification can be render according to the business condition. However, this budget
stands for the changes in the expenses and income with the changes in output. The advantages
and disadvantage of flexible budget are discussed as follow:
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