Management Accounting Analysis and Reporting: Unit 5 Report

This report provides a comprehensive analysis of management accounting principles, focusing on their application within the context of Pavestone UK Ltd, a manufacturing and distribution company. It begins with an introduction to management accounting, its requirements, and various types, including cost accounting and price optimizing systems. The report then delves into different types of management accounting reports, such as performance reports, cost reports, and budget reports, highlighting their significance for SMEs. The core of the report explores marginal and absorption costing methods, including income statements prepared using both methods, and the calculation of break-even analysis. It emphasizes the importance of these techniques in various business scenarios. The report further examines planning tools, particularly budgetary control, along with their advantages and disadvantages. It also covers the use of planning tools for forecasting, analysis, and preparation, comparing different management accounting methods in relation to financial problems and justifying the use of various planning tools for assessing solutions to financial problems. The report concludes with a summary of the key findings and their implications for effective management accounting practices within the organization.

UNIT 5 MA

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Briefing management accounting with its requirement and types .......................................3
1.2 Kinds of management accounting report with its significance.............................................4
1.3 Merits of management accounting system with context of business ...................................5
1.4 Integrated management accounting system with its report in organization..........................6
TASK 2............................................................................................................................................7
2.1 (a) Defining marginal and absorption costing.......................................................................7
2.1 (b) Income statement by both methods.................................................................................9
2.2 Calculation of break even analysis......................................................................................10
2.3 Importance of management accounting techniques as per scenarios in task 2...................11
2.4 Interpreting income statement which is reflected in Task 2...............................................12
TASK 3..........................................................................................................................................12
3.1 Explaining advantages and disadvantages of various planning tools with reference of
budgetary control......................................................................................................................12
3.2 Uses of planning tool for forecasting, analysing and preparing..........................................14
3.3 Comparison of methods of management accounting system with reference to financial
problem.....................................................................................................................................14
2.4 Justifying techniques of management accounting in context of financial problems..........15
4.5 Justifying various planning tools for assessing solutions to financial problems................16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting field of finance lays high level of emphasis on improving firm’s
performance in monetary terms. In the current times, with the motive to make effectual use of
financial resources business units, whether large or small sized, focuses on employing
management accounting tools & techniques. The present report is based on Pavestone which
involved in the manufacturing and distribution of concrete products. Customer base of such
manufacturing company includes commercial, residential, industrial and retail. In this, the
present report will provide deeper insight about management accounting tools and their
application in the context of concerned manufacturing company. Further, report also entails the
significance of managerial reporting system within the organization. It also furnishes information
about the manner in which absorption and marginal costing system contributes in the aspects of
decision making. Along with this, report also presents how management accounting tools aid in
planning and helps in responding monetary problems.
TASK 1
1.1 Briefing management accounting with its requirement and types
Management accounting can be referred as information with perspective of accounting
for framing policies which can be adapted by management and must be capable for assisting
activities on daily basis. Generally, management uses this information for the purpose of staffing,
planning, directing and organizing. It is necessary for any specific organization which will be
raising efficiency level and it will be giving benefits in series which is mentioned as below:
 For preparing plan with specific analysis, it contributes in huge aspect.
 The objectives and goals are identified with perspective of information which is given on
prior basis.
 The procedure for judgement for determining policy becomes easy.
 Level of efficiency of business has been increased in context of management accounting.
 Better services have been provided to specific customers with appropriate control device
as it will be decreasing product's price (Caglio and Ditillo, 2012).
 It will be presenting various techniques for budgeting which will be enabling the
performance measurement.
 Management accounting helps in effective control for management.
Management accounting has its different types in which most important are stated as below:

Cost accounting system: It is also referred as the system of product costing which is a
basic framework which is applicable for different organizations for estimating cost of specific
goods for cost control, inventory valuation and profitability analysis. The accurate cost of
products has been estimated and it is termed to be critical for its operations which are profitable.
The main application of this system is for identifying closing value of inventory's material,
finished goods and work in progress for preparing financial statements. In given scenario,
Pavestone UK limited will be applicabling this system for knowing current the status of its
inventory, WIP and finished goods as well (Cost accounting system, 2018).
Price optimising system: It is referred as the process for maximising price against
different customers who has willingness to pay. Pavestone UK limited is in supply chain of B2B
which is rightly dedicating towards massive time in context of price optimisation it will
ensureabout products which will be easily sold at right price and then it will make margin in
decent manner.
1.2 Kinds of management accounting report with its significance
Pavestone UK limited is replicated as a SME as its organization and employee's
performance is reviewed by using various reports such as:
 Performance report: Generally, it is used by the management accountants for analysing
substantive expenditures and revenues for specific amount which is allocated. It also
computes and scrutinizes the disparities for framing a new budget. The specific data in
context of specific amount is categorised with performance reports. It is computed
annually and there is presence of various organizations who prepare it quarterly as well as
half yearly. As Pavestone UK limited is an SME so, it prepares performance report at the
end of financial year. This report is used for determining and forecasting organization's
future in context of raising production and cost as well.
 Cost report: This report helps management accountants for computing the cost of
specific item which has been produced via data which is unprocessed. It also consists of
product's cost, labour, overheads and other cost. It is referred as one of the most
important management accounting reports which should be overlooked and summarized
as well for objective of monitoring and planning profit margin.
 Budget report: It is considered as an important report for the whole organisation. The
preparation of budget has been done by considering data of previous year for various

alterations for the objective of predictions about future. In Pavestone UK limited, all
activities are in context of supply chain so its revenues and expenses are categorized in
the report of budget and organization should be able to take efforts for working in amount
which has been apportioned in budget (Gill and Biger, 2013).
 Accounts receivable report: Usually, it helps in organization's administration of its cash
flow. The Pavestone UK limited provides credit to its other clientele as report will be
highlighting balance of specific client with time of its ownership to organizations.
 Aging report: It will be helping in identifying problems which will be contributing while
collection procedure of organization. As there is not any requirement for tightening
policies of credit, this report will provide methods for dealing with debts which are
overdue.
1.3 Merits of management accounting system with context of business
Cost accounting systems:
It is referred as the process for interpreting and gathering information for identifying
procedure of earning and its usage of funds of Pavestone UK limited. It provides brief actionable
information from financial statements which is framed from financial accounting. Its benefits in
context of business are stated as below:
Valuation of inventory
Compliance of budget
Trend analysis
Project billing
Capacity
Modelling
Causes are discovered
Acquisitions
Cost object analysis

 The cost of inventory has been accumulated for purpose of financial reporting. It also
includes charging to direct labour for inventory and even allocation of factory overhead
to inventory.
 The actual cost which has been incurred and can be compared to standard and budget cost
for identifying business spending is more than expected.
 It can easily track cost by trend line for discovering expenses which might be indicative
for purpose of trend of long term.
 If organization is billing any specific customer on basis of cost which has been incurred
and cost accounting is applicable for accumulating cost by any project and information
can be rolled on to billing of customer.
 The capability of business is to support level of sales for increasing and it can be
examined by exploring specific amount of capacity which is excess. The equipment
which is termed as idle could be sold off and it will reduce asset base of Pavestone UK
limited.
 The expenses and revenue can be clustered by specific cost object like product line,
distribution channel and cost for identifying profitable or requirement of support (Wang
and Huang, 2017).
Price optimising systems:
It is a strategy of organization which considers implementation of price optimization. It
will help in obtaining profitability level which is defined. It is important because sales of
personal lines of Pavestone UK limited have become competitive in nature. It helps in
forecasting net claims and other cost for its customer. It will be providing a competitive
management analysis where this specific organization operates. It directly reflects customer
behaviour and market competition for predicting new business's volume and rate of renewal for
every customer at different rates.
1.4 Integrated management accounting system with its report in organization
The management accounting integration system benefits Pavestone UK limited in
different aspects which is stated below:
 It will reduce possibilities of duplication of time, cost and efforts as well, if there is only
one account.

 It will be replicating only profit figure which is basic necessity for framing reconciliation
statement.
 The information will be not delayed due to tracing of accounting for objective of finance
and costing.
 Its operation will be performed in computerized format and accounting will be directly
mechanized which will be giving huge benefit to Pavestone UK limited.
 If there is presence of integrated cost and financial accounts then it will centralize
information and accounting as well and it will be considered as cost and time savvy.
 The accounting procedure is very simplified and it will help for controlling its operations
in very effective aspect.
 The information will be furnished on basis of cost of every specific item and its job and
operation will extract its variations for objective of effective control.
 The information in context of profit and loss will be given to whole organization and it
will be reflecting financial performance and stability which will be providing better
control on management for its specific operations (Zhao and et. al., 2017).
 The marginal cost, abnormal gain and loss will be pertained along with its differences.
TASK 2
2.1 (a) Defining marginal and absorption costing
Marginal costing: All variable cost which is comprised in fixed and cost unit which is
attributed to particular period and is fully written off which is against specific contribution of
period which is stated. It is directly pertaining towards marginal cost and its effect on its
alterations on income with reference to outcome or volume which creates differences in variable
and fixed expense. The cost is categorised in both fixed and variable cost.

Illustration 1: Marginal costing approach
(Source: Otley, 2016)
It is directly concerned on behaviour of cost which is varying from volume and its
outcome. It can be also referred as variable expense which is accumulated with cost of per unit as
pertained along with variable cost.
Absorption costing: As per GAAP, absorption costing system is highly preferable while
assessing manufacturing cost or expenses. Such costing method focuses on undertaking all the
direct expenses which in turn associated with the manufacturing aspect of product or services.
Under absorption costing system, both fixed and variables expenses related to the production are
included. In this, fixed and variable expenses are apportioned on the basis of cost centres by
taking into account absorption rates. Such method ensures that cost incurred can be recovered
through selling price. In the modern era, absorption costing technique proves to be more
effectual as it provides comprehensive and accurate view of expenses. Referring such method,
Pavestone’s manager can do valuation of stock in an appropriate manner. In comparison to
marginal or variable costing method, absorption system provides clear view of profitability
aspects. Further, such costing system helps in presenting inefficient or efficient utilization of
products or services. Moreover, it clearly exhibits the aspects of under or over absorption of
factory overheads. In addition to this, such costing system helps in making manager’s highly
responsible in relation to the cost aspect as well as services provided for their centres.

Illustration 2: Cost overview
(Source: Cooper, Ezzamel and Qu, 2017)
2.1 (b) Income statement by both methods
Marginal costing
Absorption costing

2.2 Calculation of break even analysis

2.3 Importance of management accounting techniques as per scenarios in task 2
The absorption costing of all fixed expense is referred as an objective of production. The
valuation of closing stock or item is included in fixed cost which can be easily justified. In the
inventory valuation, if there is lack of fixed cost then it is referring loss in particular books of
account if products are not sold and if situation is vice versa then it will replicate huge profit. If
there is presence of constant production and on the same basis it will be fluctuating its sales
which will be highlighting fewer fluctuations in margin. For the context of correct measure, cost
and revenue should match. On its important concern, its benefit to owner of Pavestone UK
limited will set price which is more than total cost if fixed cost is not included.
In the context of marginal costing it is termed as easy for operations and for purpose of
understanding as well. Fixed cost has been considered in cost of production as it ignores
statements which are complicated and misleading as well. As in the same series margin is not
overstated in specific scenario stock which is not sold is not included in fixed stock. Any
problem is not clarified because of absorption of various overheads. The decision for quality is
illustrated via management according to its usage of different details related to contribution.
According to this approach, fixed cost are not dealt out on particular arbitrary approach (Jermias,
2017).
Break even analysis is termed as very important tool which is reflecting relationships of
cost output margin which is varied at various level of outcome. It is applicable for determining

profit at particular production level and even sales as well. The break even chart is clearly
reflecting changes in results which will raise in context of selling price for getting profit level
before wage increment. The capital structure of Pavestone UK limited could be easily structured
in very systematic aspect by applicability of this specific model.
In the context of margin of safety, it is directly calculated from break even point which is
referred as variation of break even point and actual sales. It can be elaborated in context of
monetary terms or percentage of sum of sales which is reflecting strength of any particular
business.
2.4 Interpreting income statement which is reflected in Task 2
The details of selling and producing has been specified of single product. The above
scenario has depicted income statement by both absorption and marginal costing method. While
considering marginal costing with its variables will be representing result of 3200 as its cost of
production is 9600. In the context of absorption costing, all overheads of production is not
considered as variable and its production cost is extracted as 9400 per unit. The profit and loss
statement has been observed and it is giving more outcome by 200 so it should be applicable for
Pavestone UK limited.
While analysing break even, there is introduction of new product whose selling price and
variable per unit is given as 40 and 13 respectively. So in the same series its contribution per unit
is extracted as 27 and its adjustments of fixed cost are altered which is also applicable. The
number of products which are sold are replicating break even of 222 along with revenue of sales
is about 8888.89. In this specified series, if desired margin is about 10000 then it will specify
selling of 592.60 goods.
The above scenario is reflecting margin of safety if 800 goods are sold then revenue of
sale will decrease by 72% but it will not incur loss. It is termed as differences between break
even and budgeted sales. This percentage can be replicated as specific standard for Pavestone
UK limited as safety cushion. If situation is reflecting vice versa then it will incur loss. It will be
termed as buffer zone for both sales and percentage as well (Ax and Greve, 2017).
TASK 3
3.1 Explaining advantages and disadvantages of various planning tools with reference of
budgetary control
The budgetary control is replicating various planning tools which is stated below: