Premier Choice Telecom: Management Accounting Report Analysis

This report provides a detailed analysis of management accounting principles and their application within Premier Choice Telecom, a telecommunications company. It explores the fundamentals of management accounting, emphasizing its role in decision-making and strategic planning. The report delves into various aspects of managerial accounting reporting, including different methods and their significance. Furthermore, it examines the preparation of income statements using marginal and absorption costing, offering insights into cost analysis. The report also discusses the advantages and disadvantages of budgetary control tools and their impact on financial planning. Finally, it addresses the use of management accounting in responding to financial problems, providing practical solutions and recommendations for Premier Choice Telecom to improve its financial performance and achieve its objectives. The report concludes with a comprehensive overview of the key findings and recommendations.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explanation of management accounting and essential requirement of various type of
managerial accounting................................................................................................................1
P2 Different methods used for management accounting reporting.............................................3
TASK 2............................................................................................................................................5
P3 Preparation of income statement for calculating the marginal costing and absorption
costing.........................................................................................................................................5
TASK 3............................................................................................................................................9
P4 Advantages and Disadvantages of various planning tools for budgetary control..................9
P5 Use of management accounting in relation to respond to financial problems.....................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Accounting is a process which enable the decision makers to make the appropriate
planning procedure for a company as well as take appropriate decision which is beneficial for an
organisation. Management accounting is a process which is based on the short period of time
through which managers can take appropriate decision and remove all deviations which enable in
sustain at market for long term (Baldvinsdottir, Mitchell and Nørreklit, 2010). Thus, managerial
accounting is helpful in implementing the plans which support a company in their long term.
This is helpful in taking appropriate decisions which are beneficial for the long term purpose. As
many small and large organisations have to apply this tool in their business so that they are going
to conduct all the operations properly. This present report is based on Premier choice telecom
which is a one of telecommunication company in UK who lead to manage and operate business
at small level. There are several number of things of management accounting are going to be
discussed in this assignment which are related with managerial accounting reporting, types of
management accounting system. Moreover, budget is also an essential part of business through
which operations get done in an adequate manner. As by using suitable tool, all financial
problems get resolve.
TASK 1
P1 Explanation of management accounting and essential requirement of various type of
managerial accounting
Management accounting is consider as the provision of financial data and advice to a
company which utilise by senior authority of a company for betterment and development of
business. As this is a one of a helpful measure which enable management to deal with all
deviations which occur in an entity due to uncertainty in environment. This process is helpful in
day to day administration of an organisation which provide support in dealing with problems and
issues (Banerjee, 2010). This process is not limited to advising managers on big implementation
of projects and resolve issues but formulation of strategy and monitoring of risk are also consider
as the part of this.
This method of accounting is completely different from the financial accounting in which
statements get framed by using whole year information. Management accounting shows the
availability of cash, sales revenue generated etc. All these are helpful and provide a guidelines to
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manager to work and take decision for such areas which require to get improved. Moreover, the
limitation of this terminology is nothing and widely expansion get measure. It also keep focus of
managers on cost of production which used to maintain them adequate price of products.
Accurate price of product helps them in attract more and more number of users (Cinquini and
Tenucci, 2010).
Premier Choice telecom is an organisation whose have employees which are less than 50
in number. They are going to provide quality service to all users of a company as they are deal at
lower level. As per this, they can control the cost of service which deliver by them and maintain
a proper record of all the details and manufacturing of users. Moreover, unnecessary things and
deviations which occur in their business have to resolve which enable them in providing quality
service for their users and make them satisfied. Proper utilisation of resources is also a part of
managerial accounting in which inspecting of books of accounts on daily, weekly and quarterly
basis which enact them in dealing with them properly (Fullerton, Kennedy and Widener, 2014).
Management accounting is required for every business as because they are going to deal
with problems which arise in business at the time of daily operations. This concept have to apply
by managers and leaders of a company in which they are going to deal with many problems and
crises which are not appropriate for further development. Premier choice telecom managers have
to analyse this method and interpret their financial data. On the basis of them, such information
have to communicate to higher authority for taking a beneficial decision. As this approach is
helpful for the whole organisation in accomplish their goals and objectives in an adequate
manner. Following are the various number of accounting system are identified which have to
take in account by managers of a company: Traditional accounting: As per this method, in which managers have to find out the cost
which is going to incur on their products and services deliver by them. Entity have to
focus more on expenses which have to paid by them on urgent basis. In such relation; job
order costing and process costing. Job order costing is for the large projects in which cost
get trace easily without any sort of problems. Process costing is define as such procedure
in which tracking of cost for a project is hard because production took place in parts
which might increase manufacturing of goods and services. Moreover, this process is
taking place on continuous basis thus managers have to keep their focus more.
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 Lean accounting: This method is one of a helpful technique under which wastage of
resources get minimise and proper utilisation of resources get done. Increase in wastage
of resources lead to rise in cost also and a major purpose of managerial accounting is to
reduce the wastage which are taking place at the time of manufacturing of goods and
services. A major benefit of this sort of accounting is that user consume the products on
right price without charging any unnecessary cost (Garrison and et. al., 2010).
 Transfer pricing: Another type of managerial accounting who might increase price of
product as well as decline it as well. Every product get transfer from departments per
departments and they add some value over on that. As this lead to increase the price of
product which is not beneficial for final consumer. Managers have to use appropriate step
and manufacture their products at low level and then use transfer pricing to set an
appropriate level of pricing (Luft and Shields, 2010).
Premier Choice telecom have to use lean accounting under which they solely focus on minimise
the wastage of resources and maximise their productivity. As they are deal in telecommunication
sector and for that they have to use all resources adequately.
P2 Different methods used for management accounting reporting
Statements are the reports which are helpful in taking any beneficial decision for a
company which enable an organisation to sustain at market for long term. Appropriate
formulation of report is necessary for an organisation in which all the pros and cons during an
accounting year by a company have to enlist. Accounting reports are derived from the financial
statement of a company in which all expenses and gains are recorded.
As managerial accounting reports are helpful in measuring the performance of a business
and prepared as per requirement of business. Management can reframe their strategies by
inspecting statement and reports of a company which prepare on weekly, monthly and quarterly
basis. All these reports provide a clear picture of an organisation which consider as appropriate
factor. On the basis of clear picture, objectives, goals and targets attainment get measure.
For maintaining health of a business, managers play an effective role as they are in direct
relation with operations. On the basis of them, they can maintain and made business healthy by
removing uncertainty and deviations from it. Inspection of reports of a business will aid in
increasing profitability as well as attainment of goals become easy. Number of differences are
getting decline which consider as essential part of business operations and sustainability.
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Premier Choice Telecom have to consider this fact in business by investigate their
statement of quick basis. In such reports they find out the whole performance as well as working
pattern of a company. In case of wrong working direction, leaders and managers guide them to
work in right direction (Lukka and Modell, 2010).
Telecommunication sector is expanding days per days in which competition is also
getting rise. Managers and leaders have to inspect the statement which are prepared on regular
basis so that an adequate judgement get carried down. Various number of management
accounting reports are find out in accounting terminology (Types of Managerial Accounting
Reports, 2017). Few of them are defined below which are consider as best part of business in
relation for maintaining healthy business organisation with a reference of Premier Choice
telecom: Budget reports: This report is helpful to small business owners in analyse their
performance and if business is large, the performance get measure through evaluating the
performance of departments and divisions. Budget reports are used by a company in
provide incentive to all employees of a company where as bonus is helpful in motivating
the employees and meeting of specific financial goals. Budget is helpful in divide all
expenses and losses of departments properly. Account receivable againg report: In this reports, cash flow of a company that extend
credit to customers. Such reports are helpful in analysing the debts of a company through
which collection departments have to overlook on all old debts of a company. Managers
become more capable in finding out the old debts of a company and make tighten their
policies which are related with collection of money of a company. Job cost report: This shows the expenses of a project which lead to determine by a
company. They are generally matched the operation with working of a company so that
they can evaluate the job profitability. As this is helpful in focus on such areas which
support in more and more earning of profit by focus on such areas rather than wasting
time and money on them which lead to provide low profit margin. This process is also
helpful in considering the project on such time when it is getting done so that such areas
get minimise which require more resources and wastage of resources took place more.
Hence, by adopting this reporting system cost can control and high profit get generated.
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 Inventory and manufacturing: Companies which are dealing in physical products use this
concept so that they can maintain their inventory more efficient. As by this they can
control their production and minimise the over production of goods and services
(Macintosh and Quattrone, 2010). As this concept is helpful in production only such
quantity which is required at market.
Premier Choice telecom can use budget reports, account receivable and job cost report because
they are delivering quality service to their users. As they are not dealing in goods which are
physical in nature. By using such reports, management can take appropriate decision which
provide support to them in operating all business properly. Moreover, they have to tighten their
policies for their creditors under which they are going to collect their money in well defined
period and their collection department take more active participation in such facts.
TASK 2
P3 Preparation of income statement for calculating the marginal costing and absorption costing
Cost is defined as something which is equivalent to cash which is given up to assets. Cost
is everything which is used to implement a project in an organisation and become ready to use. A
cost is a monetary value of product and goods which is manufacturing by a company. Managers
have to identify the operational cost of a product so that they can offer products on such cost on
which user can consume them (accounting cost, 2017).
At the time of preparation of income statement of cost, management have to analyse the
absorption cost and marginal cost of a product. In any project, there are several number of cost
are identified which have to take in account by management so that they deliver products at right
cost and remove wastage from that. Several forms of cost are as follow: Fixed cost: Such cost which do not get changed and remain constant with every
production and manufacturing of product. Production cost do not get fluctuate as per time
and managers do not take so much load. Variable cost: Some cost get vary according to production and manufacturing of products
and services. As management include them in cost of good which leads to increase price
of goods and service. Managers have to play their role properly in controlling the variable
cost so that organisation can offer products properly.
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 Direct cost:Many times a cost and some more overheads directly get incur on a project
through which product price get increase. According to this, some expenses arise
uncertainly. Managers have to analyse such cost and take judgement on them. Indirect cost:Several times, some cost getting arise unnecessary which are termed as
indirect cost of product (Nandan, 2010).
 Operating cost: Operation related cost are defined as the operating cost of a business
which incur at the time of manufacturing of products such as labour cost, labour
overheads etc. These cost also affect the production of goods and services.
The below mentioned income statement is prepared for the Premier choice telecom company
which is a small telecommunication organisation who used to provide quality services to their
users. In such relation, management have to find out the absorption costing as well as marginal
costing through which adequate decision get laid down. Below mentioned are the income
statement of a company through which appropriate decision can be carried down by them:
Absorption costing: This type of costing includes all the production and manufacturing
overheads which incur in a goods and services. This cost is straightforward get incur on a project
and user consume them. It is also define as the full costing method because whole cost of
production get included in that (Parker, 2012). Premier choice telecom have to measure their
absorption costing so that they can take appropriate decision for further development of business.
Income statement on the basis of Absorption costing method:
Selling Price £35
Unit costs
Direct materials £6
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £1
Budgeted production for the period is 600 units
Fixed cost for a month:
Production overhead: In this budgeted cost is £1,800 and Actual cost is £2,000
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
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Selling cost: In this budgeted cost is £400 and Actual cost is £600
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod. O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
0
11200
(1600)
600
700
600
21000
(9600)
11400
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Net Profit (100) (1800)
Marginal costing: Another major concept of costing is marginal costing in which difference
between various productions get measure. As this method is helpful in determine the appropriate
cost of product (Nixon and Burns, 2012). Moreover, marginal costing concept is so wide in
which it get measure that how much it cost to produce each extra unit of output. A formula for
calculating the marginal costing of production is:
Marginal costing = Change in consumption/ Change in quantity of the product
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales
Less Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
0
9100
(1300)
21000
(7800)
13200
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Variable Production expenses
Administration cost expenditure
Selling cost
Net Profit
600
2000
700
600 3900
On the basis of above discussion it get measure that, company have to take appropriate action on
the basis of financial statement of a company. According to that, Premier Choice telecom have to
take their marginal and absorption costing statement in used which provide a clear picture of an
organisation and their costing. By this, management calculated the net profit which provide
support and strength to a business. Managers have to modified in their decision and reframe their
strategies which support in long term (Qian, Burritt and Monroe, 2011).
Company incur heavy loss which is not appropriate for their long term existence. It is a
duty of leaders and managers to pass this information to senior authority so that they can
reformulate their objectives and goals again. As they are incurring loss and thus managers have
to take this thing on serious basis which is helpful for them in their long term existence. As from
them overall performance get enhance which is supportive for management in their betterment
and development.
TASK 3
P4 Advantages and Disadvantages of various planning tools for budgetary control
Planning is consider as essential thing for every organisation because it enable them in
operating all activities in an appropriate manner. The manager is a only person who lead to
execute the whole plan adequately by removing deviations from an entity. Planning provides a
guideline on which business have to work and employees can deal with them. One of a major
aspect of planning is budget in which all the short term and long term projects are defined.
According to defined manner, investments should have to take place and all operations activity
lead to get done (Renz, 2016).
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