Management Accounting Report: Sollatek's Financial Analysis and Tools

This report provides a comprehensive analysis of management accounting, focusing on the tools and techniques essential for financial analysis and business improvement. The report begins with an executive summary highlighting the importance of management accounting in managing financial resources and achieving market success. It then delves into the different types of accounting, including non-profit, managerial, lean, and transfer pricing, and their applications. The core of the report examines methods for managing accounting reports, such as calculating marginal and absorption costs, and the use of cost reports, budget reports, performance reports, and index reporting. The report further explores the advantages and disadvantages of budgetary control tools, emphasizing their role in improving profitability and coordination. Finally, it compares various ways organizations adopt accounting systems. The report includes tables illustrating cost calculations and provides a detailed overview of management accounting principles and practices to enhance financial decision-making. This assignment is contributed by a student to be published on the website Desklib.

MANAGEMENT ACCOUNTING
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Executive Summary
The management accounting is an important part and concept of an organisation. An
organisation needs to manage their financial resources in order to achieve success in the market.
It has been found that there are some organisations that are unable to understand the significance
of using accounting tools. Such organisations have encountered loss in their businesses.
Management accounting helps an organisation to analyse the profit reports and financial reports
for gaining sustainability in their business. In order to analyse business performance,
management accountant is required to analyse the data that are obtained from financial reports
for making effective decision. This study is going to focus on the tools and techniques that can
be adopted by a firm to analyse accounts and finances for improving business.
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Table of contents
Introduction......................................................................................................................................4
Task 1...............................................................................................................................................4
P1 Explaining different types of accounting.................................................................................4
P2 Methods for managing accounting reports...............................................................................6
Task 2...............................................................................................................................................7
Task 3...............................................................................................................................................8
P4 Advantages and disadvantages of budgetary control tools.......................................................8
Task 4...........................................................................................................................................10
P5 Comparing ways in which organisation are adopting accounting systems............................10
Conclusion.....................................................................................................................................12
Reference List................................................................................................................................13
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Introduction
Management accounting can be defined as the methods by which an organisation tries to
maintain their financial as well as accounting reports in the form of statistics. An organisation is
able to understand the total capital that is required by them in a financial year. It assists a
manager to make decision regarding a company's finances. Management accounting generally
publishes financial report on a weekly basis and this report is only meant for internal
stakeholders. This study sheds light on the various types of accounting systems that are used by
an organisation like Sollatek for managing their finances. A number of accounting tools are
available like cost analysis, absorption costing and profit analysis. There is an attempt to evaluate
tool related to budgetary controls and the control measure ensures success of a business. This
study is going to discuss about the methods or ways with the help of which an organisation is
able to adopt adequate technique for managing accounts.
L.O.1
P1 Explaining different types of accounting
Management accounting helps an organisation to represent financial reports based on
planning and analysis of financial data. Managers are able to take financial decision based upon
this data. As opined by Alsharari et al. (2015, p.500), accounting management is a reflection of
financial health of an organisation. The accounting systems include computerised and manual
ways of record keeping. It is the responsibility of the accounting manager to supervise the
process of financial statement of a company.
Figure 1: Types of Accounting
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(Source: Youssef, 2014, p.10)
Sollatek is required to adopt an appropriate technique for accounting management. There are
a number of accounting management system that can be used by Sollatek for managing their
finances in an effective manner. The different types of accounting systems have been discussed
below:
 Non-profit accounting: In this type of accounting system finds of an organisation are
required to track so as to ensure that donations that are specified for a purpose are spent
in a proper manner. This type of accounting is not able to provide personal benefits to the
owner of a firm.
 Managerial accounting: Managerial accounting is able to assist a manager to give
adequate information regarding capital flow. Cost accounting system falls in this category
(Arora and Soral, 2017, p.46). Cost accounting refers to actual costs that are levied upon
product delivery.
 Lean accounting: Lean accounting aims at examining a number of accounting processes
for determining costs by eliminating wastage of resources. One of the advantages of
using lean accounting for an organisation like Sollatek is that the company will be able to
conserve time and also reduce resource wastage by their methods. These techniques
might also help Sollatek to identify financial impact over their organisation. Despite
advantages, it also has certain loopholes such as this accounting system is unable to
address specific costs. It more emphasizes over values stream. This might prove
unfruitful for Sollatek.
 Transfer pricing: It refers to the notional value at which services and goods are
transferred among division (Bouten and Hoozee, 2013, p.334). This type of accounting
system is able to help Sollatek for measuring divisional performance. One of weaknesses
of transfer pricing is that it for the execution of transfer pricings.
P2 Methods for managing accounting reports
Calculating marginal cost
Marginal costing
Year 1
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Particulars Cost(£) Units
Sales volume 500
Production 600
Sales 17500
Net sales 17100
Direct labour 3000 5
Less closing
inventory
9900
Direct material 3600 6
Variable Sales
overhead
500 1
Opening
inventory
0
Less. Cost of
sales
400
Total cost of
variable
18200
Contribution -1100
Less fixed cost 2200
Expenses of
administration
800
Operating profit -4100
Interest expense
Distribution
expenses
Less. Non-
operating
expenses
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Less tax -1230
Net profit after
tax
-2870
Net profit before
tax
-4100
Table 1: Marginal cost
Calculating Absorption cost
Absorption costing
Year 1
Particulars Amount (£) Units
Sales volume 600
Production 500
Less. Cost of sales 17500
Sales 400
Net sales 17100
Direct labour 0
Opening inventory 3000
Fixed cost 3600
Variable expenses 1700
Direct material
Administration expenses 800
Less. Closing inventory 1800
Manufacturing fixed cost
Less. Under absorption of fixed
cost 300
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Net profit before interest and tax 6900
Less. Interest expenses
Profit before tax 6900
Less. Tax 2070
Profit after tax 4830
Table 2: Absorption cost
Management accounting reports are a method for designing accounting reports to a
company. It provides a framework to an organisation for analysing their capital flow and
investments. The main objective of accounting reports is to assist a firm for planning and
analysing their financial status. Management accounting is solely dependent upon a number of
reports such as cash flow, income and balance sheet reports. All these reposts are used for
examining information of a company.
A small business firm like Sollatek could manage their finances by maintaining an
accounting report (Cleary and Quinn, 2016, p.260). It might help this organisation to keep a track
over their financial assets or resources. Management accounting not only helps an organisation
for providing a guideline for finance but also for taking strategic decision by an organisation.
Sollatek can make use of these techniques in an effective manner for both taking strategic
decision as well as help to achieve financial sustainability. As a accounting manager, it is their
responsibility to use this information for developing appropriate solutions for their business.
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Figure 1: Accounting Reports
(Source: Self-created)
Cost report:
The accounting manager at Sollatek is able to manage their accounts by computing costs
of products and services. The data take into consideration labour cost, overheads and cost of
products. According to Cooper et al.(2013), cost report is a kind of accounting report that
summarises planning and purposes of profit margins. Budget report is also categorised under
accounting reports and it can be said that a small business like Sollatek could be benefited from
analysis of their budgeting. Performance of this organisation is to be measured by the use of
budget reports. It can be said that owners of Sollatek can use budget report for giving incentives
to their employees. The funds that are budgeted can also be used for providing bonuses to
employees of sollatek.
Performance reports:
Performance reports are another type of management accounting report and it is adopted
by a firm for analysing allocation of revenues and expenditures. One of the advantages of using
performance report is that it gives scope to the account manager for scrutinising using their
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Accounting
reports
Index
reporting
Performance
reports
Cost report

budgets and also to prepare new budgets. The performance reports are calculated on an annual
basis (Cullen et al. 2013, p.226). However, there are certain companies that need quarterly
reports. Administrators of Sollatek could adopt these perforce reports for forecasting
performance of this company. This system ensures reduction of cost on wastages and utilising
costs for the benefit of a firm.
Index reporting:
Index reporting provides actual status of assets and it enables an organisation to identify the
outcomes of a work. The data that are obtained from index reposts are mainly taken from
economic accounting. Small business need to plan their resources as per the budget requirements
and it is the responsibility of account department to maintain accounting reports for managing
resources in planned way. Budget planning is an important aspect of account management and it
need to be regulated and reviewed by account manager (Dixon and Gaffikin, 2014, p.702). A
number of tools are used for management accounting report and these are as follows:
❏ Simulations
❏ KPI
❏ Balance scorecards
❏ Financial modeling
❏ Management information system
In order to run a business in an effective way, these tools are sued by an organisation for
consulting account management reports. Account managers are able to take strategic decision
based upon these reports.
Apart from benefits, management accounting reposts also have certain demerits. Some of its
limitations are as follows:
 Bias: As per the viewpoint of Ellington and Williams, (2013, p.502), management
accounting reports are often charged of personal bias. This is because interpretation or
analysis of these reports is totally based on ability of analyst.
 Limited Knowledge: Lack of knowledge in the costing, economics and statistic might
pose a threat to a firm. Analysis of this report needed to be conducted in an ethical
manner otherwise it might give misinformation to stakeholders about capital investment
of an organisation.
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L.O. 2
P3 Calculating costs by using useful techniques
The tables mentioned above indicate towards the differences that are encountered in both
the management techniques for accounting. It has been found that different costs are charged in
regards to overall cost heads. The table is indicating towards the fact that differences between
absorption and marginal costing are significant. The table that is representing marginal costs
shows that a business organisation is able to take into consideration the variable expenses. At the
time of calculating absorption costs, the organisation is able to utilise fixed cost. It is found that
an increase in the marginal cost show that the firm is gaining profit. A firm’s profit margin are
well represented through increase in the marginal costing (Francioli and Quagli, 2016, p.20). On
the other hand, it has been found that the company is incurring losses in terms of absorption
costs. The above table is showing that the profit earned by the firm is £ 4830. Contribution
margin is adopted for consideration profits of the firm. In absorption cost, profit seems to be
about £ -2870. It can be assessed that this firm is incurring lows in the absorption costing. This
firm is required to increase their absorption techniques for developing their firm and earning
more profits. Net profits are an important way to find out marginal cost.
L.O.3
P4 Advantages and disadvantages of budgetary control tools
Budgetary control is an important tool that is used by a small business organisation for
preparing an analysis for finances in the future periods. An analysis of budgetary control helps an
organisation to measure performances of a firm. Some of the objectives of budgetary controls are
as follows, it increases profitability of a firm. Budgetary control tools are a centralized form of
control system. It aims at determining objectives of a firm.
Advantages of budgetary control tools:
The budgetary control tools try to fix targets for a firm to encourage their employees to
work in an effective manner (Fullerton et al. 2014, p.415). If employees are given target then it is
quite easier for them to make efforts for reaching at a fixed goal or target. It can be said that this
control method is a way to keep a track over the activities of a small business organisation.
Coordination can be achieved with the use of budgetary control tools. The cost of production can
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be minimised because this system aims at eliminating any sort of resource wastage and thereby
helping a firm to retain control over their profit.
Budgetary control brings profit to an organisation by helping manager to take effective
decision based on the budget analysis. Performance of employees could also be improved by
budgetary control (Hiebl et al. 2013, p.120). This is because the budgets can be used by
employers to give incentives to employee which in turn will increase their confidence.
Management gets a guideline regarding the decisions that they are required to take for keeping a
control over their capital investments. Sollatek could get guidelines regarding formulation of
policies and goals for defining finances of their enterprise. The above mentioned advantages
indicate towards the fact that an organisation is able to make use of this budgetary control system
for managing an accounting system.
Disadvantages of budgetary control tools:
In inflationary situation, it is quite difficult for a form, to plan a budget. Budgetary control
system is able to make budgets for future. It can be said that future is unpredictable and therefore
it become quite difficult for analysing a budget without understanding future economic
conditions (Makrygiannakis et al. 2016, p.1235). Top management are responsible for making
budgetary control and in case account manager is not capable enough to monitor the budgets in
an appropriate manner then it might pose a challenge to that organisation's financial statement. A
small organisation like Sollatek is unable to incur heavy expenditures that will be required for
budgetary controls.
It can be assessed that budgetary control tools are able to bring chances of success to any
organisation. According to Quinn and Jackson, (2014, p.208), forecasting techniques are a useful
tool for analysing probability and time series. It could be used for forecasting future costing. On
the contrary future is unpredictable and therefore these techniques are going to represent a false
analysis of costing for any organisation. It has been found that budgeting provides a target to any
firm and this could be taken as an advantage for fixing responsibility to employees. Sollatek is
able to manage department by setting target. Targets could encourage employees to get a
direction and they might move towards a target. Target setting proceed to be useful for a
business. However, it is to be analysed that in the absence of an effective manager, a target
cannot be fixed and therefore it will result in low performance of employees. As argued by
Richardson (2017, p.10), implementation of budgetary techniques might help Sollatek to excel
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themselves. This is because a good budget planning is able to assist an organisation towards
success. It provides a framework for controlling finances of a business. Sollatek have to face
certain shortcomings after adopting budget tools because it might pose a threat to the efficiency
of their form. A small business will be unable plan a budgetary tool due to limited workforce and
resources.
In order to effectively introduce budgeting tools, an organisation like Sollatek needs to update
skills of their account manager for planning a per budget. This is because budget planning could
ensure succeeds of an organisation.
L.O. 4
P5 Comparing ways in which organisation are adopting accounting systems
The biggest challenge that an organisation faces is use of faulty or inadequate strategies
that creates impact over finances of a business. As per the opinion of Sands et al.(2016, p.172),
almost 13% of the small business firms are not able to make use of accounting management for
achieving sustainable growth. Many organisations claim that in order to establish accounting
management frameworks, an organisation need to have skillful accounting managers who are
able to make accurate predictions regarding budgeting and cost analysis. It has been found that
there are certain firms who are quite ignorant about the importance of managing account. It has
proved to be unfruitful for their organisation. In the absence of a management accounting
system, a firm is unable to keep a track over their financial resources. It can be said that it is the
responsibility of the account department to identify the data that are required for conducting an
account management. A proper analysis of capital could assist a company to increase profit
margin in their business. An analysis of financial report in relation to micro environmental factor
could be useful for a future because it help an organisation to make an assessment regarding the
performance of a company.
Reports given by CGMA have revealed the fact that management accountants are able to
indulge issues of sustainability in any organisation (Webb and Chaffer, 2016, p.360). A survey
conducted by CGMA has shown that most of the small organisations are able to understand the
impact of social as well as environmental factors over decision making process of an
organisation. Management accounting needs to be analysed in an appropriate manner for
reaching at a desired outcome of a business. A business is able to resolve financial problems by
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adopting accounting management techniques. Management accountant is required to identify the
socio-environmental factors that affects on their decision making. Accounting tools are to be
sued in a proper and effective manner for understanding its impact over a business. A firm has to
incur losses if they are unable to manage financial resources and accounting manager provides a
framework to firms for helping them to monitor budgeting (Wijaya et al. 2016, p.860).
Some of the ways that can be adopted by a management accountant for achieving
sustainability in a business are as identification of social as well as environmental trends that
tends to put impact over an organisation's capability for creating a vision or value.
Development of key performance indicator for supporting sustainability. Linking of
challenges to sustainability with performance outlook and company’s strategy. Producing of
reports that include pricing and budgeting decision and also investment appraisals. Development
reporting strategy for integrating sustainability issues for disclosing financial as well as non-
financial information.
Management accounting is able to encourage an organisation towards taking sustainable
decision. A firm like Sollatek could be benefited from management accounting procedures. An
organisation is required to implement budgetary control system for maintaining cash flow and
maintain an effective profit margin.
Sustainability issues tend to put impact over an organisation irrespective of their risks or
size. The main challenge that is faced by a small business like Sollatek is their incapability to
devise strategies or business models for responding to environmental factors at the time of
establishing framework for financial success. It is the duty of management accountant to
formulate ways for developing sustainable business practices (Youssef, 2013, p.18).
There are various ways that a firm can be developed for managing corporate sustainability. It can
be said that a firm could integrate effective budgeting tools for improving business. Buses can be
improved by benchmarking. Financial status of any organisation could be improved by
benchmarking an organisation. It provides a framework for developing competitive edge against
their competitors. It is quite important for a company to set a proper objective for management
accounting. Financial position could be improved by hiring people because flexible employees
are able to bring changes in the accounting system.
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Conclusion
After going through the above mentioned study, it can be said that management
accounting is an important part of organisation's success. An organisation is required to pay heed
to the various types of accounting systems that can be incorporated for achieving sustainability in
a business. One of the problems that are faced by today’s organization is lack of guidance or
knowledge regarding accounting methods. A management accountant is required to understand
the significance of elements that are associated with accounting management. The study might
help the General Manager of sollatek to understand the significance of management accounting.
It might help an organisation to achieve success. This is because an organisation is required to
analyse their budgeting for making future prediction of finances. It can be said that financial
resources are an important asset to any organisation and therefore tools and techniques are to be
developed for analysing financial management. This study revealed the fact that small business
are unable to adopt budget planning due to limited resources and so they should find an
alternative of managing their finances.
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Reference List
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