Detailed Management Accounting Report: Sollatek Limited Analysis

This report provides a comprehensive analysis of management accounting principles, focusing on their application within Sollatek Limited. It explores the significance of different management accounting systems, including cost accounting, inventory management, and job costing, highlighting their roles in organizational decision-making. The report delves into various management accounting report approaches, such as cost reports, budgets, and execution reports, emphasizing their importance in monitoring performance and controlling costs. Furthermore, it demonstrates the calculation of costs using marginal and absorption costing techniques, along with break-even analysis and margin of safety calculations to assess profitability. The report also examines the merits and demerits of planning tools used for budgetary control and compares how companies utilize management accounting systems to respond to financial issues, offering insights into Sollatek Limited's financial strategies.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and need of different kinds of management accounting system....1
P2 Different approaches used for management accounting reports............................................2
TASK 2............................................................................................................................................4
P3 Calculate costs by using techniques of cost analysis to prepare a income statement by
using absorption and marginal costs...........................................................................................4
TASK 3............................................................................................................................................6
P4 Merits and demerits of various kinds of planning tools are used for budgetary control.......6
TASK 4............................................................................................................................................8
P5 Compare how companies are using management accounting system to respond financial
issues...........................................................................................................................................8
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is a profession that includes devising planning, partnering
within management decision making, performance management system and giving expertise in
control as well as financial reporting to help management in making and applying of organisation
strategy (Ogata and Spraakman, 2013). It analyses information to advise enterprise strategy as
well as drive the success of sustainable business. Sollatek limited mainly deals in energy as well
as power consumption solutions by providing various electrical equipment’s within United
Kingdom market. In this assignment it involves the needs of various kinds of management
accounting and importance of management reports. Along with this also discuss about various
types of planning tools for budgetary control and its merits and demerits.
TASK 1
P1 Management accounting and need of different kinds of management accounting system
Management accounting is a very important function for an organisation as it prepare
various managerial records as well as reports, it is different from others financial statements as it
can be prepared anytime within a accounting period according to its requirements whereas these
managerial accounts are prepare at the end of accounting year (Napier and Haniffa, 2011). This
will assist in knowing the position of enterprise by effectively analyses of accounting statements
at the end of accounting period.
Sollatek limited is an manufacturing industry which supply solar products to their
customers by providing better quality of of their goods and services. Firm use the system of
management accounting in order to take proper decisions. By preparing managerial records, it
will help them in giving a better image of business functions.
Kinds of accounting systems and its requirements:
This system of management accounting will help business in organising and controlling
its functions through determining various costs which are involved in business activities. These
managerial accounting system provides various guidelines which help in leading supervisors to
ascertaining as well as delivering better image of business activities and profitability. There are
certain types of systems which are as follows: Cost accounting system: In this, it involves costs in all the functional departments like as
marketing, production, distributing, finance and so on. This system makes assumptions of
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profitability ratio in upcoming events. Sollatek limited is engaged in manufacturing of
electronic goods which involve several expenses which determine accounting systems.
Essential part of cost accounting systems is that it helps in identifying future income
which assist in taking future investments decisions accordingly. Inventory management system: This system provides a model which help business in
managing stock. Hence, inventory refers the raw material availability in business, work in
progress stock, material stored within warehouses and finished goods. Sollatek limited
mainly deals in electronic products which results to have ample of semi-finished and
finished stock, due to this whole system is suitable for this company. Firms manager can
follow the system of inventory management in order to manage all the stock of the
company (Management Accounting, 2015). This company is adopting methods of
periodic, ABC, EOQ as well as perceptual for managing inventory.
 Job costing: This technique determine cost which is included in each job. Hence, it is a
job order taken from the clients in order to complete specific work in a given span of time
according to provided brief by customers. Job costing is adequate for firms which deals
in manufacturing like as Sollatek limited company, as they will take the orders of
electronic items from various customers and try to complete the work within the span of
time. It will help in assuming cost of organisation which is further used in taking
decisions of labours requirements and raw material procurement.
P2 Different approaches used for management accounting reports
There are several types of managerial accounting reports methods are adopt by enterprise
supervisors in order to manage the business effectively as well as analyse overall enterprise
trends for the short and long term. Some of methods are given below: Cost Reports: Managerial accounting plays a very main role in determining the product
price as well as it is not possible to determine cost of product without knowing its actual
cost. For that, report of cost is made by accounting employees as it enables supervisors to
take decision regarding cost of goods and services. It allows supervisors to limit their
expenses which are not necessary as well as also provide ideas about the cost should be
charged for specific goods or services. This report is very essential part as it helps in
ascertaining the incurred cost in order to take necessary measures which aid in declining
overall cost as well as raise the profits for the long run.
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 Budgets: This report is made by the supervisors in order to know estimation of several
transactions such as Income, sales, cash and so on. There are several kinds of budgets are
made such as profits, sales and many more (Jones, 2011). Normally, budgets are prepared
by using estimations of existing year as well as future projections are prepared by using
the same. It will help firm to predict the occurred cost, profitability level and so on are
based on taking important management decisions. Ultimately, its purpose is to decline
cost and raise profits of the company within the long run. These budgets help managers to
plan its expenses early in order to earn profits and enables to take effective decisions
either it is feasible to undertake a specific project or not.
 Execution Reports: In this report, it is made by accounting supervisors for the aim of
ascertaining various kinds of outcomes that has come up. e.g. Once budget is set, what is
the deviation level, whether the performance is accomplished within budget or not. If no,
then what are the reasons and how they can improve are discussed in this report in an
effective way. These execution reports are very important without this it is typical for
supervisors to know what is actually achieved, company’s performance and customers
are satisfied or not.
It is beneficial for Sollatek limited, as these accounting system help firm in increasing
their efficiency and these systems help in processing the data more fastly. Along with this it also
reduces the paper work (Jones ed., 2011). These systems aid cuts the payroll of accounting
employees substantially which is cost effective for the company. These systems are applied in
order to save the time and accomplish the business activities in an effective way.
Sollatek limited uses several management accounting systems as well as their reporting in
order to make an effective plan and control. So, it will help in raising its efficiency and higher
level of profits as well. Firms utilize their resources in a way to make a proper use of it is helpful
in dealing with the events which are not predictable which are risky within company
performance. Sollatek limited uses this system it orders to control cost so they can concentrate on
new buyers along with existing buyers. It helps in maintaining stock records for improving
productivity and performance appraisal.
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TASK 2
P3 Calculate costs by using techniques of cost analysis to prepare a income statement by using
absorption and marginal costs
Cost: It is an amount which is spent to purchase something. It involves all incurred
expenses at the time of producing a good. Sollatek limited take decisions for making profits for
their goods they have to set right price of products for increase their profits (Ismail, Ramli and
Darus, 2014).
Sollatek limited is the manufacturing industry, they set the cost which are affordable for
their customers. If they will not sell their products at right price, then customer will switch to its
substitutes. It is the overall cost of manufacturing a product.
Marginal costing: It is one of costing techniques which is used to control marginal cost.
It is the total decrease and increase within absolute cost of manufacturing at the time of
producing extra units. It is variable cost as well as involve material and labour cost of additional
units. This technique will aid management to take proper decisions of manufacturing a product.
Formula of marginal costing: sales revenue – marginal cost of goods sold = contribution –
fixed cost = net income
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
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Absorption costing: In this technique, all the cost involved while manufacturing of goods
which is absorbed by the sales of similar goods (Humphrey and Miller, 2012). It will aid Sollatek
limited to determine faults in their manufacturing in order to operate with higher efficiency. This
approach assists to improve financial transparency.
Formula of absorption costing: Net Profit = (Sales revenue) – (Cost of goods sold) = (Gross
profit – Selling and Administrative expenses)
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break-Even: In this, it is a situation where organisation has gained no profit and no loss
at certain point. It depends on revenues, fixed and variables costs per unit of sales.
a. Number of products require to be sold for BEP
Sales per unit 40
Variable costs VC = DM +
DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. In the context of sales revenue, BEP is measured as
Sales per unit 40
Variable costs VC = DM + DL 28
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Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution /
sales * 100 30.00%
BEP in sales 20000
c. For gaining profit of 10,000 it require to sold x number of goods which is calculated below
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
d. If 800 goods are sold then margin of safety is calculated as
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
Margin of safety- It shows the difference within actual sales as well as break even sales
of an organisation (Hillier, Grinblatt and Titman, 2011). Therefore, it is important to calculate as
it shows performance of sales in the accounting period which help in making profits for
enterprise.
In this, Sollatek limited is adopting a historical, marginal and standard costing for
determining its total operating income of the business.
Data Interpretation
By this above calculation, it has interpreted that total income is calculated through
marginal costing approach which is comparatively higher than absorption costing with a 825 unit
difference. The major reason behind it is marginal costing technique i.e. variable costs are
charged against sales revenue. Additionally, in the marginal costs expenses are recorded as
variable as well as fixed costs in a given financial period. On other side absorption costing,
selling and producing costs are recorded as overhead expenses. In the context of Breakeven
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point, it is interpreted that if Sollatek limited is going to produce 500 units then it will be in
situation of no loss or profit. Hence, in order to gain profit near about 10,000 this organisation
require to sale approx. 1334 units within a period.
TASK 3
P4 Merits and demerits of various kinds of planning tools are used for budgetary control
Budgetary control- This is a financial process in order to manage expenditures and
incomes. Sollatek limited adopt this for comparing its actual expenses as well as revenues in
order to forecast expenses and revenue of company. It is adopt by Sollatek limited to make
budget for upcoming period as well as compare the same with real figures. It will aid
management to identify the variance as well as aid in passing appropriate judgement. Process of
budgetary control is a very easy as Sollatek limited is making budgets in an effective way. Some
of planning tools which are used in budgetary control are as follows: Forecasting tools: In this planning tool, it assists the management in their attempts to
maintain future risk (Henri, Boiral and Roy, 2016). Primarily, depends on data from their
present analysis as well as past experience of trends. This is based on management's
opinion, education and cognition of Sollatek limited. This tools is also adopt in order to
determine buyers demands within future.
Merits Demerits
 Forecasting help in enhancing proper
use of resources through revealing
weak enterprise field.
 It gives the valuable information to
supervisors that aid managers to take a
proper decisions.
 It is very typical for the company.
 It is not possible that their outcomes
will be accurate.
 Contingency tools: This is adopted by Sollatek limited in order to prepare for the
possible event which can take place in future. This is used in the condition when
outcomes of activities are not predictable (Edwards, 2013). It is applied by the company
in order to determine upcoming risk which is not occur but have possibility of occurrence
in future. to determine a future risk that have possibility to occur. e.g. if it raises the cost
of goods then what will be reaction of buyers.
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 Merits  Demerits
 It will assist the company manager to
be prepared for uncertainty situation in
advance.
 It is useful in distributing liabilities
within workers for every task.
 It is very expensive approach to
implement as well as every type of
company is not to adopt these kinds of
planning tool.
 This method is rigid, it reacts slow to
the modifications in the trends.
Planning tools are adopted by Sollatek limited to determine several factors such as
forecasting buyers demand company have to be prepared for every crisis which have chances to
take place within future. This tools are very useful in budgetary control as it will give
information as per future and past data trends (Ding, Dekker and Groot, 2013). Along with this it
is also useful in giving information of uncertainty that can take place in upcoming times. It also
helps management to take an effective decision as per the condition. It also set the limit of
budget for every work it orders to make proper use of funds.
TASK 4
P5 Compare how companies are using management accounting system to respond financial
issues
Facing financial issues where funds related issues gave impact on business performance.
These issues can take place if the finance are not effectively used by the company management.
Sollatek limited are facing problems which are given below: Quality of goods- Organisation require to enhance its brand image by providing quality
of products to their customers. It is managers duty that there should be best quality of
products and services which are provided to buyers in the marketplace. In this, Sollatek
limited manager adopt the technique of inventory management system for providing
proper quality of services to their buyers which help in gaining higher level of customers
satisfaction.(Christopher, M., 2016). Financial management- This issues is mainly faced by small companies within their
enterprise because they are not having enough finance for accomplishing their all the
activities. Hence, in this Sollatek limited adopt the cost management system in order to
maintain as well as managing the accounts in a desired way.
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 Legal issues- For operating enterprise as well as carry out operations effectively. It is
necessary for organisation to follow legislation and laws made by governments. It arises
several types of legal problems if company get failed to obey such rules according to
scope, size and objectives of enterprise. Therefore, managerial accounting system help
the company to handle these types of issues such as employment legislation.
Applications for the tools used for financial problems
 KPI (Key Performance Indicator): It is adopt by Sollatek limited to analyse the business
performance. Along with this, it also show how properly the company can meet its
targets. Their are various kinds of key performance indicator are leading Indicators and
lagging Indicators. To anticipate economy changes and evaluate result of enterprise
activities by using leading indicators. Along with this, lagging indicators is adopted to
predict that after execution of project will achieve success or not in an effective way. Benchmarking: It is useful for Sollatek limited at the time of making comparing of their
business with other rivals. Along with this it also supports the planning, delivering,
selection and control of the organisation projects which will assist in maintaining
positive image within the market (Basel, 2012). In this, there are three kinds of
benchmarking techniques which are implemented within companies like as performance,
process and strategic benchmarking. Sollatek Limited is adopting performance
benchmarking in order to increase motivation within workers whose talent and efforts
aid in accomplishing work on time in an effective way which help in increasing profits.
Sollatek Ltd. Airdri, UK
This firms deals in providing electronic
equipment’s products with an aim of energy
consumption.
This organisation deals in manufacturing of
hand dryer products with an purpose of
raising in marketplace.
This organisation market is large than Airdri,
United Kingdom. It is using KPI and
Benchmarking financial tools to maintain its
market position.
It is an small scale firms hence using adopt
Benchmarking financial tools for workers
appraisal in order to meet goals within span of
time.
Managerial accounting is very beneficial for Sollatek limited in order to deal with
financial issues due to having several tools such as KPI and benchmarking in order to overcome
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with issues. Key performance indicator is useful in measuring enterprise performance as well as
identifying certain factors which are useful in improving performance as well as also aid to pass
appropriate judgement regarding the task (Abugalia, 2011). Benchmarking is adopt to beat its
rivals by maintaining positive image within the marketplace.
There are two kinds of planning tools which are adopt by are used by Sollatek limited in
order to deal with financial issues. Tools which are used by company are contingency and
forecasting. Forecasting tools are adopting to analyse future as well as risks. So, it is useful while
dealing with financial issues because it will analyse problems which help firms to solve them
fastly. Contingency tools are help in estimating uncertainty for upcoming period along with this
it will decline the financial problems by estimating them.
CONCLUSION
As per above report it has been concluded that managerial accounting system and reports
are very essential for the organisation as it will aid in the process of decision making. Along with
this assist budgetary control in order to resolve financial problems of the company. There are
several cost systems which are used by the firm in order to set proper cost for the goods to
increase profits and decline losses. They are adopting several planning tools within budgetary
control to decrease the uncertainty risk and help in taking an effective decision. Planning tools
are Forecasting and Contingency which are beneficial for enterprise.
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REFERENCES
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Online
Management Accounting, 2015.[online] available through:
<https://www.invensis.net/blog/finance-and-accounting/what-is-management-
accounting-and-its-importance>.
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