Management Accounting Report: Performance Analysis for Sollatek

This report provides a comprehensive overview of management accounting principles and their application within the context of Sollatek, a company manufacturing electronic products. It delves into the core aspects of management accounting, including planning, policy formulation, and performance management. The report explains the essential requirements of different management accounting systems, with a focus on cost accounting and price optimization systems. It also outlines various methods used for management accounting reporting, such as performance reports, budget reports, and job cost reports. Furthermore, the report evaluates the benefits of management accounting systems, highlighting how Sollatek can leverage these systems to improve decision-making, formulate business strategies, and achieve organizational goals. Finally, the report examines the advantages and disadvantages of planning tools used for budgetary control, such as flexible and incremental budgeting, providing a critical evaluation of how management accounting systems and reporting are integrated within organizational processes to respond to financial problems and achieve sustainable success.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
LO1..................................................................................................................................................2
P1. Explaining management accounting and essential requirements of different types of ........2
management accounting systems................................................................................................2
P2. Explaining different methods used for management accounting reporting..........................4
M1. Evaluating the benefits of management accounting system and their application within an
.....................................................................................................................................................5
organisational context.................................................................................................................5
D1.Critically evaluating management accounting system and management accounting
reporting .....................................................................................................................................5
is integrated within organisational processes..............................................................................5
LO3..................................................................................................................................................6
P4. The advantages and disadvantages of various planning tools used for budgetary control...6
M3. Uses and application of different planning tools.................................................................8
LO4..................................................................................................................................................8
P5&M4. Management accounting systems used to respond to financial problems and ............8
organisation can lead to sustainable success...............................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is a term which is concerned with planning, policy formulation and
performance management system. It provides expertise knowledge for preparing the
management accounts, business strategy and financial report to provide accurate, fair and timely
information necessary for decision-making. It also helps in interpreting & communicating
information to company's stakeholders and also assist management in the formulation and
implementation of an organization's strategy. The present report is based on Sollatek which
manufactures and offers electronic products to the customers. Management Accounting reporting
has been explained which contains material information about the company's financial position
which helps in formulating business plans & strategies, preparing budgets, measuring
performance, decision-making and estimating future profits and cost to be incurred. Furthermore,
the company has used different management accounting tools in solving its financial problem
and thereby achieve its organisational goal.
MAIN BODY
LO1.
P1. Explaining management accounting and essential requirements of different types of
management accounting systems.
Management accounting is defined as a tool or technique which emphasizes on factors
such as evaluating, assessing, monitoring, measuring and communicating the financial, non
monetary and managerial information to the employees for the betterment of organisation growth
and success (McWatters and Zimmerman, 2015). It helps in decision-making process,
formulating business strategies & plans which is considered essential for achieving
organisational goals and objectives effectively. It emphasises on factors such as planning,
controlling and providing information to the management for internal decision-making. The
management accounting process is related with the preparation of management reports and
accounts which to make day-to-day and short-term business related decisions (McWatters, and
Zimmerman, 2015).
There are different types of management accounting system whichcan be used by Sollatek suchv
as:
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Cost Accounting System – Such system is used by Sollatek for making estimates, helps
in analyses product cost for ascertaining the profit levels, identifying cost incurred in carrying on
business activities i.e. for manufacturing a product, inventory valuation and controlling cost
(Jermias, Gani and Juliana, 2018). It is of two types: Process Costing Method - It is a cost accounting system which is used for ascertaining
separately the cost incurred associated with operating and manufacturing processes for
every wok process by considering the products of similar nature. The method for
calculating process costing is done by making total of all cost amount and divided by
total output for ascertaining cost per unit.
 Job order Costing Method - It is a process similar to process costing method which
ascertains the operating and manufacturing costs incurred separately for every wok job.
This cost accounting method is used for costing the unique products and also helps
customers in ascertaining exact cost incurred for producing a product (Jermias, Gani and
Juliana, 2018).
Price optimisation system - This method helps company in analysing that how customer
will behave towards different price changes with different channels of its products and services.
It studies the customer response towards different price (McWatters and Zimmerman, 2015).
This method helps Sollatek in determining the best price for its product and services which can
be charged from its customers and which will thus maximize revenue and profit of the business
organisation thereby is able to achieve its goal and objectives effectively (Jermias, Gani and
Juliana, 2018). It determines the future estimated profit of the company by studying changes in
demand forces with respect to price changes. It considers three factors as price elements:
1. Strategy of pricing a product.
2. Product value for both buyer and seller, and
3. Strategies and procedures used for increasing profits level.
Benefits of management accounting system to Sollatek Company:
1. Cost Accounting System – This system helps Sollatek Company in emphasizing on
factors such as Cost savings, increasing profits and attainment of organisational goals &
objectives by minimizing cost of production and attaining customer satisfaction. It has
also helped the company in reducing environmental impact by lower energy and water
consumption for business processes. It helps the company in ascertaining the operating
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and manufacturing costs incurred separately for every wok process and work job
completed (Jermias, Gani and Juliana, 2018).
2. Price optimisation system – It helps Sollatek in studying and analysing customer
response towards different price changes with different channels of its products and
services. This method helps the company in analysing the best possible price for its
product and services which it can charge from its customers and in-turn will maximize
the business profits and able to achieve its goal and objectives effectively. It also helps in
determining the future profit by studying fluctuation in demand with reference to price
changes (Jermias, Gani and Juliana, 2018). Price Optimization system works by
considering factors such as Product segmentation, Market levelling, Discount handling
etc. It helps Sollatek in changing Price of existing and new products by understanding the
demand and customer preferences.
P2. Explaining different methods used for management accounting reporting.
Management accounting reporting is a report which is prepared by covering the financial,
managerial, non financial information of the company in form of management accounts, reports.
This report helps the management of the organisation in making decisions related to internal
business processes so as to improve the performance of organisation and operating efficiency of
the business for better achievement of organisational goals and objectives (Sokolov, Elsukova
and Sadykova, 2016).
The different methods used by Sollatek for management accounting reporting are as follows:
1. Performance Report – A performance report of Sollatek company helps in assessing the
success journey or outcome of a business project or of an individual employee. From the
performance report, Sollatek can easily compare the budgeted outcome with the actual
result obtained from the performance. It helps the management of the organisation in
taking corrective and favourable steps for improving the quality as well as their
performance of the business (Sokolov, Elsukova and Sadykova, 2016). It helps in
controlling cost by making effective business strategies and plans with the help of
comparison between the actual and budgeted cost amount for different business unit.
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2. Budget Report – The budget report is a report which helps Sollatek in making the cost
expenditure, expenses associated with the operating and manufacturing processes of the
business activity. It helps Sollatek in making budgets and estimating future profits with
the help of availability of limited amount of budgeted resources and figures. It helps the
organisation in controlling cost and maximization of profit (Sokolov, Elsukova and
Sadykova, 2016).
3. Job Cost Report – This report provides Sollatek a deeper view of total cost incurred in
completing the manufacturing process of a specific unit or of a group of unit. This report
helps in making assessment of actual revenue earned and cost incurred i.e. it ascertains
the level of profits earned by the company. It helps in evaluating profitability of a
specific job type and emphasises on reducing the cost of operation of that particular job
type for maximization of profit (Sokolov, Elsukova and Sadykova, 2016).
M1. Evaluating the benefits of management accounting system and their application within an
organisational context.
Management accounting system contains information related to internal system of the
business processes, which organization can uses for measuring, assessing and evaluating the
performance of the management organization, improving quality of performance of the business
organisation (Sokolov, Elsukova and Sadykova, 2016).
Benefits of management accounting system -
1. Cost Accounting System – This management accounting system helps Sollatek in ascertaining
manufacturing, production or operating cost incurred for making a product. It also helps in
inventory valuation. With the help of this system, Sollatek can control cost expense by making
budgets and business strategies. It has following two methods -
Process Costing Method which ascertain costs incurred separately for every wok process.
Job Order Costing Method ascertain costs incurred separately for every wok job (Sokolov,
Elsukova and Sadykova, 2016).
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2. Price optimization system – This system helps Sollatek in determining and understanding the
behaviour as well as the response of customer against different price levels for its products and
services. It helps in achieving better work with good and improved quality (Sokolov, Elsukova
and Sadykova, 2016).
D1. Critically evaluating management accounting system and management accounting reporting
is integrated within organisational processes.
1. Performance report – By this, Sollatek can develop various business plans & strategies,
future budgets for betterment of business growth and for achieving the goals and
objectives of business organisation on time and in cost effective manner. It helps business
organisation manager in improving the performance & market position of business by
minimizing cost of production and maximizing profits (Jermias, Gani and Juliana, 2018).
2. Budget report - With the help of this Sollatek management is able to minimize the cost of
production, improves the operational capacity & maximize its profit level with the
limited budgeted amount and resources (Qureshi, 2018). It helps in controlling cost
expense by preparing future budget.
3. Job Cost Managerial Accounting Report – It helps Sollatek in identifying the cost
incurred for producing or manufacturing a product or group of products. By this
integration the management of Sollatek can evaluates a product cost including all
material cost, labour cost, overhead cost. It determines the cost prices and selling prices
of product thereby making comparison for determining the profit margins (Jermias, Gani
and Juliana, 2018).
LO3.
P4. The advantages and disadvantages of various planning tools used for budgetary control
Flexible budget- A flexible budget is a budget which is designed to change in accordance
with the various level of activity actually attained (Kyei, Kwaning and Francis, 2015).
Advantages
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Facilitates forecasting- This budget helps the Sollatek in making the forecast of the results and
the impact of the changes in the level of activity on the functioning of the business.
Realistic comparison- the actual performance can be compared with the planned performance as
the changed plan figures are placed against the actual ones.
Adapting changes- Any increase or decrease in the sales or any other resources are addressed
and adjusted in the budget so that accurate results can be ascertained by the Sollatek.
Disadvantages
Time consuming- Flexible budget needed to be executed at a regular interval with any change in
the resources and activity so a lot of time is consumed for preparing the budget frequently.
Cost of change- a high cost of change is resulted by the Sollatek in framing this budget as the
changes need to be implemented timely and on a frequent basis.
Incremental budget- The budget that is prepared on the basis of a previous period's
budget or actual performance with incremental amounts added for the new budget period (Kyei,
Kwaning and Francis, 2015).
Advantages
Easiest and Quickest method- As this budget are based on the past year allocations so it becomes
easy for the managers of the Sollatek to develop this budget and a very little time need to be
devoted in framing the incremental budget as imitation from the previous years’ allocations are
made.
Suitable for stable organisation- This budget is suitable for the Sollatek when its business is
going stable and the historic figures are acceptable with the justified increment amounts.
Disadvantages
Infusion of past problems- Through this budget the previous problems and inefficiencies are
built in the new budget which leads to incorrect valuation.
Uneconomic activities- the firm will not emphasize on the economies of scale and will continue
to operate with the past technique of productions which leads to loss in profits.
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Zero base budgeting- A method of budgeting in which all expenses must be justified for
each new period. Zero- based budgeting starts from a zero base and every function within an
organisation is analysed for its needs and costs (Kyei, Kwaning and Francis, 2015).
Advantages-Inefficient or obsolete operations can be determined and discontinued. Moreover, it
clearly presents unprofitable activities and thereby helps in taking appropriate decision. It
responds to changes in the business environment because such framework starts with zero base.
Through this budget resources are allocated efficiently and economically. The rationale behind
this, under zero base emphasis is placed on assessing alternative and cheaper way of performing
activities. Knowledge and understanding of the cost behaviour patterns of the organisation will
be enhanced. Zero base budgeting leads to increased staff involvement at all the levels since a lot
more information and work is required to complete the budget.
Disadvantages-The process of the budgeting becomes rigid and the Sollatek may not be able to
react to unforeseen opportunities or threats. The management skills may not be present in the
workers of the organisation. The morale of the managers get down due to large amount of time is
spent on the process of budgeting.
M3. Uses and application of different planning tools
Uses and application of flexible budget-
A flexible budget is used to assess the changes in the level of activity so that accurate
results can be ascertained by the Sollatek in the coming future. It is applied when the
organisation function at a large level and incur changes on a frequent basis (Kyei, Kwaning and
Francis, 2015). Hence, referring the changes of current year business unit can develop monetary
plan for the upcoming time period.
Uses and application of incremental budget-
This budget is used when the comparison between the current and the previous years’
allocations had to be made. Company can analyse its weak and the strength spots in the
organisation. It is applied when there is not any change in the current years’ budget so that it
becomes easy for the firm to implement and prepare the budget. It gives input for the future, so
by adding specific percentage in income and expenses, as per market trend, budget for future can
be drafted easily.
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Uses and application of Zero base budgeting-
It is used when the firm has to re-evaluate and re-examine the functions of the workers and
the level of activity. It is applied when a firm wants to start a new production unit or demerge its
units into other entity (Kyei, Kwaning and Francis, 2015). Such budget helps company in
identifying appropriate deviation by making comparison of actual figures with set standards.
LO4.
P5&M4. Management accounting systems used to respond to financial problems and
organisation can lead to sustainable success
Different management accounting systems are used to resolve the financial problems like
Balanced scorecard, key performance index, Variance analysis and Benchmarking (Kyei,
Kwaning and Francis, 2015).
Variance analysis- Sollatek use this technique to measure the gap between the actual and
the budgeted performance. This enables the firm in attaining the objectives as per the planned
strategies and the standards set. It is the evaluation of performance by a means of variances, so
that timely reporting can be ascertained and managers can take appropriate action.
Advantages Disadvantages
Measurement of performance- This tool helps
the entity in determining the deviation of the
performance so that effective controlling of the
operations can be attained.
Controlling Expenditures- Management can
take appropriate action regarding the cost
control so that favourable result can be
ascertained by the organisation.
Adjustment of budget estimates- It helps in
evaluating the future assumptions in relation to
the budget so that estimation of the budget
does not lead to adverse outcomes.
Accountability- It is a system that provides
accountability and calculations so that reasons
Based on estimation- the budgeted figures are
based on assumption which resulted in lack of
accuracy in the calculations and performance
measurement becomes vague.
Reporting delay- Sollatek conducts variance
analysis on an annual basis so reporting cannot
be possible on a routine basis. This leads to
delay in decision making for the management
in the context of cost, lead time etc.
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of the adverse or unexpected cost can be
known in the business.
Balanced scorecard- It is management accounting tool that translates the strategic goals
of the Sollatek into a certain set of performance. By this the managers can measure, ascertain and
monitor that the tasks are performed as per the set strategies and to ensure that the strategic goals
of the entity are met. This model assists the organisation in viewing the financial, customer,
internal workplace and the growth outcomes which leads to a sustainable success of the
enterprise in the future (Owusu, 2016).
Advantages Disadvantages
Balanced approach- It facilitates a balanced
approach for judging and exercising control on
the performance of the internal and the external
environment.
Facilitates communication- this system helps
the Sollatek in communicating and creating an
understanding of the goals and strategies at
every level of the enterprise.
Focuses only on 4 perspectives- this approach
describes only the financial, customer, internal
process and the learning outcomes and not
determine the other aspects like managerial and
social perspectives.
Vague approach- as there are no set standards
in this system so it leads to a vague concept to
analyse the organisational success.
Key performance index- A set of quantifiable measures that Sollatek uses to compare the
performance in terms of meeting their strategic and operational goals. It varies between
companies and industries, depending on their practises or performance criteria. It is also known
as key performance indicators (Owusu, 2016).
Advantages Disadvantages
Easy to measure- It is the easiest technique to
measure the performance on a quantitative
basis.
Efficient management- this tool helps the
Not refer to benchmarks- the key performance
indicator simply improves the future results
without referring to the external parties and the
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management in knowing the performance and
the strategic goal so that the operations can be
functioned in the efficient way.
benchmarks.
Frequent measurement- this system involves
frequent measurements so a lot of time and
cost is to be devoted which leads to increase in
expenses and reduces the earnings.
Comparative analysis
Benchmarking- it is systematic process of improvement followed by Agment to improve
their processes, policies, programs, products and strategies by comparing themselves to their
biggest competitors and perceived market leaders. The goal of benchmarking is to recognize the
weaknesses within the company by comparing to the market leaders.
Advantages Disadvantages
Direction for improvement- It is the best tool
for directing towards the performance
improvement and makes the operations of the
firm better.
Facilitates competitive strength- A competitive
advantage can be gained by using this
approach.
Difficult to compare- it is difficult to compare
one industry with another and can result in
misleading evaluation.
Difficult to get information- An information
regarding the performance of the competitors is
hard to get as no company disclose about its
insider's strength.
Hence, referring overall evaluation it can be presented that, in comparison to
benchmarking, variance analysis, balance scorecard & KPI recognized as the most suitable tools
which help in responding monetary problem effectually.
CONCLUSION
From the above report it can be concluded that management accounting is a process
which is used in preparing management accounts, reports and other financial reports thereby
providing information necessary for decision-making. The report has explained that how
providing managerial information on time which helps in perform the management related
business activities like planning, organising etc. effectively. It also helps in managerial decision
making. It has also explained various management accounting techniques used in increasing
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sales, acquiring market share and to gain competitive advantage. The report has also discussed
the benefits of using management accounting system which helps the company in making
efficient management related decisions. Different management accounting planning tools are
used for making budget, solving financial problems which the organization is facing.
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REFERENCES
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Management Tool for Ghana Metropolitan Assemblies. Journal of Finance and Accounting.
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Accounting Education. 44. pp.25-34.
Sokolov, A., Elsukova, T. and Sadykova, A., 2016, March. Management of financial results of
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