Tech UK Limited: Management Accounting, Costing, Budgeting Report

This management accounting report delves into various aspects of financial management within Tech (UK) Limited, a mobile charger and gadget retailer. It covers the functions of management accounting systems, including inventory and cost accounting, differentiating it from financial accounting. The report highlights the importance of management accounting as a decision-making tool, exploring cost accounting systems (actual, normal, and standard), inventory management systems (FIFO, LIFO, Average), and job costing systems. It also presents different types of managerial accounting reports and emphasizes the importance of accurate financial information presentation. Furthermore, the report discusses absorption and marginal costing methods, comparing their impact. Finally, it examines different kinds of budgets (master, financial, cash flow, static), along with their advantages and disadvantages, and outlines the budget preparation process, including pricing and costing considerations, providing a comprehensive overview of management accounting practices.

Management accounting

Contents
Introduction:..........................................................................................................................................2
Task 1: (Report).....................................................................................................................................3
Task 2:...................................................................................................................................................6
Task 3...................................................................................................................................................10
Conclusion...........................................................................................................................................16
References...........................................................................................................................................17

Introduction:
Being the manager of the company, Tech (UK) Limited, who is the producer and the retailer
of the mobile charger telephone and the other gadgets also, the manager has to maintain the
accounting for the proper functioning of the company. For proper management accounting,
financial report has to be prepared. Due to the lack of financial information in the company
cost accounting system, inventory system, job costing system, etc. and many other
accounting methods have been taken into consideration. The company also uses the
absorption and marginal costing methods for proper decision making. The company has also
make different budgets to forecast the future. The auditor of the company has also compared
the accounting approaches with other companies to examine their financial position.

Task 1: (Report)
Introduction:
The report consists of functions of management accounting systems. It includes the
inventory management system, cost accounting system. Difference between financial and
management accounting. Management accounting a tool for decision making. This report
highlights the facts of management tools and techniques.
a) Explanation of management accounting and the essential requirements of management
accounting system which entails:
I. Distinguishing Management Accounting from Financial Accounting.
Management Accounting: It is a managerial task performed by the top level managers which
involves a process of Identifying, Measuring, Analyzing, Interpreting and communicating
information of the organization. This helps the managers in decision making which able the
company of achieve competitive edge. Examples are product costing, research and
development.
Financial accounting: It must be done with the various accounting standards techniques. It
focuses on doing everything with financial aspects of the firm such as preparing financial
statements, financial report, cash flow, balance sheet. It focuses on external matters. It is
doing everything in financial aspects.
II. The importance of management accounting information as a decision making tool for
department managers.
Management Accounting is a tool which guides to decision making. As it includes the use of
financial information which is an interpersonal tool of decision making. Decision making is
what deciding in the matters of operational and financial and scientific basis, so
Management Accounting guides to that by the management techniques such that risk
management, ABC model approach and financial reports, cash flow analysis, absorption and
marginal costing.
Through advance preparation of plans and actions it helps the managers to guide to decision
making. Managers already know where, when and why of the business so it becomes easy to
guide them in decision.
iii) Cost accounting systems (actual, normal and standard costing)
Also called as costing system used by firms to know the cost of the product for the stock
valuation and profitability analysis. Estimated cost is monitored by the actual cost. This is a
helpful tool as it makes know that how much inventory in each stage of production what is
its cost and how much our cost of production is. It allows to record keeping of the inventory
at each level of production.

Normal costing: used to measure manufactured products.
Actual costing: it involves recording of product cost.
Standard costing: it involves substitution of estimated and actual cost.
IV. Inventory management systems
This system helps in managing the inventory from factory place till the goods are delivered
to the distribution place to the customers. In short its the whole management of inventory at
it each stage of product. It includes keeping a month to month record of inventory. This can
be done by using a ERP system.
Valuation of inventory can be done by methods:
FIFO: “first in first out” means goods added first to the inventory are assumed to be the first
goods. It means the oldest goods are meant to be sold at first and new goods at last.
LIFO: “last in, First out” means goods added last in the category are assumed to be the first
goods. New goods are sold first in place of oldest one.
Average: Its a rarely used method with less accuracy.
Formula; Average cost=(Total quantity of inventory units)/( Total quantity of units).
V. Job costing systems
Job costing or the job order costing is the method of assigning a manufacturing cost to each
product manufactured in a company, this method is used by a company when the companies
product is slightly different from each other.
Job costing method uses some information for its use like:
1. Direct materials: this includes all the materials like raw materials, machines, fuel,
electricity, direct cost of the product and all the direct materials used within the factory.
2. Direct Labour: it includes the labour which includes the wages to the labours. They all are
shown in trading account.
3. Overheads: it includes the depreciation on assets such as fixed assets building, machinery,
furniture it is a part of the overhead cost.
b) Presenting financial information.
I. Different types of managerial accounting reports
Managerial accounting reports are the guide to quantitatively performance of the business
which is based on financial statement, final reports. It is consist of measuring and analysing
the financial performance of the business.

It includes managerial accounting reports like:
1. Financial Reports: it consists of making of profit and loss statement, balance sheet and
making financial statements which provides us the information for our net profit/net loss of
the company.
2. Pro Forma Cash Flow: It shows the cash inflow and outflow of the business. It gives a
month to month summary of inflow and outflow of cash from the business operations.
3. Sales reports: Is the successful tool as it shows the profits on sale and let us know the
revenue generation in terms of the company expenses. it also highlight which part of
company is generating more sales.
4. Item cost reports: it helps us to make you more accurate knowing of your expenditures in
terms of direct labour, material and overheads expenses. After knowing that you can came to
the conclusion that if these expenses have invested in some other activity how much your
company can earn.
ii) Why it is important for the information to be presented in manner that must be
Financial information are the final records of the business organisation, it is presented
accurately because they reveal the true value of company. Goodwill of company depends on
net worth, so it should be shown correctly to the public. As well as the public are the
investors so they need accuracy in financial terms. Financial statements, balance sheet, profit
&loss do reveal company true position.
Conclusion:
The basic functions of the management accounting that are involved in this report teach us
that these functions are helpful in decision making, cost allocating. Inventory system method
helps us in managing inventory. It is considered every company should reveal the true
financial information as because it depicts the true value of company.

Task 2:
Absorption costing:
Absorption costing is the method of costing in which direct material, direct labour, and all
the indirect or overhead expenses are calculated. The absorption costing, is the method of
accounting in which manufacturing cost of the product is calculated. It also includes the
fixed cost as well as
Variable cost to ascertain the cost of the product. Absorption costing is made for the
financial report or for the tax payment. Absorption costing is also called full costing as the
all the cost are included in it whether fixed or variable or utility cost etc. Absorption costing
shows high net income as compared to variable costing. It is the old method used in the
organisation to ascertainment of the cost widely.

The difference between these two income statement is due to fixed cost and
stock.

Marginal costing:
Marginal costing is the method of accounting, where the variable cost is changed as per the
unit of the cost. The increase and decrease in the total cost of production by adding one unit
is called marginal cost. Marginal cost are the variable cost which includes material cost,
labour cost, and overhead cost such as administration and selling overhead, and also fixed
cost. The changes in the marginal cost effects in the volume of the profit. Marginal cost is
basically the differentiate between the product cost and the period cost. This method is very
simple and it is easy to operate.
Marginal costing helps in taking the managerial decisions. The production cost or the
volume of the output is determine to ascertain the cost. Marginal costing remains same at per
level of activity.

Task 3: (Report)
Executive summary:
Tech (UK) limited, is the company who is the producer and the retailer of the mobile phone
charger and also manufacture the other gadgets in the UK. As the manager of the company,
some reports on budget are prepared and along with their advantages and disadvantages, the
process of the budget, and the importance as the planning and the controlling.
Introduction:
The UK Company, Tech limited, is the retailer and the manufacturer in the UK of the some
gadgets. Being a manager, few reports on the different budgets are prepared. A budget is the
estimate of the future forecast that how much money we have to spend or how much money
we need in the business. Budget helps in showing the financial position of the company.
Different kinds of budget have to be prepared such as financial budget, cash flow budget,
master budget, etc. Budget helps in planning about the future and budgetary controlling
helps in attaining the actual performance.
a) Different kinds of budgets and their advantages and disadvantages:
Budget Define Advantages Disadvantages
Master budget – Master budget is the
short term budget
made by a company
to find out the
functional budget of
the company. This
budget includes
production cost,
overhead expenses,
income, etc.
Master budget is the
overall budget of the
company. The
master budget shows
the Incomes and
expenses of the
company occurred in
monthly, quarterly
or yearly.
There is lack
of specificity
in the budget.
The amount
shows in the
budget is the
total sum of
the different
departments.
It is also
difficult to

read and
maintain the
budget.
Financial budget Financial budget is
the long term or
short term budget.
This budget has to
be made by every
company to find out
the incomes and the
revenues of the
organisation. This
budget shows the
investment of the
capital in the assets,
liabilities and the
equities.
Financial budget
helps in financial
planning in the
organisation as its
gives the knowledge
about the assets,
liabilities, debts,
loans, taxes, etc. As
its gives the
information about
the annual report,
it’s helpful for the
investors as well as
owners.
It requires a lot of
time to make a
budget. Financial
budget creates a cost
of overhead
expenses. It only
consider the cost
which are related to
the cash, it doesn’t
deal with any other
issues.
Cash flow budget Cash budget is a
short term budget
which shows the
inflow and the
outflow of the cash.
It includes all the
transactions which
are related to cash
incomes,
expenditures for
Cash budget helps in
determining whether
the cash is available
to fulfil the current
needs or not. Cast
budget helps in
calculating the
working capital of
the company.
Cash budgets are not
equate to the profit.
We can’t predict the
judgement which are
not related to cash.
There is also lack of
flexibility and
manipulation.

some specific
period.
Static budget Static budget is a
kind of fixed budget
which doesn’t
changes as the
volume changes.
Static budgets are
compared with the
actual budgets and
the amount received
is quite different.
It is easy to update
and doesn’t changes
its value. This helps
in controlling the
unproductive cost.
The biggest
advantage is that
there is a lack of
flexibility as the
amount is fixed. The
value doesn’t
changes as the
increase in the
volume, the major
drawback.
b) The budget preparation process including determination of pricing and different
costing:
Budget is the estimation of future plan, so we have to go through with the process to make a
budget:
 Find out the information – We have to find out the information whether the budget
belongs to top down or bottom up. We have to find out it belongs to individual or as
a company’s income or expense.
 Measure the information – The information should be measured about its product, its
region of projection, about its nature and function. The budget is made according to
the information is available regarding that product. How many expenses have made
on that project.
 Collect the previous information – After that we have to collect the precious
information as it serves as a tool for making a new budget. We gather information
regarding sales. Expenses, incomes, of the customers and the company.

 Making projections – The fourth step is to make projections for the upcoming year.
Budget projections can be simple or it can be complicated. Different companies used
different methods of budgeting and different approach.
 Determine break even point – The fifth and the final step is to determine the break
even point. To calculate break even point is difficult task as we have to go with
major calculations such as marginal or contribution.
c) The importance of budget as a tool for planning and control purposes:
Budget as planning – Budget is a planning of future. It is a process in which we
create a plan how to spend money, how to meet with the urgent needs. In budget we
create a plan in advance whether we have the sufficient money or not. Budget
planning is not a forecast of future, it is the plan of the future outcome.
Budget control – In budgeting control actual results are compared with the budgets.
It is responsibility of the manager to control the price if there is any differences in the
two budgets or either revise the original budget.
Conclusion:
Tech (UK) limited, company wants to make the different budgets to analyse their different
cost of mobile chargers or other budgets. The manager also make the process of budgeting,
the steps how to make a budget. Budget also helps in controlling and planning the budget. It
gives the information about the future plan and also controls the cost which is unproductive.

Task 4:
Tech (UK) Limited has recently published their accounts for the last financial year showed a
loss of £1.5 million. The company is evaluating ways in which the organisation could use
management accounting to respond to financial problems. The auditors in their recent report
has suggested the use of a Balanced Scorecard approach.
The Tech (UK) Limited, uses the Balanced Scorecard approach, it is the metric method
which is used for the proper functioning and performance to improve the internal activities
of the company. This approach also gives the information about the external outcomes. It
helps in measuring the result give feedback to the enterprise. This system helps in day to day
work by monitoring the progress of the earlier work. This approach clearly states the
mission, strategy, goals of the organisation. The Balanced Scorecard approach, deals with
the both financial as well as non- financial terms. This approach is basically used in big
organisation, government companies, industries, etc.
The balanced scorecard is the strategical tool, which is used by the managers to check the
activities and to control and monitor the activities arising from that action. Their main focus
is on the implementation of the operational or management strategy.
Sandra’s car UK Limited, is the private company which follows the ratio analysis method of
accounting to find out the financial position of the company. Sandra’s is the company which
basically deals in the car so they have to maintain the report at the end of the financial year.
They used different approach from the Tech (UK) Limited. Tech Limited company is in the
loss of a huge amount whether the Sandra’s Limited is in the profit of a huge amount.
Balanced Scorecard approach Ratio analysis
It consider the matter of both financial as well
as non- financial terms.
It only consider the matter of the financial
term.
It evaluate the controlling performance of the
company.
It evaluate the financial performance of the
company.

It emphasis on achieving the strategies of the
organisation.
It emphasis on the different ratios to evaluate
the performance.
In this accounting system we compare the
actual performance with standards and then
control the outcomes.
In this accounting system we calculate the
liquidity, profitability, activity, dept ratio.
This approach is basically used for day to day
purpose to analyse the financial position of
the organisation.
This approach can be used as short term or
long term depends upon the ratio.
So from above explanation we have conclude that Balanced Scorecard approach requires
the huge time and cost investment so it is difficult to manage by the company. Stakeholders
also doesn’t use this approach and don’t accept this kind of accounting usually. Its main
focus is on metric so it doesn’t pay attention on strategic objectives. It also requires the
collection of data and useful information which are not accurate. There is also lack of focus
on the achievement of the organisational goal. So this approach is not as justified to adopt by
the Tech (UK) Limited company.

Conclusion:
Tech (UK) Limited company is the producer and the manufacturer of the gadgets and mobile
chargers. The senior manager of the company, has to maintain the accounting report of the
company. They have to main the absorption cost and the marginal costing. This company
also maintain the Balanced Scorecard approach method of accounting. As per the manager
this approach has been compared with the ratio analysis. This method approaches to the day
to day work where as ratio analysis approaches as a short term as well as long term. The
manager with the help of these accounting techniques work efficiently and effectively in the
organisation.

References: