Management Accounting Report: Financial Analysis of Travelex

This report provides a detailed analysis of management accounting principles and their application within the context of Travelex, a foreign exchange company. It begins with an introduction to management accounting, outlining its importance in policy creation, planning, and decision-making. The report explores various types of management accounting systems, including cost accounting and inventory management, with specific examples relevant to Travelex's operations. It then delves into different management accounting reporting methods, such as cost reports, budget reports, accounts receivable aging reports, and financial reports. The report further examines cost calculation methods, specifically absorption and marginal costing, and evaluates different planning tools related to budgetary control. Finally, it compares how organizations adapt management accounting systems to address financial problems, referencing benchmarking, key performance indicators, balance scorecards, and activity-based costing. The report concludes with a comprehensive overview of the key concepts and their practical implications for Travelex's financial management.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
P1 Explaining management accounting and essential requirements of various types of
management accounting system..................................................................................................1
P2. Explaining different method for managemenet accounting reports......................................3
P3. Calculating costs with the help of absorption and marginal costing method.......................5
P4. Evaluating different types of planning tool of budgetary controlling method.....................7
P5. Comparing the ways in which organisation are adapting management accounting system ti
respond their financial problems.................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
Appendix........................................................................................................................................15

INTRODUCTION
Management accounting is considered as presentation of accounting information in such
manner which directly assist management for creating policy along with regular operation. It is
related to application of gathering accounting data on basis of cost and financial accounting with
objective of formulating policy, planning, decision making and control through management.
The present report will discuss each concept of management accounting with reference to
Travelex as it is foreign exchange company headquartered in London, United Kingdom. It will
be stating management accounting system along with its essential requirements of various types.
There is explanation about different methods with its benefits and disadvantages on context to
Travelex.
This report will be explaining about integrated management accounting system with its
critical evaluation related to business entity. Further, there will be application of different range
of management accounting techniques income statement on basis of absorption and marginal
costing will be stated along with appropriate interpretation. In the similar aspect, budget is stated
as important control tool so there will be evaluation about its merits and demerits of multiple
types of planning tools with reference to budgetary control. Hence, it will analyse application of
different planning tools for preparing and forecasting its budgets. There is presence of
appropriate comparison on basis of organization for responding to financial problems on basis of
Benchmarking, Key performance indicators, balance score card, financial governance and
activity based costing.
P1 Explaining management accounting and essential requirements of various types of
management accounting system
Management accounting is referred as important tool for decision making which is used
internally through management. It helps in assisting management for attaining better control and
planning over Travelex. It is mandatory for each type of business entity as it comprises non
profit organizations, sole proprietorship and government as well. It has presence of important
role in business as it is widely used through management for accomplishing quality decision
making and better control. It analyses, understands and gathers qualitative, financial and
statistical information for helping management to undertake effective decisions on basis of
business. It is highly pervasive in its scope as whole business is moved through individual
decision taken to its top management of Travelex (Azudin and Mansor, 2018). It is considered as
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big component as it lays special emphasis on forecasting the future scenario so business could be
capable for facing new challenges for reaching new milestones. It synthesizes and analyses each
gathered information as it also traces return on investments. The future of Travelex has been
forecasted through management accounting as social, economic, political and technological
changes impact business in effective manner.
The scope of financial accounting is narrow comparatively to management accounting as
it facilitates for management to take effective decision on basis of shareholders. On the contrary,
financial accounting represents fair and accurate view of company's financial affairs to its
government, potential investors along with existing shareholders. Financial accounting is
independent where management accounting is dependent on information through financial
accounting. Only quantitative data is described in financial accounting whereas management
accounting directly deals with both quantitative and qualitative data. In the similar aspect,
financial accounting has requirement for reporting it through maintenance of certain formats as
management accounting shows through informal format along with structure. Financial
accounting has legally mandatory for preparing financial accounts of every company but
management accounting has absence of statutory requirements (Financial Accounting vs
Management Accounting, 2018).
The types of management accounting system are stated below:
Cost accounting system: It is an accounting method with objective of capturing
production cost for assessing the input cost at every step of production along with fixed cost like
capital equipment's depreciation. This is referred as initial measure and tracing each cost at
individual aspect and compared input outcome to actual outcome for aiding management of
company management for purpose of measuring financial performance. It is different
representation about financial performance and cost which consists of assets and liabilities of
Travelex. It could be replicated as very beneficial tool with perspective of management in
budgeting and to set up programs for cost control and raises net margins of business in the future.
It is of two types such as process and job order costing.
 Job order costing: This method will be used by Travelex for assigning cost to particular
product or specific unit. In this Forex, each job would be allotted with cost which should
be used.
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 Process costing: There is accumulation of cost through each operations, processes and
departments. The work performance on every unit is standardised and uniform for
continuous mass production along with involvement of assembly operation.
Inventory management system: This tracks goods from whole supply chain along with
portion of its business operation. It considers each aspect from retail, warehouse to shipping and
every movement of stock along with its parts. In simple words, it is referred as method for
controlling and overseeing the ordering, storage and use of each component with its application
in corporation about production of goods it sells. This system will directly combine about
application of barcode scanners, mobile devices, barcode printers and desktop software for
streamlining management of inventory like consumables, supplies, stock and goods. The
objective of this system is about appropriate understanding current level of inventory and to
decrease situation of overstock and under stock. The efficient tracking of quantity among the
location of stock of Travelex, its managers will be having insight and capability for making
enough decisions about inventory. Thus, inventory of business is considered as key assets and
accounts on basis of investment which is directly tied through selling of product (Spraakman and
et.al., 2018).
 FIFO: This is an inventory management system where oldest and first stock is used first
and inventory which is produced on recent aspect is shipped or used until all stock in
warehouse is shipped out or used.
 LIFO: The last in first out is used for placing accounting value to its inventory. It
operates on basis of assumption that purchased inventory as last item is first one for
selling.
Thus, cost accounting system in Travelex considers normal historical costing on its basic
aspect, full absorption as method for inventory valuation and in similar aspect, process costing is
replicated as cost accumulation method.
P2. Explaining different method for managemenet accounting reports.
It is essential for the management of Travelex to get the information about the business
activity in order to take decisions and strategies regrading the efficient business operations. In
order to take these decisions is it essential for the management in getting the financial as well as
the non financial data and information accurately and timely. Managerial accounting report can
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be defines as the process of analysing, gathering and presenting the data of the business
operations to the management of the Travelex company (Types of Managerial Accounting
Reports . 2018). Managerial accounting reports contains all the information regarding various
departmental information which will help the management in taking decisions for the particular
department and activities. Managerial accounting reporting is crucial which can be prepared at
anytime required by the management, Unlike the financial reporting that are prepared in a
specific accounting period. Management accounting reports are prepared in any manner that can
be understandable to the management and helpful in making decision.
Managerial accounting reports are continuously being prepared from various department
as per the requirement. As many critical decisions of the business activities are depends on that
reports there are various types of management accounting reports that are produced by the
managers of Travelex company. Some of the management accounting reports are as follows:
Cost managerial accounting reports: all the cost of the raw material, overhead labour , direct
and indirect cost that are incurred in the manufacturing of the product and services are
summarised in cost accounting reports (DRURY, 2013). It helps in analysing the manager the
expenses of the manufacturing a product and the selling cost of the product. It helps the manager
to evaluate profit margin of product. Cost managerial accounting reports also helps the manager
in controlling the expenses of the production process and helps in allocating the resources
accordingly. Cost reports help in better understanding of various expenses incurred in operations
that are necessary for the manager in better optimization of resources by eliminating the waste
expenses.
Budget report: this are the most fundamental reports that are essential in any type and size of a
business (Weißenberger and Angelkort, 2011). It is essential in Travelex in order to measure the
business efficiency and performance over a certain period of time. A budget is the estimation of
the expenses and performance of the company is a period that are based on the past year
expenses and performance. A budget report helps in evaluating the performance of the company
as per the estimation.. the budget report involves all the source of earning of Travelex company
and its expenditure (Romney and et.al., 2013). The manager analyse the budget report in order to
determine the performance of the company by staying the in the budge. The managerial
budgeting reports are essential for the Travelex in order tpo guide the manager that will help him
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in allocation of cost, and control the expenses in order tpo increase the profitability of the
company.
Accounts Receivable Ageing reports: these reports are being prepared in the organisation
which provides the facility of credit to its customers and distributors. These reports helps in
analysing the manager of Travelex the cash flow position in the company (Hyndman and
Connolly, 2011). Accounts receivable reports help the accountant in getting information about
the defaulter and the remaining balance of a client. The manager can find the issues in the credit
collection policies of the organisation. This reports are essential in taking decisions regarding
tightening the policy of credit collection in order to maintain the proper cash inflow and outflow.
It is essential to maintain the cash flow in order to ,meet any short-term debt requirement.
Financial reports: these are the reports which contains all the financial information and
transaction of the business over a certain period of time. These reports are prepared for the
external users of the financial statements. This reports are also very essential for the management
of Travelex company in order to analyse the current financial position of the company. These
reports helps in evaluating the financial performance of the company (Ward, 2012). The
financial statements like cash flow, income and balance sheet helps in analyse the company's
current financial position, its liquidity and profitability. These reports are crucial for management
in order to make strategies to enhance the financial position of the company in order to attain the
organisational growth and goals
P3. Calculating costs with the help of absorption and marginal costing method.
Absorption costing:
It can be referred as the management accounting cost method in which all the cost that
are incurred in the manufacturing process of a product has been considered. It is a method of
valuing inventory which includes both fixed and variable cost. It is also referred as the full
costing method as all the expenses including fixed and overhead charges has been included in
calculating the product cost (What is Absorption Costing? ,2018). In other words, the cost of a
finished unit in inventory will include direct material, direct labour, both variable and fixed
manufacturing overhead. Absorption costing ensures the operation manager that all cost are
recovered from the selling price of the product. It is an important method as compared to other
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inventory valuing method, as it value the true cost of producing an inventory. If product does not
includes the full cost, the selling price of a product may be less and company would not generate
enough profit from its return (Griffith, Stephenson and Watson, 2014). The absorption costing
assures the management of Travaelex in utilising the information of cost easily in order to make
the decision process. It helps in considering the cost that is being associated with the
manufacturing of the product.
Marginal costing:
It is a technique of calculating the manufacturing cost of the product. It is a method in
which only variable cost are charged to cost unit and the fixed cost will remain to constant and
will be written in full as against the contribution of a specific period. Marginal costing is the
determination of the marginal cost and its effect on the changes in profit with the level of volume
changes. The concept is based on the behaviour of costs that keeps on changing with the changes
in the level of output (Hague, 2018). Marginal costing is also called the variable costing as it
only considered the variable cost and discard the fixed cost in the calculation of the
manufacturing of the product. It is not considered as an appropriate method as it doesn't includes
the fixed cost like direct labour which are essential in calculating the production cost. It is not
possible to determine the profit in marginal costing as fixed overhead are changed. It doesn't help
in providing the better picture of the total cost of the manufacturing expenses to the manager of
Travelex.
Interpretation of income statement using absorption and marginal costing.
As listed in appendix, the calculation of an income statement has been done by using both
absorption and marginal costing method. It can be interpreted from the calculation that, the net
standard profit by as per the absorption costing is 150000 pounds. However, the budgeted profit
that has been estimated is 155000 pounds. It can also be said that, as per using the marginal
costing the newt standard profit of Travelex plc is 140000 pounds whereas, the budgeted profit
can be concluded as 140000. It has been shown in the calculation that total manufacturing cost
per unit is 720000 pounds.
P4. Evaluating different types of planning tool of budgetary controlling method.
Budget can be defined as the estimation of expenses and income of business operations
and performance of company for a year. These budgets are based on the prior years performance
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and expenses of the company. Budgeting is process of planning for the activities of the business
for a future period. Budgeting is an essential for the process of controlling the business activities
and expenditures in Travelex (Dunk, 2011). Budgeting is an important tool for the management
in order to evaluate the variances in the actual performance of the business and in the estimated
performance in a year.
Budgetary control can be defined as the process which helps in determining the reasons
for the variances and helps in controlling them. It helps the management in increasing the
performance of company by minimizing the expenditure of Travelex. Planning tool of the
budgetary system is essential in order to control and estimate the performance of the company as
per the budget. There are various planning tools to control the budget. Following are the
planning tool of budgetary controlling with their advantage and disadvantage of using:
Financial budgets: this budgets helps in determining all the sources of revenue and the
expenditure of the company for the coming period. There are different types of sources for
revenue of company like sales revenue, cash from selling of assets, and loans (Silva and
Jayamaha, 2012). Whereas, the source of expenses foe the company includes purchasing of new
equipments, paying short-term and long term debts. The financial budgets includes different sub-
budgets which are as follows: Cash budgets: it is the forecast of the cash receipts and expenditure in a company as
compared to the actual revenue and expenses in a year. It is essential in providing the
information to the management which is essential in controlling the cash flow in order to
meet the current obligation it is also helpful for the manager to identifying the excess
cash which can be used in investment purpose.
 Capital expenditure budget: This is the kind of a financial budgets which majorly
focusing on the capital expenditure that includes major assets such as new plants, land etc
(Hofstede, 2012). Travelex managers has to closely monitor the large investment with the
help of these budget as these are associated with the large amount of investing money.
 Balance sheet budget: it is the crucial statements which help Travelex company to
forecast in order to measure the other budgets. Balance sheet budget helps in controlling
the other budgets of the company
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The advantage of financial budgets are as follows:
 Financial budgets helps in controlling the spending and earnings of the business.
 It assist the management in knowing the financial performance of the company.
 Financial budgets helps in finding the opportunities in expansion and growth of business.
 Financial budgets assist the management in preparation of the financial reports.
Disadvantage of the financial budgets are as follows:
 The budgeting precess is based on the estimation of the certain future transactions. The
financial budgets are also based on the future revenue and expenses of the company
which are nor affective. Financial budgets involves the numeric terms which are one prepared can not be changed
easily. There is no or limited flexibility that are allowed in the financial budgets.
Operating Budgets: This budget is organisational anticipated plan for the future operations of
the organisation. The operating budgets helps in focuses on the income that Travelex are
expected to received from its daily operations and sales of the product. It helps in analysing the
manager in order to determine the future financial position of the Travelex (What Is an
Operating Budget? , 2018). Operating budgets also helps in focuses on the anticipated profit
which are the differences of sales revenue and expenses. It helps in taking decisions to the
manager in order to increase the revenue by cutting the expenses budget.
Advantage of operating budgets are as follows:
 An operational budgets helps the manager in planning for the short term as well as the
long term allocation of money
 Operational budgets assist the management of Travelex in order to manage their current
expenses and helps in controlling their future expenses also (Askin and Askin, 2012).
 Operational budgets is essential tool for the managers in order to reserve the financial
resources of the company in order to meet the future or urgent requirement of operations.
Disadvantage of operating budgets are as follows:
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 Operating budgets needs to be changes as the changes in the financial budgets in order to
reflects new revenue figure. Failing to do so can leads to make the operating budget
inaccurate.
P5. Comparing the ways in which organisation are adapting management accounting system ti
respond their financial problems.
Management accounting is an essential system to the efficient function of the
management of an organisation. It is crucial for the company to increase the profitability, smooth
operations of business activity and controlling the expenditure of the organisation. management
accounting tools and techniques are an important source for the management of a company in
order to control the business operations which helps in managing their financial instability and
meeting to the financial crises (Niven, 2011). There are various tools and techniques of
management accounting that can be adapted by any organisation in order to increase their
profitability responding to their financial problems. Travelex being a foreign exchange company
needs to adapt an appropriate tool management accounting tool which can help in solving its
financial problem. The management accounting techniques that have been adopted by Travelex
are as follows:
Balance scorecard: It can be defines as the performance measurement tool that are used in a
strategic management in order to improve and identify various internal function of Travelex.
Balance scorecard helps in measuring the performance of the organisation function within a
specific period of time (What Is A Balanced Scorecard? (A Definition) , 2018). The helps in
measuring and providing feedback to the organisation regarding its operational performance. It is
an essential process which helps in data collecting process that helps in providing quantitative
results which is used by the management of Travelex in order to make better decision for the
organisation. It will help in improving the financial performance by increasing the profitability
which help Travelex in responding to its financial problems.
There are four perceptive of the balance scorecard:
Financial perceptive: The important perceptive for an organisation is to achieve its financial
objectives. Increasing the revenue and profit of Travelex is all about meeting the financial
prospective (Grigoroudis, Orfanoudaki and Zopounidis, 2012). Achieving financial objectives
will help in strengthening the financial position of the company.
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Customer perceptive: this perspective helps in increasing the performance that helps in
achieving the customer satisfaction and attracting more customer to the company. Customer are
the most essential source of generating revenue for the organisation that will help in increasing
the profitability of the organisation.
Internal process perspective: it refers to achieve the objectives in order to improve the
operational performance of the company. It will help in making customer satisfied, increasing
the market share and increasing the profitability of organisation. The internal process objectives
will includes improvement of the business activities, reducing manufacturing waste and
eliminating the waste expenses (Wu, 2012).
Learning and growth perspective: this perceptive includes the enhancing the talent, skills and
knowledge of the employees, improvement in the technological database of the organisation. It
also includes to improve the organisational culture, leadership, teamwork etc. it will help in
increasing the productivity of the employee that can work in increasing the profitability of
Travelex company.
Key performance indicators: it is a measurable value that helps in evaluating the management
of the organisation the performance level in order to achieve the organisational goals effectively.
Travelxz company has adapted key performance indicator as a management accounting
techniques in order to evaluate the success of different department in reaching the common
target. KPI can be use in different organisational level (What is a KPI? , 2018). KPI helps in
providing the metrics that helps the manager of Travelx to determine the company's performance
level in achieving its strategic goals and operational goals. It is also very beneficial for the
travelcx in comparing its financial performance with other company's performance that helps in
determining its current financial position (Marr, 2012). KPI helps in providing different matrix
which helps in evaluating the variances in the performance level. In order to responding the
financial problem within the company. The financial matrix of KPI is very helpful as it is one of
the most important as in helps in analysing the gross and net profit margin which help the
management in increasing the performance in order to increase high return. KPI also helps to
measure the cost effectiveness which helps in evaluating the ways in order to reduce and control
the cost of organisation
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However, an another organisation Unicorn plc, a SME which are operating in retail
industry in UK has adapted a different techniques of management accounting in order to respond
the financial problem that has been facing by the organisation. Following are the techniques
which has been adopted by Unicorn plc :
Financial governance: It is one of the most essential managerial accounting techniques which
helps in controlling and managing the financial position of a company. Financial governance can
be defined as a process of managing, collecting and controlling the financial transaction and data
of the Unicorn plc. Financial governance helps thee manager of Unicorn plc in tracking all the
financial transaction of company, managing the financial performance and helps in controlling of
the disclosure of the data (Herman and et.al., 2017). Financial governance assist the management
of unicorn plc to get the accurate and timely financial information which will help in taking the
appropriate decisions and strategies to increase the financial performance and increasing the
financial stability and position of the company. It also assist the management of Unicorn plc in
making appropriate strategies and decisions for the effective control on the internal process and
activities in eliminating the waste activities (Ben Khalifa and et.al., 2012). With the strong
financial position, Unicorn plc can respond to its financial problems and can easily achieve the
growth and goals of the organisation.
CONCLUSION
By summing up the above report, it can be concluded that management accounting is an
integral part on organisation system which helps in improving the efficiency of a business
operations. Management accounting is considered as presentation of accounting information in
such manner which directly assists management for creating policy along with regular operation.
It is related to application of gathering accounting data on basis of cost and financial accounting
with objective of formulating policy, planning, decision making and control through
management. The above report has concluded the essential requirement of different management
accounting in Travelex which helps in increasing the performance of the organisation. it has been
included different management accounting reports with their importance in making decisions and
strategies for increasing the efficiency of business operations. the integration of management
accounting system and reporting in Travelex operational process has been discussed in the
report.
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Present study has concluded calculation of income statement of Travelex y applying various
management accounting techniques includes marginal costing and absorption costing. The report
has concluded the advantage and disadvantage of various planning tool of budgetary control that
help Travelex. Further, it has also concluded the use of these planning tools in preparing and
financial budgets. It has also concluded the importance of these planning tools in order to solve
the financial problems in Travelex. Furthermore, report has also concluded different types of
management accounting techniques that has been adapted by Travelex and Unicorn plc. and the
way this techniques used in responding to their financial problems. At last, report has concluded
the effectiveness of planning tools and management accounting techniques in solving the
financial instability in Travelex which helps the company in leading to its organisational growth.
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Appendix
Absorption costing:
Profitability statement
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Marginal costing:
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