Management Accounting Report: Analysis of Unicorn Company Operations

This report provides a detailed analysis of management accounting practices within the context of the Unicorn Company, a small to medium enterprise. The report covers essential aspects of management accounting, including its requirements, various systems, and the different methods used in management accounting reports. It delves into job costing, cost accounting, inventory management, and price optimization. Furthermore, the report includes the preparation of income statements using marginal and absorption costing methods, an examination of the advantages and disadvantages of planning tools for budgetary control, and how organizations adapt management accounting to address financial problems. It also examines the importance of management accounting in strategic and risk management, performance evaluation and in achieving organizational goals. The report concludes with an overview of the reports and their implications on decision making and financial performance.

Management Accounting

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................1
LO 1- Management accounting and its requirement in management accounting system and
different method use in management accounting report.............................................................1
LO 2- Prepare income statement by using marginal costing and absorption costing.................6
LO 3- Advantages and disadvantages of planning tools used for budgetary control................10
LO 4- Organisation adapt management accounting use to responding financial problem.......13
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is a process of accounting that provide necessary accounting
information to manager that helps to formulating policies and decision making for accomplish
the organisation goals. This accounting system usually used for internal purpose and not
regulated by any rules and regulations. It includes monetary and non monetary both which is
used for planning, decision making and manage the strategies. Management accounting
information using to evaluate management accounting system and management accounting
reports of the company (Maas, Schaltegger and Crutzen, 2016). Present report based on Unicorn
company which is small medium enterprise and have only 50 clients and deals with many firs
like the report will outline costing of TSR Pvt. Ltd.
This report includes management accounting and essential requirement of various types of
management accounting system. It consists of various methods of management accounting report
which is used by managers. It also includes marginal costing and absorption costing for cost
analysis. It will explain about advantages and disadvantages of planning control tools of
budgetary control and management accounting adapt by manager for respond financial problems
of the company.
LO 1- Management accounting and its requirement in management accounting system and
different method use in management accounting report
Management accounting
It is an essential part of accounting system that provide accounting information to
managers so they formulate policies which helps in decision-making, planning, analysing,
monitoring and controlling the activities of Unicorn. Accounting system used for internal
purpose that helps to enhance effectiveness and efficiencies of performance of Unicorn.
Managerial accounting used for analysing profitability, breakeven point and forecast the factors
that impact on business activities that helps to accomplish short term and long-term goals such as
profit maximisation, growth and build goodwill. It doesn’t require general acceptance accounting
principle and audit also not mandatory. Managerial accounting focus on such area-
Strategic management- manager prepare effective strategies for different functional
department for enhance efficiency that leads to achieve goals and objective of the company
(Messner,2016).
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Risk management-Manager evaluate market trends then prepare strategies for managing the
funds in such way so company can get future opportunities and reduce losses from future
circumstances.
Performance management- managerial accounting helps to evaluate standard performance and
actual performance. If, any deviation found then corrective action can be taken at a correct time.
This management avoids unnecessary cost and also enhance performance that ultimately helps in
achieving the goals.
Distinction between management and financial accounting
Management Accounting Financial Accounting
Management accounting is used in
organisation for decision making and is
optional for use.
This accounting system is essential of
communication of financial position and is
mandatory to be used.
Primary audience of this process are
investors, tax authorities, regulators, etc.
Decision makers and management
Essential requirement of management accounting system
Job costing - Unicorn adapt job costing that can help to measuring cost against the specific job.
It is often used by Construction Company and ship building company which used to track
records expenses incurred and revenue generated by separate job (Lopez-Valeiras, Gomez-
Conde and Naranjo-Gil, 2015). It is the situation where job performed according to customer
specification so that Unicorn generate income with retain loyal customers. This costing is
essential for comparing previous year job costing and current job executed so they can control
the cost by taking corrective action. Job costing includes all direct material cost, direct labour
cost and expenses for computing the cost and overheads to be charged on some suitable basis.
Company often used for computing future cost so they can able to reduce cost on job and provide
goods and services at a lower cost that leads to achieve profit targets. Main application of job
costing is determine overheads on particular job and also selling cost determine on the basis of
cost.
Pons-
 Unicorn predetermine overhead cost and other cost that helps to reduce necessary cost of
the job.
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 Manager can measure profit earned on specific job so they can ascertain about the job
that helps to take future opportunities.
Cons-
 Job costing is expensive and have no standardisation form because there is need
supervision for job in job costing.
 Unicorn Company not able take decision on fixation of price because it depend upon
market conditions rather than past record of the company.
Cost accounting- It is a internal tool which is often used by Unicorn's manager for ascertain ,
allocating and distributing the cost in production and process. It records all expenditure and
revenue for preparing periodical financial report that helps to reducing cost of the production.
Cost accounting includes all direct cost( direct material , direct labour and expenses) and indirect
cost ( selling and administration cost , advertisement cost etc). Cost accounting system is
required for management accounting because disclose profitability and non profitability
information to manager in the process of planning, controlling the cost of the products so they
can provide quality product at a lower cost that helps to retain loyal customers and company
can increase profits (Thomas, 2016) .
Pons-
 Cost accounting done by following financial accounting standard of board and it
adaptability because of changing needs of the business.
 It provide information to take decision for reducing the cost.
Inventory management - it is used by Unicorn company because it is the process of managing
the ordering cost , handing cost , raw material cost and replenishing the lead time that helps to
control the cost on per production. It integrated with accounting because it analysing the cash
flow by selling product and also analyse the amount , price and place of sell the product.
Unicorn can provide product on the time of demand and ,meet out the sales target that helps to
increase efficiency of productivity that helps to maximised the profits and sales.
Pons-
 Unicorn able to meet out the customer needs on the time of demand that helps to retain
customers and making profits.
 Company can reduce the cost like handling cost, ordering cost by inventory management
so company provide product at a reasonable price.
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Cons-
 Inventory management is not useful because company can't manage inventory due to
changing needs and preferences of the customers.
Price optimisation- Unicorn adopt this management accounting system that helps to determine
such price that customer can willing to pay on product. It is a mathematical tool which is
beneficial for customer as well as company (Chenhall and Moers, 2015). Company able to
provide quality product at reasonable price that helps to achieve goals and objectives such as
increase in selling , profit maximisation , customer retention and build image in the market.
Pons-
 Unicorn provide product at a reasonable price so company able to retain loyal customer
and generate profits.
Cons-
 Unicorn can’t determine accurate price according to all customer because all people
status and needs are different.
Different methods used for management accounting report
Management accounting report is prepared by Unicorn company that used for planning ,
decision making and measuring the performance. Accounting report prepare by management
accountant that used for compare actual performance and previous year performance and then
make effective strategies for improve the performance and enhance financial returns. Budget
report, account receivable report, job cost report and inventory and manufacturing report
prepared by manager on periodic basis.
Budget report – Unicorn company prepare budget report to analysis the functional performance
of the company. Cost accountant is responsible for budget report that helps to compare standard
performance and actual performance so that corrective action can be taken for achieving the
goals. Manager and owner use budget report for providing salary and incentives to employees. It
is essential to reducing the cost and improve performance so that company can achieve goals at a
pre determine time. It helps to taken instead action without any delay that helps to reduce
wastage of cost and time (Adler,2018). If budget is accurate that helps in management
accounting system to take effective decision for take competitive advantage and opportunities
that leads to achieve goals and objectives.
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Account receivable Aging report- it is critical tool of management accounting report that manage
the inflow and outflow. If Unicorn provide goods and services on credit then there is chance of
not pay amount by customers. This report have separate column for invoice such as thirty days ,
sixty days and ninety days. It is important to analysis that customer who are not able to play their
credit amount so company can prepare strict policies against them. If customer not paid amount
that time company also not able to meet their old debt. By preparing receivable report then
company manage the cash flow and reduce the debt. It also helps to build image so customer can
retain and increase profits. If inventory management , cost accounting and job costing manage
then helps to improve cash flow and position of the company.
Job cost report- Unicorn company prepare for identify the cost incur on specific project that are
helps to increase earning or profitability. Company focus on higher earning area rather than
wastage resources on such area which are not profitable to them. Unicorn analysis the cost and
expenses of running project so they can control the wastage of cost before spent. This report is
essential to enhance efficiency by reducing cost and improve the performance.it is also integrated
part of managerial accounting system. If job costing report is accurate that helps to appropriately
allocating cost on particular job that would enhance efficiency and also increase profit margin by
providing better services at the given the time.
Inventory and manufacturing report – Unicorn company prepare inventory and manufacturing
report for improve manufacturing process in efficient manner. This report often used for
measuring labour per cost, per production cost and also determine number of quantity. Unicorn
provide goods and services on the time of demand by analysing inventory and manufacturing
report. It is essential to reducing cost per unit and meet the sales target that would enhance
profits of the company. inventory management of management accounting system is integrate
with this report because inventory management helps to manage cost per unit and also reduce all
unnecessary cost such as shortage cost and carrying cost etc (Lopez-Valeiras, Gomez-Conde, and
Naranjo-Gil, 2015). if company manufacturing cost is appropriate manage that helps to increase
customer base by providing quality goods and services at a reasonable price during the time of
demand. It provide positive impact on this report it would increase customer base because of
quality product and pricing that also leads profit margin of the company.
Performance report- it is created to review Unicorn performance as well as employees
performance in the end of the year. Usually manager use this report to make effective strategies
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about the future opportunities and also helps to evaluate capacity of individual. By analysing
performance report manager declare award for capable person and laid off to under performers.
It helps to improve performance and take future opportunities ultimately it enhance profitability ,
reputation of company. Performance report is integrated with management accounting system
because it improve performance of the company by managing and arranging cost of the product.
If company appropriate use accounting system that give positive impact on performance report
that helps to increase profitability and growth (Thomas,2016).
LO 2- Prepare income statement by using marginal costing and absorption costing
Marginal costing- it is the tool of management accounting where variable cost to be
charged on the units of product and fixed cast is separately writing off against the contribution
per unit. Marginal costing used for valuation of stock and determine the price of product. It
would helps to measure net profit per unit. Marginal costing measured break even profit and
profit volume ratios.
Absorption costing- it is tool of accounting that allocate all manufacturing cost to unit
produced. This costing includes indirect cost ( selling and administration cost, variable
manufacturing cost etc) and direct cost ( direct material , direct labour and direct expenses ) for
measuring cost per unit and net profits.
Inventory cost comprise of all cost of organisation which ae related with storing and holding
inventory like cost of transportation, deterioration and obsolescence. It is cost of company which
is charged on ordering carrying and replenishment. There are different types of inventory cost
which comprise, raw materials, finished goods, maintenance, repair, work-in-progress and
operating (MRO) goods; services; and transportation.
However, normal costing is value of manufactured goods on the basis of actual materials,
direct labour cost, manufacturing overhead and cost while standard costing are directly
associated with manufacturing of firm which comprise direct labour direct material and
manufacturing overhead.
Activity-based costing
It is cost costing method where cost of activities helps in setting price of products and
services according to actual consumption. In accordance with this costing method direct cost and
indirect cost is compared to conventional costing. In this costing subject indirect cost is assigned
cost objects. Role of ABC cost is determining actual cost of production per unit which helps in
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managing control over profits and costing of products and services. This reduces future risk of
mismanagement in pricing and profitability of business. The costing method identifies and
allocates costs to overhead activities and then allocates those costs to goods which helps in
setting appropriate price of product keeping in mind profits.
Income statement using absorption costing
Particulars details amount
Sales 25*10000 250000
Less: Variable cost
Direct material 50000
Direct labour 30000
Variable O/h 20000
Variable S&A 30000
Total variable cost 130000
Less: Fixed cost
Manufacturing O/h 40000
S&A Exp. 30000 70000
Total cost (vc+fc) 200000
Profit 50000
Income statement using marginal costing methods
Particulars details amount
Sales 25 250000
cost of sales 10 100000
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Prod. Contribution margin 150000
Variable selling/ administration cost 30000
Contribution margin 120000
Less: total fixed cost
Fixed manufacturing oh 40000
Fixed selling &administration 30000
Total fixed cost 70000
Net profit 50000
Income statement using marginal costing method
Particulars details amount
Sales 25*5000 125000
Less: variable cost
Direct material 50000
Direct labour 30000
Variable o/h 20000
Variable S&A 30000
Total variable cost 130000
Less: C/Stock valuation
cost of good sold 5000*13 65000
contribution 60000
Less: fixed cost 70000
Loss -10000
Income statement usine absorption costing method
Particulars details amount
Sales 25*5000 125000
Less: variable cost
Direct material 50000
Direct labour 30000
Variable o/h 20000
Variable S&A 30000
Total variable cost 130000
Fixed cost
Fixed manufacturing o/h 40000
Sixed S&A exp 30000 70000
Total cost 200000
Less: c/stock (5000*20) 100000 100000
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profit 25000
Interpretation
From the above table interpret that TSR company produce 10000 units then net profit
margin was 120000 after charging all variable cost such as material cost, labour cost, selling
administration cost and manufacturing cost. On the flip side 50000 pound net profits was realised
by adopting absorption costing was 50000 after charging variable cost and 60000 pound fixed
cost. If company produce 50000 units there is net profit margin also differs. TSR Company
produce 5000 unit by adopting marginal costing then net profit margin was realised 185000
pound after incurred total 65000 pound variable cost. On the other hand net profit margin was
115000 pound when company produce 5000 units. Net profit was calculated after charging
variable cost from the total sales of the company. Total sales was 250000 pound and total
variable cost charged by 90000 and also charged selling and administration variable cost was
45000 pound then profit margin realised. TSR company should be adopt absorption costing for
analysing the cost. Profit margin was low when company adopt absorption costing but it gives
more realistic picture of the company because absorption costing includes all variable cost and
fixed cost for calculating cost per unit.
LO 3- Advantages and disadvantages of planning tools used for budgetary control
All company uses planning tool in management accounting which helps to take decisions,
prepare strategies for effective performance and accomplish the objectives. It work as a
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measurement tool because top manager can evaluate actual performance and standard
performance of the company, if any deviation found then corrective action taken for improving
the performance. Budgetary control includes budgetary report so Unicorn used for planning,
coordinating , evaluating and controlling day to day activities that helps to compete with
competitors and maximisation of profits (Chenhall and Moers,2015). Unicorn adopt various type
of budget such as zero base budget, cash budget, sales budget, incremental budget, fixed budget
and flexible budget etc.
Zero base budget – It is a process in which Unicorn have to prepare budget without using
previous year budget data that is way It is also called as De Nova Budgeting. While preparing
zero base budget manager have to re- evaluating activities from the staring level and requires
frequent review. The main objective of preparing budget is that reducing unnecessary cost.
Company can determine cost and expenses accordingly current situation of market. Effective
zero based budgeting is helps to allocating resources on the basis of current needs and expense.
Forecasting budget used to prepare strategy for manage cost effectives by improving operational
function of the company.
Advantages-
 Zero base budget provide better communication and coordination among different
department of Unicorn that essential to make effective decisions and strategies as per
goals and objectives.
 Unicorn can efficiently allocate resources because it doesn't look at previous year budget
of the company. It helps to identify future opportunities and reduce cost by eliminating
unproductive activities of the company.
Disadvantages-
 Unicorn require high manpower so it becomes expensive because zero base budget
prepared from the zero level, no considered previous year data.
Sales budget- it is important planning tool in management accounting tool that estimate of sales
for future financial year. It use to set target, estimate earning and forecasting about the require
production. It play crucial role within Unicorn because sales budget helps to track process and
improve performance. Sales forecasting budget prepared before sales budget so Manager
analysis market condition, economic condition, Competitors while they preparing sales
budgeting. This budget helps to forecasting and determine about the sale of the product and
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