Detailed Management Accounting Report: Unit 5 for Vectair Holdings

This report focuses on management accounting practices, specifically analyzing the operations of Vectair Holdings. It begins by defining management accounting and exploring various types, such as inventory management, cost accounting, job costing, and price optimization. The report then discusses different management accounting reporting methods, including segmental reports, performance reports, inventory management reports, accounts receivables aging reports, and job cost reports. Furthermore, it delves into the calculation of absorption and marginal costing, highlighting the differences between them. The report also covers various planning tools used in the business, like NPV, ARR, and IRR. Finally, it examines how the company responds to financial problems by adopting management accounting systems. The report provides a comprehensive overview of how management accounting aids in internal decision-making and achieving financial stability within the organization.

UNIT 5 MNG
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Defining management accounting and discussing various types of it.............................1
P2. Discussing various methods used for management accounting reporting.......................4
TASK 2............................................................................................................................................6
P3. Calculation of absorption and marginal costing and discussing differences between them.6
TASK 3 ...........................................................................................................................................9
P4. Various types of planning tools in the business...............................................................9
P5. Enumerate how company is responding to financial problems by adopting management
accounting systems...............................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting information is quite useful for management so that it may be
able to have better and effective decisions. It is useful for management to take internal decisions
for organisation in the best possible way. The present report deals with Vectair holdings, which
uses management accounting in daily operations quite effectually. The management accounting
information is helpful for managers to remove deficiencies in effective way so that profit may be
earned by satisfying customers. This report also highlights various methods of management
accounting reports and also methods which are being used by company for effectual results.
Moreover, marginal and absorption costing is also discussed in the same. Budgetary control tools
such as NPV, ARR and IRR are also discussed which are relevant to management for making
decisions concerning investment. Furthermore, it also discusses how financial problems are
effectively handled by organisation with the help of management accounting information.
TASK 1
To: General Manager
Vectair Holdings
From: Management accounting officer
Subject: Presenting report to General Manager in Vectair Holdings
Introduction:
Management accounting techniques needs to be used by Vectair holdings so that it may
have better internal efficiency in the organisation. This will help to have financial stability in
the organisation with much ease.
P1. Defining management accounting and discussing various types of it.
Management accounting is useful in organisation be it small, medium or large. This
guides management to take better and effective internal decisions for betterment of the company.
Vectair holdings is also benefited by using management accounting techniques and various
methods for better growth and effective functioning in the market. It is defined as the process of
analysis and interpretation of financial data collected with the help of financial and cost
accounting both. This branch draws conclusion from both accounting in order to assist
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management in the process of decision-making. Thus, it is clear from the above definition that
management accounting information is used to take internal decisions so that it may be helpful
for management to take better decisions (Albelda, 2011).
This type of accounting information is only available to management to take decisions
and as such this is not provided to users of accounting information. This information remains
within the hands of management of the company. Vectair holdings is much benefited by this
information as through this, it can analyse strengths and weaknesses of company. Thus,
management can strict action to remove such defects which hinders performance with much
ease. This is possible only because relevant and meaningful information imparted to managers.
Management accounting is a process of summarizing information, which is provided by
financial accounting through recording of business transactions in the books of accounts. As
such, cost accounting is concerned with controlling cost so that revenue may exceed expenses.
This information of cost and financial accounting is compiled in the form of management
accounting information, which is then provided to managers for taking decisions. However,
maintaining management accounting is not required by law but firm may prepare managerial
reports for the betterment of company (Burritt, Schaltegger and Zvezdov, 2011). The different
types of management accounting and essential requirements in company is listed below:
1. Inventory management system-
The inventory management system is not a static process but is a ongoing process as
production of goods is required so that goods may be produced at regular intervals. The
inventory is required to be updated so that no wastage may occur. If stock is more in quantity,
then it leads to unnecessary spoilage and adds to cost. Thus, inventory should be in adequate
manner so that no such wastage occurs which reduces profit of company. This management
technique helps Vectair holdings to effectively managed inventory at daily basis as it takes order
from customers and then timely ship products so that they may be satisfied with it quite effectual
way. It is a complex process, which has to be dealt by management of company in effective way
so that proper inventory system in organisation may be made with much ease.
2. Cost accounting-
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Cost accounting is another useful method of management accounting, which is essential
requirement in firm as it helps management of Vectair holdings to control costs in effective way.
This is important technique as it determine cost of production in effectual way. To ascertain and
determine cost is required so that expenses may be controlled and even reduced which eventually
helps to increase profits of firm in the best possible way. This is required so that organisation
may not waste scarce resources on unproductive activities, which provides nothing but adds to
cost (Caglio and Ditillo, 2012). For initiating this, it is required that firm may analyse firstly
which activities generate profitable operations. Then those products may be analysed which are
not profitable. As such, calculation of costs may be correctly ascertained. This helps company to
reduce unwanted expenses in the best possible way.
3. Job costing-
It is also another useful method, which is used by management to reduce the costs
incurred on each jobs, which is helping in the production process. By ascertaining correct cost of
each job helps Vectair holdings to reduce expenditures on unproductive jobs, which are
deteriorating profits, or in simple words, cost of jobs may not exceed revenue of firm. This
method helps to accumulate information about costs that are associated to particular job in the
organisation. This is information is useful for management as controls costs that are related to
specific jobs in effective way. This also provides transparency and clarity to allocate cost to
factors of production keeping in mind, how profit may be generated by employing such factors
of production in effectual way. As a result, job costing aids to management for better decision-
making.
4. Price optimisation-
Price optimisation technique is basically preparing mathematical models to determine
price level of products at a particular price. This is done by management to judge whether
customers will be attracted to products at quoted price. This provides clarity to firm to quote
price at prevailing market price or that by price which customers willing to pay for it (Otley,
2016). This is a technique to analyse how demand of the company’s product varies at different
prices and as such, suitable price is quoted by organisation by predicting profit margin, stock
levels and then recommending competitive price, which will provide increased profits to
company in quite effectual way with much ease. Thus, price optimisation is quite effective and
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useful technique which is used by management to analyse demand of the product in the market in
the best possible way.
P2. Discussing various methods used for management accounting reporting
The various methods, which are used, for reporting purpose are as follows:
1. Segmental report:
The segmental report is basically a report that consists of operating segments of company
which is being disclosed with reference to financial statements of the company in quite effective
way. This helps management to take better and effective decisions with much ease. It is required
only for public entities and not for private ones to grasp information to take decisions in effectual
way (Cooper, Ezzamel and Qu, 2017). However, the segment report is provided to stakeholders
such as creditors and investors regarding financial position of operating departments of the
company so that they may be able to take decisions about the soundness of organisation in quite
effective way.
Vectair holdings quite effectively take decisions for the betterment of it by relying on the
segmental reports. This report include information such as depreciation, amortisation, type of
products, which are sold by each segment of the firm and many more. Moreover, it also includes
information related to non-cash items, material expenditure items etc. which are much beneficial
to creditors and investors to take enhanced decisions in the best possible way.
2. Performance report:
The performance report deals with much needed information to management with
reference to individual performance of workers. This is essential so that budgeting output may be
easily compared with that of actual performance and if any deviations exist then corrective
actions are taken by management. This whole procedure is attained or done in a specific period
so that performance of employees’ may be analysed quite effectively with much ease. The
performance report measures or provides results of employee during specific period with much
ease. Thus, it ensures that overall performance of workers are not declined and if such happens
then corrective actions are taken to remove such deviations by the management (Tappura, 2015).
The deviations, which exist, is called variance. It can be favourable or unfavourable
depending upon the high or low deviations, which has occurred from the relative standards
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quoted by management in effective way. As such, performance reports are quite useful for
management to assess performance of employee so that it can be enhanced in a better way and
eventually firm may be able to earn more profits in the best possible way.
3. Inventory management report:
The inventory is required to be maintained in sufficient quantity so that it may not lead to
wastage. Inventory management report is one such report, which provides information to
management related to inventory. Stock means goods which may or may not be in the form of
raw material are being kept in the warehouse of the company which are required for future
production purpose. As such, it is essential that company must order only required quantity of
inventory so that it may used in a stated period and as such no handling cost is incurred by it
(Chenhall and Moers, 2015).
Inventory management report provides information regarding current inventory in the
warehouse and as such, this information is being used by management to analyse whether
sufficient amount of inventory is available or production department needs to have more stock to
carry out production process without any interruption. As a result, inventory is being analysed
and as such, no wastage and spoilage is made.
4. Accounts receivables ageing report:
The accounts receivables ageing report is basically used by management to determine
how much money is required to be received by company from the credit customers in a particular
period. This is important to collect money from the customers so that it can be effectively
utilised by company in carrying out daily operations in quite effectual manner. If much of the
payment is outstanding from the customers, then strict credit policies may be implemented by
Vectair holdings so that it may get timely payments with much ease (Fourie and et.al, 2015).
This report consists of all the unpaid invoices, which are of credit customers and have
become overdue for the payment of the same. Moreover, accounts receivables report also
includes unused credit memos in accordance with date ranges. This report deals with contact
information of the customers which are then approached by management so that they pay their
unpaid invoices which had become overdue for payment in quite effective way. As such, this
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report is quite relevant and powerful tool for company to call for unpaid invoices and as such,
Vectair holdings may have effective credit policies in the best possible way.
5. Job cost report:
This report deals with various jobs, which are associated with the production process. This report
provides information to management in effective way so that it may be able to analyse costs
associated with such jobs. Through this report, management is able to determine whether profit is
being generated by such jobs or not and as such, it decides to control expenses in the best
possible way by analysing job cost report. Thus, this report is worth for management to take
effective decisions for the betterment of firm quite easily (RAHNAMAYE and ROSTAMI,
2015).
Job cost report shows expenditures, which are, incurred on specific jobs and as such,
management analyses it and control the cost in effective way so that revenue may exceed costs.
As a result, job cost report is effectively utilised by management to take effective and better
decisions so that costs may be controlled effectually.
The benefits of management accounting systems in company
Management accounting is quite useful for management to control on expenditures and
various costs that are incurred on specific jobs and as such, profits can be earned by using
benefits of management accounting information with much ease. Vectair holdings can use this
information as it provides with transparency of various costs which are obtained in the process of
production. By using this information, customer's requirements may be forecasted by company
and as such, it helps to assess needs of customers' by analysing demand and as a result,
management accounting systems are beneficial for company.
TASK 2
P3. Calculation of absorption and marginal costing and discussing differences between them
Computation of Marginal costing for Vectair Holdings
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Marginal costing is being calculated above for Vectair holdings. It can be interpreted that
sales revenue on 600 units at the rate of 35 and total amount comes to 2100. Production cost is
around 9100 having 700 units. On the other hand, closing stock is reduced from the production
cost which is 1300. Other than this, variable cost comes out 7800. Therefore, contribution per
unit is 13200. Variable overheads on sales comes to 600, fixed cost is 200 and production
overheads comes to 2000.
On the other hand, selling at fixed cost is 600 and administrative fixed cost is 700. Thus,
net income generated by Vectair holdings is 9300 which is quite good as it is reflecting surplus
left out after deducting all costs for a particular period (DIANATI, Alambeigi and Barzegar,
2016). Marginal costing is effective management technique which is caused by producing one
additional unit of output. It can be used by management to take enhanced decisions for
betterment of company.
Computation of Absorption costing for Vectair Holdings
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Absorption costing is computed for Vectair holdings. This is quite useful tool in
manufacturing cost absorption in organisation. Direct and indirect expenditures are taken and
then accordingly absorbed in the production of goods. The above calculation may be interpreted
that sales on production is around 2100 having 600 units at the rate of 35. Manufacturing cost is
11200 which has extracted out of 700 units at the rate of 16. For inventories, value is 1600 in
which 100 units at the rate of 16 per unit. On the other hand, fixed production overheads which is
deducted from sales is 100. By deducting all these expenditures, gross profit is being arrived
which has come to 11500.
After arriving at gross profit, various costs are deducted. These costs are variable
overheads on sales as 600, fixed cost at selling as 600 and administrative cost as 700. After
reducing above costs, net profit is produced as 9600 which is overall good as after absorbing
manufacturing costs, firm has generated 9600 amount of net income (Coad, Jack and Kholeif,
2015).
The differences between absorption and marginal costing are as follows:
1. Marginal costing is calculated by applying only variable cost as fixed costs are being ignored.
On the other hand, fixed costs are used while calculating absorption costing.
2. Profit calculated is different from both methods. As such, individual sales of products are
being attained to calculate profits and this will provide more profits as compared to profits
calculated by absorption costing method.
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3. Contribution margin is used is deducted from overhead to calculate profit under marginal
costing whereas, under absorption costing, gross profit is used to ascertain profits of the concern.
4. Financial reporting is not required under marginal costing. Besides this, it is required for
absorption costing. As such, both methods have their own importance in organisation to
determine cost quite effectively (Shields, 2015).
Management accounting methods and financial reporting-
The method used in management accounting are revaluation accounting and cost
variance. Revaluation accounting is a technique which is made to analyse current market rate of
assets by making certain adjustment to derive current rate of company's assets in the best
possible way. On the other hand, cost variance is the difference which is extracted out of
budgeted costs and actual costs. This is essential and deviations or variance is resolved by taking
corrective actions. As such, it is useful for financial reporting as well.
TASK 3
P4. Various types of planning tools in the business
1. Zero based budgeting-
Zero based budgeting is quite essential as unlike other budgeting tools which takes
previous year budget to make current year one, this completely differs from them. It does not use
past year figures to prepare budget and prepare from zero or scratch base.
Advantages:
1. Inflated budgets are completely ignored as everything is prepared from scratch base.
Proper allocation of resources are also found in this budget (Anessi-Pessina and et.al,
2017).
2. Zero based budget is quite useful as it helps to identify wastages and eliminates it easily.
Disadvantages:
1. This method is time consuming as necessary expenditures are sometimes difficult to
obtain. Basic limitation of this method is that takes lot of time to extract plenty of
expenses.
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2. It requires more man power such as technical people which are managers to justify each
expenses in the organisation. This requires more technical knowledge of manager and as
such, proper training is required to be imparted to them.
2. IRR (Internal Rate of Return)-
This planning tool is quite relevant to company in determining whether to invest in
particular project or not. It is a method which is used for estimating profitability of investment in
the project. As such, it is quite useful for Vectair holdings to invest in the project by having
rough estimate of profit that might be generated by the project (Messner, 2016).
Advantages:
1. This method of capital appraisal takes into consideration time value of money while
evaluating project effectiveness which is ignored in other techniques.
2. This method is simple to calculate and as such, results are interpreted quite effectively
and used by management to check viability of project under consideration.
Disadvantages:
1. The basic disadvantage of IRR method is that it ignores economies of scale. In simple
words, actual benefit in value is ignored by it.
2. Another limitation of IRR is that it involves large calculations which sometimes initiates
complexity. This gives importance only to profitability of the project and does not take
other essential aspects.
3. NPV (Net Present Value)-
This method of capital appraisal assess or determine present value of cash flow and then
proceeds with the investment after assessing present value. Thus, if Vectair holdings need to
have effective gain from the investment, it can use this technique for ascertaining value of cash
flow with much ease (Englund and Gerdin, 2018).
Advantages:
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11 NPV is an effective method as it considers time value of money of the investment.
Moreover, this method also provides clarity to organisation whether investment will be
profitable or not.11 Cash flow is being analysed in NPV calculation, as such managers are able to determine
when project will provide return.
Disadvantages:
11 The basic limitation of this method is that calculation of discounting rate is difficult.
Moreover, it is not worthwhile to rely on NPV when projects are of unequal life
(Macintosh).11 NPV is also not useful when amount invested in the project are unequal. This method
involves tedious calculations which demands for efficient managers for correct
ascertainment of value of project that needs to be invested.
Significance of different planning tools used in company-
The planning tools discussed above are quite useful for management of Vectair holdings
to be effective in carrying out evaluation of the project so that higher return on investment may
be garnered in the best possible way. These techniques such as NPV, IRR provides clarity to
organisation whether particular investment in the project will be profitable or not. As such, these
planning tools are useful for management to take better and enhanced decisions. As a result,
forecasting is helpful for management so that investment can be made in profitable project.
Overcoming financial problems by using planning tools-
The financial problems are also solved with such planning tools quite easily. The return
on investment is carried out effectively by planning tools and as such, financial problems of
organisation are resolved up to great extent. Moreover, zero based budgeting is quite useful as
entire budget is prepare from the zero base and as such, inflationary situations are removed and
as such, financial problems of company are solved with much ease (Saliterer, Sicilia and
Steccolini, 2018).
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P5. Enumerate how company is responding to financial problems by adopting management
accounting systems
1. KPI (Key Performance Indicators) :
KPI is a term helpful for determining individual performance of employees' in the best
possible way. It is required so that efficient performance may be imparted by them which in turn
help company to attain objectives and goals with much ease. This is performance metric which is
used to analyse employees' are performing adequately or not. As such, this helps company to
analyse financial problems in quite effective way as it comes to know which workers are
performing well and who else not. As a result, funds are not spoiled on unproductive employees
as they are utilised in KPI (Maher, Fakhar and Karimi, 2018).
2. Financial governance :
Financial governance is a term which is utilised by management of Vectair holdings to
overcome financial problems. The term required that firm should assign duties to those managers
which possess adequate skills and capabilities to carry out activities in effective manner.
Financial governance is requires that financial process are well governed by complying with set
of rules so that process workflows are smoothly followed and achieved in the organisation. As
such, if capable managers are not provided with such duties, then financial resources will go in
vain or will be unnecessary wasted.
3. Balanced Scorecard :
The balanced scorecard is a performance metric which measures performance to asses
internal functions and as such, external factors are also assessed which help to provide feedback
to management in respect of any shortcoming. This is quite useful to determine internal strengths
and weaknesses of organisation and as such, management removes such weaknesses and this
resolves financial problems as well. This technique is used to implement competitive strategies
with much ease by Vectair holdings quite effectively. As such, this technique of management
accounting system is quite helpful for resolving financial problems in effective manner
(Saliterer, Sicilia and Steccolini, 2018).
4. Variance analysis :
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The variance analysis is also another management accounting system to solve financial
problems by the management of the company in the best possible way. Variance is the difference
that is found between budgeted output and actual one for a particular period. As such, if
variances or deviations exist between these two outputs, then corrective actions are taken
accordingly by the management. The variance analysis consists of purchase price variance,
labour rate variance and many more in the process. Thus, variance analysis is quite useful for
overcoming financial problems with much ease by the company. As a result, it is a fruitful
technique.
5. Budgetary target :
Budgetary target is a monetary estimate which will be required by various departments of
the company in coming period. As such, it consists of target of expenditures which are related to
operating and capital expenses in the organisation. It is helpful for business as it is a financial
goal of it (Parker, 2012). If deviations exist, then corrective actions are taken by management to
remove such deviations in effective way. Thus, budgetary target is quite effective way to have
quick estimate of requirement of funds of departments.
CONCLUSION
Hereby it can be concluded that management accounting is quite essential for
organisation as it provides effective information which is then utilised by it to take better and
enhanced internal decisions. Moreover, various planning tools also help management to have
better understanding of the project so that investment may be done in profitable project.
Management accounting information is also used to solve financial problems by effectively
employing resources in productive activities that yield maximum revenue out of it.
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