Department of Business and Management BTEC HND in Business

` `

ICON College of Technology and Management

Faculty of Business and Management Studies

BTEC HND in Business

Management Accounting

Tutor: Dr Reza Aboutalebi

Submitted by:

Full Name: Sajeda Hossain

ID No: 16745

Session: September 2020

Student ID: 16745

1
Department of Business and Management BTEC HND in Business

Contents
Introduction....................................................................................................................................3

Overview of Goldring....................................................................................................................3

1. Demonstrating the Concepts of Management Accounting................................................4

1.1 Defining Management Accounting...................................................................................4

1.2 Demonstrating Methods Relating to Management Accounting...................................7

2. Application of Management Accounting Techniques..........................................................9

2.1 Preparation of Income statement.....................................................................................9

2.2 Applying Additional Techniques of Management Accounting...................................11

3. Application of Planning Tools Used in Management Accounting Systems...................12

3.1 Advantage and Disadvantage of Planning Tools in Imposing Budgetary Control. 12

3.2 Using Planning Tools for Forecasting Budgets...........................................................14

4. Comparison of Ways in Responding to Financial Problems...........................................15

4.1 Adoption of Management Accounting System in Dealing with Financial Problems

...................................................................................................................................................15

4.2 Comparison between Huawei and Goldring in Approaches towards Financial

Problem....................................................................................................................................17

4.3 Management Accounting in Gaining Sustainable Success.......................................19

Conclusion....................................................................................................................................19

Reference.....................................................................................................................................20

References..............................................................................................................................20

Appendix.......................................................................................................................................21

Student ID: 16745

2
Department of Business and Management BTEC HND in Business

Introduction
Whereas financial statement analysis has been a major source of information regarding
several decision makings for both external as well as insider users, managerial
accounting has been applying different techniques to get a better view and thus helping
the managers. In management accounting managers process the financial data and
identify the financial cues that evaluate the effectiveness and efficiency of management
decisions. For that purpose, managerial accounting applies some tools and methods
such as budgetary control, constraint analysis, margin analysis, product costing,
inventory valuation, forecasting and trend analysis etc. These tools often include the
identification of several material costs such as absorption or variable cost, standard or
actual cost and the calculation of them. This report contains some of the managerial
accounting financial statements of Goldring along with cost function, benchmarking,
budgetary control etc. The proper guidelines about how Goldring can use managerial
accounting for solving any emerging or current financial problem by identifying any
present imbalance of return, cost and improving the efficiency of management
(Chadwick, 1999).

Overview of Goldring
Being a manufacturing company of audio equipment, Goldring started its operations in
the early nineteen century in Germany by the Scharf Brothers. Later it expanded in
other European countries and the US. The first magnetic cartridge produced by
Goldring was made in the UK in 1954. Since then Goldring has been producing a
variety of cartridge. For the following report, the production data of the magnetic
cartridge in the UK will only be considered. Goldring is determined to continue its
success by making the right choices and thus taking competitive advantages. It uses
many techniques of management accounting systems for the further decision-making
process (Goldring Cartridges and Record Care, 2020).

Student ID: 16745

3
Department of Business and Management BTEC HND in Business

Date: 13/05/2020

To: X, Senior Accountant, Goldring.

From: Sajeda Hossain, Junior Accountant, Goldring

Subject: Assessment of the management accounting reports of Goldring

Dear Sir,

I, hereby, disclose that the following report contains a comprehensive assessment of

the management accounting reporting of Goldring as well as its application of several
planning tools. With that, the report demonstrates how to apply accounting techniques
in extracting the required information for making managerial decisions.

1. Demonstrating the Concepts of Management Accounting

1.1 Defining Management Accounting

Management Accounting

Management accounting covers a wide arena of a comprehensive and creative set of

activities ranging from identifying relevant and material cost to interpreting them as well
as analysing them. While financial accounting has to follow the rules and standards set
by IASB as this is a formal representation of financial statements exclusively prepared
for internal users along with creditors, lenders, shareholders, investors etc. Rather than
communicating required information set by IASB, managerial accounting focuses on
arranging the data in certain ways that shows more accurate information, matching the
specific requirements of the management team while taking crucial internal decisions
about maintaining or disbursing a product line, setting a price range, setting production
volume etc. Management accounting, in that sense, can be related to the "art" element
of accounting as data is modified according to needs in calculating the number of
material revenues and expenditures (Folk, Garrison and Noreen, 2002).

Student ID: 16745

4
Department of Business and Management BTEC HND in Business

To enunciate, managerial accounting can be denoted as an intricate yet necessary

system that is applied for the identification and calculation of facts related to any
emergence of risks, especially financial ones along with the assessment of their degree
of aggression. Along with this research allocation of stakeholders is maintained using
this particular system.

Types of management accounting systems along with fundamental requirements

Measurements and interpretations of relevant material data are the fundamental

requirements of any particular organisation which is fulfilled by management accounting
systems. Several types of management accounting systems are used, everyone
assigned to each required activity such as cost identification, calculation even
modification

Required functions in assisting the management team in terms of the pursuit of complex
decision are being provided below. The criteria to maintain the bridge between
consciousness and the system are also mentioned below.

 Management team's Philosophy

The collective philosophy held by the management team or group of a particular
organisation is crucial in a way that, it must be aligned with the context of the
organisation. What the organisation requires should be the basis of setting the
tone of the management team's operations pattern. Managers run an
organisation, henceforth their conceded philosophy is what will either enrich or
devaluate the organisation. For example, the leadership pattern the company
follows determines if it encourages its employees for the idea and opinion
sharing or drives them through orders (Epstein and Lee, 2010).
 Order flow
By successful implication of an established management accounting system can
ensure a systematic and fast flow of authority in an organisation which should be
nurtured for the betterment of the organisation. It can be achieved through the
maintenance of a healthy employee-employer relationship.

Student ID: 16745

5
Department of Business and Management BTEC HND in Business

 Reliability of information
Reliability of a set of data refers to the fact that they are not biased, incomplete
or even manipulated by some technique. The reliability of these data can be
ensured by establishing a proper flow of information within the organisation and
by establishing strong internal controls, both of whom requires management
accounting systems.

 The commitment of the employee

A group of employees provides its best output when they are motivated by using
the proper stimulus. Motivation can be in the non-financial form which is
rewarding employees according to their measured performance. Also, a flow of
accountability is ensured in this system (Fitzgerald, 2002).

 Completeness and Sincerity

The complete and earnest flow of information mostly depends on the
management team. Access to prepared relevant information, represented in a
clear format surely will accelerate the flow of decision making.

Student ID: 16745

6
Department of Business and Management BTEC HND in Business

1.2 Demonstrating Methods Relating to Management Accounting

Several methods are available to Goldring for applying the systems of management
accounting and enjoying its advantages. The advantages of these particular methods
are being demonstrated.

Activity-
based
costing

Methods of
management
Through
accounting
out Price
Accountt transfer
ing

Figure 1: Methods of management accounting (self-made)

 Activity-based costing

This system of activity-based costing can be denoted as a standard one as this system
recognizes and records cost with cost object and a pool of activities. The managers first
supervise the production process and divide the process into several activities and
assign the costs to those activities per their nature. Assigning cost to activity pool is a
process that requires judgement as it is not always clear which cost to assign to which
activity. The advantage of using this particular costing method is that management can
identify the cost imposed on each activity, and can identify any activity that can be
avoided. By eliminating any avoidable activity or step from the production process or

Student ID: 16745

7
Department of Business and Management BTEC HND in Business

reducing assigned cost from an activity that has been consuming too much cost this
costing system saves resources. Again, decision making becomes clearer as
management can easily link cost object and cost (Hilton, 2008).

 Throughput accounting

Throughout system is more accurate in the context of forecasting costs hence

budgeting. A rational and balanced budget of a financial period can be constructed by
imposing this costing system as it forecasts operational costs based on cost reports. For
achieving a standard result from implementing a system the system needs to consider
the existence of potential shortcomings as well as the limited duration of time. Upon
considering such facts can only be a system be developed that can estimate and
forecast any irregularities and prepare for it. In throughout accounting system
management, identifies constraints, financial irregularities, a potential effect from
calamities and evaluates the damage they can cause and eventually finds alternate
strategies to deal with them. The disadvantages of this particular system are that it does
not take employee spirit, the inexperience of new staffs, absence of workplace facilities,
motivational absence, fault in leadership style and workplace management, technical
errors into account.

 Price Transfer

A large organisation constituted of several subsidiaries often tends to make inter-

organizational transactions for supply and demand purpose. Often the price recorded in
the statement is a sales price which includes inter-transactional profits. Price transfer
suggests the recording and recognition them as counterfeit items for removing any bias.
A standard amount is suggested as the transfer price (Hilton, 2008).

Student ID: 16745

8
Department of Business and Management BTEC HND in Business

2. Application of Management Accounting Techniques

2.1 Preparation of Income statement

Income statement (marginal)

For the year 2020

Subjects Amount

Sales revenue 935,000.00

(-) Cost of goods sold :

Opening inventory 00
Budgeted production (800,000.00)
Closing Inventory 120,000.00
(680,000.00)

Contribution Margin 255,000.00

(-) Fixed factory overhead (125,000.00)

Budgeted Gross Profit 130,000.00

Income statement (Absorption)

For the year 2020

Subjects Amount

Sales revenue 935,000.00

Student ID: 16745

9
Department of Business and Management BTEC HND in Business

(-) Cost of goods sold :

Opening inventory 00
Budgeted production (900,000.00)
Closing Inventory 135,000.00
(765,000.00)

Gross Profit 170,000.00

(-) Unfavourable (25000.00)

Net Profit 145,000.00

Under the absorption costing method we find a higher profit, as the fixed
overhead cost has been allocated to all the units produced thus the decreased and real
fixed overhead cost per unit is applied. This information can influence the manager’s
decision of maintaining or continuing a product line.

Student ID: 16745

10
Department of Business and Management BTEC HND in Business

2.2 Applying Additional Techniques of Management Accounting

Sensitivity Analysis:

In the sensitivity analysis, we change the volume of input to monitor the change in
profitability rate and check if our production line is profitable and if so, to what degree.
For this, we are going to assume our production volume has been changed to 22,000
units.

Profit & loss statement

(For 22000 units of products)

Particulars Marginal Costing Absorption Costing

£ £ £ £
Sales revenue 935000 935000

(-) Cost of goods sold :

0 0
Opening inventory
(880000) 990000
Budgeted production 200000 225000
Closing Inventory
(680000) (765000)

Gross Profit 255000 170000

(-) Fixed Cost (125,000)

(-) Unfavourable (15000)
Net Profit 130,000 155,000

Net profit under marginal costing method has been the same as marginal
accounting deals with the units sold rather than units produced, thus it does not always
provide the actual profitability data. To get a clearer view we apply the absorption
costing method. It shows profitability for that year increases as production volume
increases, as the factory overhead has been spread into more units.

Student ID: 16745

11
Department of Business and Management BTEC HND in Business

3. Application of Planning Tools Used in Management Accounting

Systems

3.1 Advantage and Disadvantage of Planning Tools in Imposing Budgetary

Control

1. Activity-Based Budgeting

To continue the operations and process of Goldring, it can use the activity-based
budgeting method as it works by identifying daily requirements for each cost object and
allocates resources following that (Kaplan and Atkinson, 2014).

Advantages

1. The overall process of implementing this method is much simpler as costs are
assigned considering the daily requirements of each operation undertaken.
2. The allocation of resources to respective cost objects becomes simpler under
this method. As the manufacturing costs are allocated to cost categories naming
overhead, direct costs etc.
3. If there exists an operating step in the whole process that is making the whole
process inefficient and costlier than usual management can easily identify that
and take the necessary step to discard it (Kemp, 2011).
4. Because of the daily calculation process, the determining profit margin tends to
be more precise and reliable.

Disadvantages

1. This method requires daily effort and attention to calculating which makes it more
time-consuming.
2. The cost requirement being monitored throughout each year, the budgeting
becomes a lengthy process.
3. Under this method, the required data tends to be unavailable.

Student ID: 16745

12
Department of Business and Management BTEC HND in Business

2. Cash budgeting and forecasting method

This method is used in terms of preparing budget statements for a project, especially
any high-end risky and profitable projects. Here the cash allocation throughout the
investment is controlled (Pollard, Mills and Harrison, 2007).

Advantages

1. By using this budgetary system n organisation can ensure the ultimate utilization
of their invested cash assets.
2. The surety of this proper utilization if maintained, it creases the intrinsic value of
the said organisation.
3. Ensuring an optimum profit margin by controlled monitoring.
4. Ensuring more reputed control over the cash assets lead the managers to an
ultimate awareness and efficient state (Kemp, 2011).

Disadvantages

1. If the said organization operates on a larger scale, it is less likely to provide the
optimum result using this method
2. The control over cash flow and the asset is often a difficult task.

3. Planning Scenario

The issues related in the current environment that affect the budgeting process hence
the overall project and the present context of the organisation are demonstrated here.

Advantages

1. The organisation enjoys more ease in making crucial decisions in this method as
it is not all figures.
2. This process predicts the coming result and constraints and takes action in
saving the cost from that prediction (Simister, 1981).

Student ID: 16745

13
Department of Business and Management BTEC HND in Business

3. The management enjoys the privilege of more control as they get to be more
aware of the affecting variables.

Disadvantages

1. The prediction has to change time variable thus is uncertain at times.

2. More time consuming than others.
3. A more expensive one also.

3.2 Using Planning Tools for Forecasting Budgets

A major advantage of activity-based budgeting is that the assessment of costing occurs

daily and as per activity pool. The advantage of using this particular costing method is
that management can identify the cost imposed on each activity, and can identify any
activity that can be avoided. By eliminating any avoidable activity or step from the
production process or reducing assigned cost from an activity that has been consuming
too much cost this costing system saves resources. With that, having based on daily
assessments the forecasting becomes timely for the management to notice. Again,
Assigning cost to activity pool is a process that requires judgement as it is not always
clear or abstract to determine which cost to assign with which activity.

Cash budgeting is useful for Goldring when it is considering the investment using cash
assets. In forecasting the return from cash investments, because of their liquidity,
inflation rate a great deal of risk is associated. Under such terms, budgeting has to be
more precise and cost specific too. The more the value of the portfolio, the more is the
demand for accurate cash budget (Fitzgerald, 2002).

Planning scenario is the system where the comparative demonstration of the current
scenario and organisational context is presented. Following are the types of planning
scenarios. In an optimistic scenario, the current scenario is better than the expectation
and in pessimistic its vice versa. The result of the planning scenario is easier to
comprehend even for non-experts.

Student ID: 16745

14
Department of Business and Management BTEC HND in Business

4. Comparison of Ways in Responding to Financial Problems

4.1 Adoption of Management Accounting System in Dealing with Financial

Problems

Management accounting systems function in a particular way that brings in factors that
eventually assists managers in identifying emerging financial problems along with
suggesting precautions from them.

 External reports having same cost categorisations

It is in a managers job responsibilities to assess and evaluate financial data at hand and
make relevant information out of them that can later be provided to several external
users to serve their information needs. Often management accounting tends to have
different accounting methods as it does not follow the set standards and only tends to
serve the requirements of decision making. In case of cost categorisation, management
accounting tends to have a similar pattern in external reporting and have appropriate
representation of organisational context that justifiably assists board members in seeing
the true picture and taking preventive measures. Again, a reconciliation of both the kind
of reports can be made by the managers to justify their fairness. If any deviation is
found, it is investigated and corrected immediately. Management accounting carries the
responsibilities of doing these. An example can be the use of BIN card in assessing the
internal situation and choosing between LIFO and FIFO as their inventory management
system (Folk, Garrison and Noreen, 2002).

 Evaluation of policies regarding investment and financial management

A financial manager has to assess the sources of funding, record and categorise
available resources and allocate them as per divisional needs. In the case of cash
assets, he has to more cautious because of the associated retention rate and volatility
of its nature. Several risks are associated with these functions and by establishing
policies and operating by them management can cope with them and work towards
sustainable resource growth. Management accounting systems if properly applied can

Student ID: 16745

15
Department of Business and Management BTEC HND in Business

lead to better implications of those financial and investment policies in minimising the
associated risks. For example, the use of ROI as an investment-related appraisal
method can provide information about the degree pf an investments risk-free status.
Management accounting also links the adversities and strengths of implementation of
control budget along with established fiscal policies.

 Application of cost evaluation policies

The operating and financial cost are the seed we row to enjoy the crop. There should be
an optimum amount of cost incurred that neither decreases the quality of the operations
nor in any way hampers the profit. In other words, we want the cost to be optimal to
reach the highest available and sustainable profitability. This can be achieved by proper
establishment and implications of cost-evaluation policies. As shareholders consider
EPS to be an optimal signature of an organisations ability and it is affected by profit
margin hence cost measurement, management needs to be concerned about their
orientation. This balanced spot can be achieved by implementing cost evaluation
policies under management supervision (Granlund, 2001).

Student ID: 16745

16
Department of Business and Management BTEC HND in Business

4.2 Comparison between Huawei and Goldring in Approaches towards

Financial Problem

I have evaluated the management process of Goldring and Huawei and compared how
they have been utilising different techniques of management accounting in dealing with
financial problems. The comparison and its results have been summed up in the
following table.

Name of the Technique Approaches towards financial problem solving

KPI (Key Performance KPI is the tool applied to measure both the divisional
Indicators) and whole performance of a said organisation.
Several performance indicators or metrics are used
to evaluate such as working capital, debt to equity
ratio, profit margin, ROI, ROA, cash conversion rate
etc. Goldring is one of the most successful
manufacturers of audio equipment especially
cartridge in their industry and over the years it has
extended itself to many more nations. Huawei is also
one of the industry best being the second profitable
in the world telecommunication industry. Goldring
and Huawei both posses skills of KPI assessment
and thus make their process better as well as the
financial condition. Goldring can implement KPI at
root level too for the better production process.
Financial Modelling Financial modelling assesses the financial data of
said organisation including gross and net revenues,
inflation rates in operating countries, cash related
data etc. and by forecasting the future flow of these
indicators assess the future of the organisation.
Goldring and Huawei are top performers in their
industry and have achieved that position by

Student ID: 16745

17
Department of Business and Management BTEC HND in Business

efficiently using financial modelling and by operating

with the understanding of changing variables of the
environment. Goldring is looking to make more
expansions and thus they need financial modelling
more in improving acquisition or internal strategies
and debt management (Huawei, 2020).
Balance Score Card BSC works with the strategic development and
implementation through making a guideline for said
organisation. BSC in short links organisational vision
with policies regarding strategic management.
Goldring and Huawei both are likely to use BSC in
monitoring internal workloads and processes and
Goldring needs t most as it has an intricate
production process. The internal assessment is
conducted via this method only (Harrison and Petty,
2002).
Constraint Analysis Constraint analysis is put into action for the
identification of any irregularities especially financial.
Through measurement of the organisation, it
provides a recommendation in dealing with them in a
controlled environment. It can be concluded both
companies like Goldring and Huawei applies this
method as they are in dire needs of irregularity
assessment, constraint identification and assessed
preparation and implementing control strategies.
Without preparation for control, they could not have
been so successful (Goldring Cartridges and Record
Care, 2020).

4.3 Management Accounting in Gaining Sustainable Success

Student ID: 16745

18
Department of Business and Management BTEC HND in Business

The time value of money suggests that the monetary intrinsic value of money at hand
will eventually increase with time due to the added interest amount made by investment.
When invested the real money increases by value with each financial period as the
interest gets added to it. If one invests £30 in the stock market for reinvestment, he will
eventually receive a purchasing power that extends the value of that of £30 after some
time.

Management accounting systems functions with the basis of maximizing that intrinsic
monetary value of cash investments. This increase will eventually increase the
organisations purchasing powers. Management accounting ensures the implications of
the budgetary policies and minimizes any associated investment risks (Harrison and
Petty, 2002).

Conclusion
In management accounting managers process the financial data and identify the
financial cues that evaluate the effectiveness and efficiency of management decisions.
For that purpose, managerial accounting applies some tools and methods such as
budgetary control, constraint analysis, margin analysis, product costing, inventory
valuation, forecasting and trend analysis etc. These tools often include the identification
of several material costs such as absorption or variable cost, standard or actual cost
and the calculation of them. Goldring hugely enjoys the benefits of applying
management accounting systems.

Student ID: 16745

19
Department of Business and Management BTEC HND in Business

Reference

References
Chadwick, L., 1999. Management Accounting. London: Internat. Thomson Business
Press.

Epstein, M. and Lee, J., 2010. Advances In Management Accounting, 18. Bradford:
Emerald Group Publishing.

Fitzgerald, R., 2002. Business Finance For Managers. London: Kogan Page Ltd.

Folk, J., Garrison, R. and Noreen, E., 2002. Introduction To Managerial Accounting.
Boston (Mass.): McGraw-Hill.

Goldring.co.uk. 2020. Goldring Cartridges And Record Care. [online] Available at:
<https://www.goldring.co.uk/> [Accessed 23 June 2020].

Granlund, M., 2001. Towards explaining stability in and around management accounting
systems. Management Accounting Research, 12(2), pp.141-166.

Harrison, D. and Petty, D., 2002. Systems For Planning And Control In Manufacturing.
Oxford: Newnes.

Hilton, R., 2008. Managerial Accounting. Boston: McGraw-Hill/Irwin.

Horngren, C., Sundem, G., Burgstahler, D., Schatzberg, J., Battista, D. and Horngren,
C., n.d. Introduction To Management Accounting.

huawei. 2020. Huawei - Building A Fully Connected, Intelligent World. [online] Available
at: <https://www.huawei.com/en/> [Accessed 23 June 2020].

Kaplan, R. and Atkinson, A., 2014. Advanced Management Accounting. Harlow:

Pearson.

Kemp, S., n.d. Budgeting For Managers.

Pollard, M., Mills, S. and Harrison, W., 2007. Financial And Managerial Accounting.
Upper Saddle River, N.J.: Pearson/Prentice Hall.

Simister, L., 1981. The Role of Forecasting. Managerial Finance, 7(1), pp.2-5.

Student ID: 16745

20
Department of Business and Management BTEC HND in Business

Student ID: 16745

21
Department of Business and Management BTEC HND in Business

Appendix
Goldring
Opening Stock 0
Sales 17000
Production 22000
Closing Stock 5000
Budgeted Production Volume 25000
Selling Price 55
Standard Cost  
Direct Material 20
Direct Labour 15
Variable overhead 5
Fixed Overhead 125000

Workings:

Working 1: Revenues

Revenue (budgeted) = (£55.00 * 17,000) = £935,000

Working 2: Budgeted Production Cost (MC)

Direct Material £20

Direct Labour £15

Variable Factory Overhead £5

(i)Standard Variable Cost per unit: £40

Units produced =20,000 units

(ii) January’s Budgeted Cost for Production = (£40 *20,000) = £800,000

Working 3: Budgeted inventory value at year-end (MC)

Budgeted closing inventory = (3,000* £40) = £120,000

Student ID: 16745

22
Department of Business and Management BTEC HND in Business

Working 4: absorption rate of fixed factory overhead cost

Absorption rate = (£125,000/ 25,000) = £5

Working 5: Production Cost (AC) (budgeted)

Standard VC per unit (W1): £40

Overhead absorption rate (W4): £5

Production Costs = (£45 * 20,000) = £900,000

Working 6: Budgeted Ending Inventory (AC)

Ending inventory = (3,000* £45) = £135,000

Working 7: production cost of 22000 units

(i) In MC = (£40* 22,000) = £880,000

(ii) In AC method = (£45* 22,000) = £990,000

Working 8: Ending value of inventory in case of a change in volume to 22000 unit

In MC method = (£40 * 5,000) = £200,000

In AC method = (£45 * 5,000) = £225,000

Working 9: Unfavourable

Unfavourable = (25000 – 22000) * 5 = £ 15000

Student ID: 16745

23