MANAGEMENT CONTROL SYSTEM

ASSIGNMENT

TOPIC: ANALYSIS AND REPORTING, VARIANCE REPORTING

Submitted By,
KEERTHANA DINESH
4TH SEMESTER MBA
CUARMGT013
DCMS
 INTRODUCTION
Management control is a must in any organization that practices
decentralization. A MCS is a set of interrelated communication structures
that facilitates the processing of information for the purpose of assisting
managers in coordinating the parts and attaining the purpose of an
organization on a continuous basis. A MCS is a logical integration of
techniques, to gather and use information to make planning and control
decisions, to motivate employee behaviour, and to evaluate
performance.

The main aim of any control process is to identify the variation between
the actual performance and the standard fixed. In case any deviation is
identified between the actual and the standard then it calls for analysis of
such variation in order to find the cause for such variation and to suggest
some measures for remedial action. Hence variance analysis is a process
of analysing variance by fragmenting the total variance in to smaller
identity so that the responsibility for such variance can be pin pointed
easily.

Management accounting is a branch of accounting that focuses on the

revenues and expenses of a business, as well as asset usage. Someone
engaged in management accounting notes unusual spikes and declines in
revenues and expenses, and reports these variances to management.

To analyse the information is the main purpose of the management

accounting. It develops several ways to correct them and to determine
the problematic areas. To increase the company's profit, they are using
the company's information to develop ways.

All the plans and the information are stating as a report format by the
management accountant of the organization. These reports suggest that
the information that they have stated in this report this can be used as
recommendations for the solution of problems.
 ANALYSIS AND REPORTING
Analysis

It is the process of breaking a complex topic or substance into smaller

parts in order to gain a better understanding of it. Accounting analysis,
also referred as financial analysis or financial statement analysis, can be
explained as an assessment of the stability, viability, and profitability of a
business, sub-business, or project. A financial analysis is carried out by
professionals who prepare reports through the use of info obtained from
financial statements and other reports. Besides, one key area of financial
analysis is the extrapolation of company’s past performance into an
estimate of its future performance.

Objectives of accounting analysis

 Solvency
Accounting analysis is helpful in assessing the ability of a company to
repay its obligations to creditors and similar third parties in the long
run.

 Profitability
Accounting analysis facilitates the ability of a company to earn income
in addition to sustaining short term as well as long term growth. A
company’s profitability level is based on the income statement, which
provides reports on the company’s operation results.

 Liquidity
Accounting analysis aims at assessing a company’s ability to maintain
positive cash flow in addition to satisfying immediate debts.

 Stability
Accounting analysis aims at assessing the company’s ability of
sustaining itself in the long run, without the existence of significant
losses in the business conduct.
Reporting

It may refer to any activity that leads to reports.

A report is a document containing information organized in a narrative,

graphic, or tabular form, prepared on ad hoc, periodic, recurring, regular,
or as required basis. Reports may refer to specific periods, events,
occurrences, or subjects, and may be communicated or presented in oral
or written form.

Accounting reports are compilations of financial information that are

derived from the accounting records of a business. Financial reporting
refers to standard practices to give stakeholders an accurate depiction of
a company’s finances, including their revenues, expenses, profits, capital,
and cash flow, as formal records that provide in-depth insights into
financial information. These can be brief, custom-made reports that are
intended for specific purposes, such as a detailed analysis of sales by
region, or the profitability of a specific product line. More commonly,
accounting reports are considered to be equivalent to the financial
statements. These statements include the following reports:

 Income statement
States the revenues earned during a period, less expenses, to arrive at
a profit or loss. This is the most commonly used accounting report,
since it is used to judge the performance of a business.

 Balance sheet
Shows the ending asset, liability, and equity balances as of the balance
sheet date. It is used to judge the liquidity and financial reserves of a
business.

 Statement of cash flows

Shows the sources and uses of cash related to operations, financing,
and investments. Can be the most accurate source of information
regarding the cash-generating ability of an entity.

A number of disclosures may accompany the financial statements, in the

form of footnotes. This is more likely to be the case when the financial
statements have been audited.
 VARIANCE REPORTING
The main aim of any control process is to identify the variation between
the actual performance and the standard fixed. In case any deviation is
identified between the actual and the standard then it calls for analysis of
such variation in order to find the cause for such variation and to suggest
some measures for remedial action. Hence variance analysis is a process
of analysing variance by fragmenting the total variance in to smaller
identity so that the responsibility for such variance can be pin pointed
easily. If the actual is less than the expected then the variance is said to
be Favourable and if the actual is more than the expected, then it is called
as unfavourable variance. For example if the actual cost exceeds the
standard, then it is unfavourable variance, and vice versa. A variance can
be either Price variance or volume variance. Different management
personnel are entrusted with the responsibility of carrying out variance
analysis. During the course of analysis if any individual is identified as
responsible for such variance, then it is called Controllable Variance. But
in some cases the variation might have occurred due to factors beyond
the control of an individual, and then it is called as uncontrollable
variance. In order to minimize the occurrence of variance the
management must be cautious in the following aspects:

1. Fix a reliable Standard.

2. Provide for incidental expenses.

3. Consider change in the Market situation.

4. Provide allowances for possible loss of material, machine hour, labour

hour etc.

5. Consider changes in Managerial policies.

To be successful in carrying out variance analysis, the management must

carry out promptly and quickly the corrective actions. For this the
management must be given a report of analysis, giving causes for such
variation in particular along with the comments on overall performance in
general.
Performance reports may be prepared that examine the difference
between budgeted and actual figures for:

 Production in terms of cost, quantity, and quality

 Sales
 Profit
 Return on investment
 Turnover of assets
 Income per sales dollar
 Market share
 Growth rate

Variance reports raise questions rather than answering them. For

example, is sales volume down because of deficiencies in sales effort or
the manufacturer's inability to produce?

Variance analysis reports may be expressed not only in dollars, but also in
percentages, ratios, graphs, and narrative.

Performance reports are designed to motivate nonfinancial managers and

employees to change their activities and plans when variances exist. They
should be terse and concentrate on potential difficulties and
opportunities. A section for comments should be provided so that
explanations may be given for variances.
 CONCLUSION
A MCS is a logical integration of techniques, to gather and use
information to make planning and control decisions, to motivate
employee behaviour, and to evaluate performance.

Analysing is to analyse the information is the main purpose of the

management accounting. It develops several ways to correct them and to
determine the problematic areas. To increase the company's profit, they
are using the company's information to develop ways. All the plans and
the information are stating as a report format by the management
accountant of the organization. These reports suggest that the
information that they have stated in this report this can be used as
recommendations for the solution of problems. A financial analysis is
carried out by professionals who prepare reports through the use of info
obtained from financial statements and other reports. Besides, one key
area of financial analysis is the extrapolation of company’s past
performance into an estimate of its future performance.
 REFERENCES

 Epstein, Marc J and John Y Lee, Advances In Management Accounting (Emerald, 2013)
 Soin, Kim and Paul Collier, 'Risk And Risk Management In Management Accounting
And Control' (2013) 24 Management Accounting Research
 Tom Groot and Frank H Selto, Advanced Management Accounting (Pearson, 2013).
 https://www.oreilly.com/library/view/budgeting-basics-
and/9780470389683/9780470389683_variance_analysis_reports.html
 http://www.businessdictionary.com/definition/report.html
 https://www.datapine.com/blog/financial-reporting-and-analysis/
 https://www.cleverism.com/management-control-system-guide/