Essay On Management Accounting


The main purpose of this report is to discuss the findings after preparing the master budget for Nanoblock company so that they can make informed decision and operate smoothly in the future. The report begins with the overview of the expected results for the year 2023- 2024, which will include the discussion regarding the total revenues, operating expenses and the expected final cash position. The financial performance of each product will be compared to one another and the industry data is used to support the recommendations for change.
The next part of the report deals with the major risks involved in the business along with the ways of mitigating such risks. It was followed by the explanation regarding the usage of master budgets in planning for what-if scenarios and the development of pivot tables to assist them in changing economic conditions.

Nanoblock is a company engaged in providing premium high quality Japanese brand products. Every model will be designed in our Tokyo headquarters by our Nanoblock experts with an obsessive attention to detail (Nanoblock, 2022). The company is focusing on converting their products to sustainable plant-based materials in order to compete effectively with LEGO. By the beginning of 2024, the company is planning to hit the Australian shelves with three sustainable products, namely, Bonsai Tree, Santa on the Dunny, and Animals of Australia Map.

Overview of the Expected Results

A master budget provides vital information to the management for taking effective decisions in relation with the activities of the business (Bakhodirovna 2019). It depicts how much the company is planning to spend in the future and the expected profitability of the business. It is an aggregation of lower-level budgets across several operational areas. The master budget and the cash flow forecast gives clear view about the financial standing of the business (Nwosu, Aguh and Ezeanuim 2020). A detailed discussion regarding different aspects for Nanoblock is provided below:

Sales Revenue

The total estimate from the sales and cash collection budget indicates that the company will earn $723,985.20 in next financial year, which includes the revenue from three different products. The sales revenue from the sale of Bonsai Tree is budgeted at $71,971.20, for Santa on the Dunny at $44,166.00 and for Animals of Australia Map at $607,848.20. The budget reveals that the company would be able generate larger portion of revenue through the sale of ‘Animals of Australia Map’. However, the ‘Bonsai Tree’ will contribute minutely towards the revenue of the firm.

Expected Cash Collection

The expected cash collection during the year is estimated using the assumption that 25% of sales will be in cash, and the remaining will be on credit. Around 70% of the total credit sales will be collected on the month of sales whereas the remaining in the following month. The total cash collection for the year is estimated at $775,863 while the remaining accounts receivable is at $15,431.


The budget reveal that the company would have to produce the total of 3,040 units of Bonsai Tree; 3,400 units of Santa on the Dunny; and 15,400 units of Animals of Australia Map. The production of 3040 units of Bonsai Tree would take around 608 machine hours; Santa on the Dunny would take 1700 hours and the Animals of Australia Map would take 3080 hours.

Operating Expenses

The operating expenses of the company comprises of utilities, insurance, administrative expenses, general office expenses and the interest expenses. The monthly operating expenses for the business is calculated as $5,910 which results in the annual expenses of $70,920.

Net Income

The net income from the investment is calculated as $120,932. The profitability of the business is largely impacted by the manufacturing expenses and the cost of direct materials. However, the company is expected to earn a profit of $120,932 at the end of the financial year 2023 – 2024.

Comparison Of Financial Performance And Recommendation

The three sustainable products produced by Nanoblock which is evaluated in this report include the Bonsai Tree, Santa on the Dunny, and Animals of Australia Map. The budget reveals that direct material costs for Bonsai Tree is $11.25; for Santa on the Dunny is $10.00 whereas that of Animals of Australia Map is $14.25. The budget also indicates that the selling price of Santa on the Dunny is not sufficient to meet the direct costs of the business and it becomes essential for the business to increase the selling price of Santa on the Dunny.

The comparison of Nanoblock’s product with the LEGO product indicates that the size of Standard LEGO bricks makes them easier to use. The size of nanoblocks is about one-fourth of LEGO bricks. Some of the customers also believe that small size makes it difficult for the customers to manipulate. It is recommended that the business should focus on improving the product sustainability through size enhancement.

The Toy construction companies in Tokyo is focusing on educational toys that are unique. The sales of educational toys have increased rapidly as the parent demand for products that enhance the cognitive and linguistic skills of their children. Nanoblock should focus on developing more products like ‘Animals of Australia Map’ to increase their profitability.

Increase In Direct Material Prices

The production of commodities are dependent on the availability of direct material in the market. The annual inflation rate in Japan is estimated to be 2.4% by the end of 2022 (Tradingeconomics, 2022). Currently, the prices of fuel, lighting and other expenses are increasing and the company might find it difficult to cope with the increased prices (Goshima et al. 2021). A rise in direct material costs will result in the increase of cost of goods sold and the reduction in profitability of the business. In order to mitigate such risk, the business need to find ways to reduce costs. It can be done by employing capital intensive techniques to reduce costs.

Supply Chain Risks

The covid-19 has disrupted the supply chain all over the world. The recovery of Japan is still incomplete and the businesses are finding difficulties in restoring their supply chain channels. It is one of the most important risks for Nanoblock company as the non-availability of proper supply chain system, the company would not be in a position to sell the desired unit of output. It will have a larger impact on the net sales revenue and the profitability of the business, as it may be reduced by more than 10%. In order to mitigate such risks, the business should create a supply chain emergency plan by identifying backup suppliers and establishing partnerships with logistic experts.

Increased Labor Costs

Nanoblock company is open to risks associated with the increased labor charges due to inflation and the rise in prices for general commodities. The increase in labor costs will effect the profitability due to increased cost of productions. The labour hikes during the next year in Japan is expected to be around 2%. Such increase would result in the decline in gross margin as well as the net profit of the company. In order to mitigate losses arising from increased labor costs, Nanoblock should reduce employee turnover and increase the productivity of existing labor through incentivizing performances.

Use Of Master Budget For Different ‘What-If’ Scenarios

Master budget is often used by the management accountant for performing the ‘what-if’ analysis so that the managers could take effective decisions. It is used as a central planning tool (Messer 2020). The master budget prepared for Nanoblock company would help in understanding and evaluating the impact of several implication’s om the business. What-if Analysis is one of the most widely used accounting tool for exploring different scenarios in comparison with the current budget. The implications of any changes in the assumptions can be identified using the master budget (Bawaneh 2018). For instance, the implications on profitability due to the change in volume of sales can be ascertained using the master budget.

The managers can optimize the current master budget through the application of what-if analysis. The process of performing the what-if analysis involves changing the values of cells and determining the impact of changes in outcome on the worksheet (Diogo and Asyik 2022).


From the above discussion, it can be identified that Nanoblock is looking forward to develop sustainable products such as Bonsai Tree, Santa on the Dunny and Animals of Australia Maps. However, the LEGO products have competitive advantage over these products due to the size of blocks. The customers find it difficult to manipulate the Nanoblocks. The company shall focus on increasing the size of Nanoblocks. The master budget indicate that the company would be able to earn profit in the future. Major risks involved in doing business during the year 2023-2024 include risk of increase in direct material prices, supply chain risks and increased labor costs. Master budget are often used by the accountant for analyzing the impact of different situations which may comprises of changes in prices or other economic factors. Overall, the master budget that is prepared is an important tool to predict the consequences of different scenarios.


Bakhodirovna, A.N., 2019. Methodological approaches to develop budget models in the system of management accounting. International Journal of Marketing and Technology, 9(9), pp.1-12.
Bawaneh, S.S., 2018. Management accounting practices: A case of Jordanian Manufacturing Companies. Asia-Pacific Management Accounting Journal, 13(3), pp.25-53.
Diogo, F.R. and Asyik, N.F., 2022, March. Revenue budget and cost budget analysis operations to financial performance based on return on asset at pdam sikka regency. In International Conference of Business and Social Sciences (pp. 678-690).
Goshima, K., Ishijima, H., Shintani, M. and Yamamoto, H., 2021. Forecasting Japanese inflation with a news-based leading indicator of economic activities. Studies in Nonlinear Dynamics & Econometrics, 25(4), pp.111-133.
Japan Inflation Rate - July 2022 Data - 1958-2021 Historical - August Forecast (2022). Available at: (Accessed: 4 August 2022).
Messer, R., 2020. Budget Management Decisions. In Financial Modeling for Decision Making: Using MS-Excel in Accounting and Finance. Emerald Publishing Limited.
Nanoblock., 2022. Welcome to Nanoblock! — Best Nanoblock Kits of August, 2022 (2022). Available at: (Accessed: 4 August 2022).
Nwosu, C.M., Aguh, S.P. and Ezeanyim, O.C., 2020. Multidimensional budgeting concepts and budget control modeling for production systems performance efficiency. International Journal of Engineering and Management Research (IJEMR), 10(4), pp.200-224.
Tradingeconomics., 2022. Japan Inflation Rate - July 2022 Data - 1958-2021 Historical - August Forecast (2022). Available at: (Accessed: 4 August 2022).
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