Analysis of Management Accounting Techniques: Doc

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1. Explaining the meaning of management accounting and the significance of its systems....1
P2. Describing different methods that could be used by the company for reporting .................2
M1. Evaluating the benefits and the uses of the management systems. ....................................2
LO2..................................................................................................................................................2
P 3 Preparing income statements of the company using marginal and absorption costing
techniques....................................................................................................................................2
LO4..................................................................................................................................................3
P4. Explaining benefits and the limitation of the different planning tools.................................3
M3. Analysing the uses and the application of the budgeting tools ...........................................5
LO4..................................................................................................................................................6
P 5 Describing different management accounting systems to be adopted by companies in
order to respond to different financial problems.........................................................................6
M4 Analysis of different management accounting technique of responding to different
financial problems.......................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting refers to the effective management of the internal operations of
organizations. It is the practice that is adopted by the firm in order to efficiently organizing its
resources and provides for better controlling. The present study is based on ABC Ltd., a
manufacturing firm, deals in the production of fresh juices. Furthermore, the report highlights on
different system and the reporting under management accounting, Moreover, it also includes the
deep insights towards various planning tools and the systems that helps in resolving the financial
problems within the business.
LO1.
P1. Explaining the meaning of management accounting and the significance of its systems
Management accounting refers to the practice of framing the statistical and the financial
information to the managers with the help of which they could be able to make the routine and
the short-term decisions. Both management and financial accounting differs to a large extent as
follows-
Management Accounting Financial accounting
It provides for the ways in which the problems
could be resolved.
It reports for the profitability that is gained by
the ABC Ltd. from its business.
This branch of accounting doesn't have to
follow any of the standards at the time when
the information is been compiled in relation to
internal consumption.
Under this, the reports are been prepared in
compliance with the accounting standards as
stated by IFRS and GAAP.
It accounts for the reporting to internal
management and not to the outsiders.
However, financial accounting reports to
internal as well as the external users.
Various systems of management accounting are as follows-
Inventory management system- It means the system that accounts for maintaining the
appropriate records of the inventory. It is counted as an extremely important system because it
facilitates constant follow up regarding the incomings and the outgoings. It helps in measuring or
determining the requirement of the products in accordance with the demand of the customers. It
is the medium through which the ABC Ltd. can run its operations smoothly.
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Cost accounting system- This system is been used by the ABC Ltd. in order to record the
production activities by using the system of perpetual inventory. It plays an essential role in
tracking the raw material at the time when they go through stages of the production till it turns
into the finished goods. It enables the firm in examining cost structure within the business by
gathering the information in relation to the cost involved in the activities of the company. It also
assigns the cost towards the products, cost objects and services for the purpose of evaluating
efficiency in usage of the cost. It is majorly concerned with developing detailed understanding
on the key areas from which the company earns maximum profits.
Price optimization system- This system provides for making the analysis of the customer's
response towards the product at the different level of price mathematically. It plays a significant
role in fixing the most suitable price for the ABC Ltd. so that higher demand could be created for
its product in the market which in turn helps in gaining larger profitability.
Job costing system- It refers to the practice of accumulating the information in relation to the
cost attached to particular job or the unit of production. Information provided by this system is
essential in terms of identifying accuracy in the estimating system of an entity.
P2. Describing different methods that could be used by the company for reporting
Managerial reports are been prepared for facilitating the information relating to the cost,
high performing staff, reward, product lines and making investment in such goods that serves
best returns for the business. There are different reports which are been formulated for running
the operations effectively as follows-
Budget report- It means the report that makes the list of the budgeted expenses and the
revenues. It helps the ABC Ltd. in analysing the performance of its business and enables the
managers in assessing the performance of the department and in keeping the control over the
cost. The budget estimates that are made for the upcoming or the new period are on the basis of
the actual expenses from the previous years. This report is also useful for the managers and the
company in order to provide the rewards or incentives for the employees. The budgeted funds are
been used for providing the bonuses to staff in respect of achieving the financial goals.
Job costing report- This report is been prepared for showing the expenses for the
particular proposal which is being financed by the organization’s business. It is been actually
matched up by making an estimation of the revenues so that appropriate evaluation could be
made regarding the profitability of the job. It helps in determining the areas that are higher
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