Application of Management Accounting System

Management
Accounting System
and its Application

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. - Management accounting and essential requirement of various type of management
accounting systems:................................................................................................................3
P2. - Different kind of methods used in respect of management accounting reporting:........5
TASK 2............................................................................................................................................6
P3. - Computation of costs applying appropriate cost analysis techniques to formulate income
statement applying absorption and marginal costing:............................................................6
TASK 3............................................................................................................................................9
P4. - Disadvantages and advantages of different planning tools applied in budgetary control:. 9
TASK 4..........................................................................................................................................11
P5. - In which manner organisation are adapting management accounting systems to respond
to different financial problems:............................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is popular field of accounting which deals with preparation of
various accounts and reports and main motive is to provide accurate, reliable and timely
information for managerial personnels to take major strategic decisions. Planning tool and
methods help managers to identify and solve financial and monetary problems on early basis
(Stechemesser and Guenther, 2012). This report mainly try to emphasises on various aspects of
management accounting system and essential requirement of various management accounting
systems, methods of management accounting systems and planning tool along with benefits and
disadvantages of different planning tools in the context of KEF Ltd, a medium sized
manufacturing company. This report also contains practical calculation of costs using absorption
and marginal costing, and manner in which management accounting system assist in responding
to financial problems.
TASK 1
P1. - Management accounting and essential requirement of various type of management
accounting systems:
Management Accounting denotes to a organised and managed process of producing
relevant financial information and reports for managerial use. Moreover, top management by
applying such report and information formulates effective strategies in order to attain
organisation's targets and objectives. The management accounting considers different types of
accounting system like cost accounting system. Price optimisation system and inventory
management system. Information generated by management accounting systems are key
financial and accounting data that is directly or indirectly provide assistance to managerial
personnels in strategic planning and actions (Cazier and et.al., 2015). As KEF Ltd is
manufacturing company so different production managers provide relevant information
generated through systems of management accounting to top management for business decision-
making. Following are the main management accounting systems, as follows:
 Inventory management system: It is a system which emphasises on managing and
maintaining inventories within a business organisation to optimise the cost of inventories.
This system is used by management to enhance accountability and efficiency in
management of inventories (Burritt and Tingey-Holyoak, 2012). As KEF Ltd is a

manufacturing company, so here inventories includes WIP, raw materials, processed
goods, spare tools and finished goods. In order to manage all kind of inventories within
company heads of different production and manufacturing depart applying inventory
management system. inventory management system help to maintain the records of
inventory that solve financial problems. If KEF Ltd uses inventory accounting system
that can get the information of products and services and what need to be place order for
purchasing the goods. Under this system managers put their efforts identification,
classification, recording and monitoring of inventories to assess the actual cost
inventories in production and manufacturing activities. This system help managers to
asses the excessive inventories cost and minimise such cost to increaser probability
margin.
 Price Optimisation System: It is a systematic set of activities related to determining
most considerable and appropriate price of product and services. In this system of
management accounting a unique relationship between price of product or service and
demand is analysed by business organisation to set a effective price at which demand of
product is high. Price optimisation system help to utilize the prices of products and
services that leads to maintain the profits. Production and division managers in KEF Ltd
analyse the response of customer and market by setting different price of products during
a specific period of time. Here main motive is to reduce price while retaining same profit
margin.
 Job Costing System: This system is adopted by organisation which produce product on
specific customer order. Under this system each specific product is considered as job. In
this system is cost is assigned or allocated to each particular task or job. In KEF Ltd this
system is used for products which are totally different from production line. Manager first
classifies such product as task or job, thereafter they allocate different cost to this
participate task or job. Main purpose or objectives of this system is to increase
accountability within company (Marr and Gray, 2012). Following are the key information
that is required for job costing system:
Direct Material: In KEF Ltd, managers first classifies the cost of direct material involved in
production of different products as its is required to allocate cost of direct material to particular
task or job.