Management Accounting System and Its Effectiveness

This assignment focuses on the importance of management accounting systems in achieving overall business success. It explores the adoption of management accounting innovations, organizational culture compatibility, and perceived outcomes. The assignment also discusses business strategies and management accounting in response to climate change risk exposure and regulatory uncertainty. Additionally, it touches upon sustainability reporting in public sector organisations and the relation between the reporting process and organisational change management for sustainability.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Explaining the concept of management accounting and types of systems..................................1
Analysing various kinds of management accounting reporting techniques................................2
Ascertaining the benefits of management accounting system and its application in organisation
.....................................................................................................................................................3
Critically analysing management accounting systems and reporting techniques to be used in
Jupiter Plc....................................................................................................................................4
TASK 2............................................................................................................................................4
Income statement as per absorption costing................................................................................4
Income statement on basis of marginal costing...........................................................................6
TASK 3............................................................................................................................................7
Explaining merits and demerits of numerous types of budget....................................................7
Application of planning tool for forecasting and analysing along with preparation of budget...9
TASK 4..........................................................................................................................................10
Adoption of management accounting system to respond to financial problems of the
organisation................................................................................................................................10
Factors which leads to develop organisational growth by use of management accounting......11
Response of planning tools for solving financial problems in achieving sustainable success. .12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a concept which have been implicated by various industries in
respect with recording of various transactional entries that will be effective in operating business
activities. In the present report, there will be discussion based on various management
accounting system and reporting techniques which are to be used by Jupiter Plc in respect with
improving the operational efficiency of the firm in the market. Along with this, there will be two
different costing techniques in preparing the income statement for business as well as discussion
based on budgetary control techniques and planning tools to be used. Moreover, there will be
analysis over performance measurement techniques which are to be implicated by the
organisation to bring the sustainability and retaining growth to meet future challenges.
TASK 1
Explaining the concept of management accounting and types of systems
Management accounting:
It is a technique of presenting the accounting information with the help of various tools and
reporting techniques. Thus, it consists of recording all accounting and transactional information
which have been incurred in a period. It helps the managerial professionals in the organisation in
terms of decision making, planning, controlling and improves the business performance. Jupiter
Plc has to use this technique in analysing the industrial performance as well as analyse the
requirements of the firm in time (What is Management Accounting, 2018). The records kept on
daily basis will be helpful to the accounting professionals or auditor in making appropriate audit
of the financial information.
Management accounting system:
In consideration of management accounting system which are to be used by Jupiter Plc in
terms of enhancing the performance of industry that will effective positively in raising the
revenue (Ax and Greve, 2017). However, there will be influences of various accounting system
which are to be used by the professionals with a motive of increasing the business efficiency of
Jupiter Plc. The management accounting system includes various elements that are required to be
considered by the professionals such as:
Cost accounting: This is the costing techniques which ascertains that each tasks and
operations which have been performed by the professionals in the industry are required to be
decided on the costs basis. Accountant analyse the past transaction and costs implied in a
1

activities such as purchase of material, manufacturing, labour charges as well as various
overheads (Bui and De Villiers, 2017). It has been analysed to make appropriate decisions to
control the costs implied in such activities. Thus, on the basis of such past records and
information there will be effective cost control practices which are to be used in Jupiter Plc.
Inventory management system: This system is comprised of the information which are
relevant with managing the inventories in the organisation. It allows the professionals in
analysing the market demands for a specific product line as well as efficiency of business in
supplying such products. In relation with such determination (Saeidi and Othman, 2017). This
have influences of techniques of keeping proper records of accounting transaction relevant with
the inventories. It has records of transaction on the basis of quantity, quality and amount to be
charged from consumers. Analysing the market requirement and the past selling records will help
in decision in the quantity to be produces in the coming period. Thus, such determination will
help in reducing the costs as well as improving the business efficiency.
Price optimisation: This technique helps in identifying the consumer behaviour and
reaction towards a particular product which have been offered among them (Hoitash and
Hoitash, 2017). Thus, in this manner the company charges several prices on the product on
which the most preferred prices and the highest sales on such prices will be selected Jupiter Plc.
In accordance with such analysis it has been believed that, the highest selling as well as
consumer preference for the product will help in generating the higher gains to the firm.
Therefore, there will be rise in financial condition of business (Pricing and Profitability
Management, 2018).
Analysing various kinds of management accounting reporting techniques
It has been comprised of using various activities which are to be considered by the
professionals that will help in recording appropriate information and details (Domingues and
et.al., 2017). This reporting system will be based on planning the future costs and operational
decisions based on past reports. Therefore, there are various management accounting reporting
techniques which are to be considered by Jupiter Plc such as:
Job cost report: In relation with analysing the cost which have been implicated in
performing a job on which direct and indirect costs have been addressed by the professionals of
Jupiter Plc. Mainly, in a manufacturing industry there have been use of this technique which
allows the professionals in identifying the costs involves in production department (Ax and
2

Greve, 2017). It can be analysed through ascertaining the profit and loss statement for a
particular period.
Batch cost report: In accordance with this technique, the report is being based on
analysing the costs involved in preparing a particular unit. It involves the information based on
amount of material, labour charges and overheads which will be payable in a particular batch
(Bui and De Villiers, 2017). Thus, it will be helpful to Jupiter Plc if the professionals implicate
this technique into daily practices. Thus, decision will be made by the managerial professionals
in accordance with controlling costs and proper allocation of resources which will reduce the
level of wastage.
Debtors aging reporting: This is the report is based on analysing the days of recovering
the debts in a period. Therefore, the lower days identifies that there is lower insecure money
which are to be recovered. It brings the clear analysis over the revenue of Jupiter Plc as well as
short terms solvency in meeting the debt requirements on time (Saeidi and Othman, 2017). It can
be said that, controlling the debts will be helpful in retaining the proper amount of revenue which
were gained by the business through its operating activities.
Budgetary report: Budgets have been prepared by the professionals with a motive to have
appropriate control over costs and proper utilisation of material which have been used by them in
operational process (Hoitash and Hoitash, 2017). It involves various budgets such as cash, sales,
production budget which are being prepared by the professionals on the basis of past records and
the efficiency of firm. It helps the managerial professionals in analysing the fund requirement as
well as controlling cost in the upcoming period.
Ascertaining the benefits of management accounting system and its application in organisation
There are several advantages of management accounting system which will help Jupiter
Plc in fruitful gains. In better internal control and decisions making process this technique will be
adequate and helpful to the professionals in making drastic operational changes (Domingues and
et.al., 2017). However, there are various benefits of the management accounting system such as:
 It will be helpful in raising industrial efficiency on which stable production and sales will
be generated by them.
 It ensures the rise in profitability and liquidity of the organisation which will be helpful
tool in attaining the goals of business.
3

 It ensures transparency of the transaction which have been recorded as well as details
regarding the costs implied in each activity (Ax and Greve, 2017).
 The financial information presented here will be helpful in appropriate decision making
as well as provokes the professionals in better flexibility and freedom of control.
 It encourages organisation for making efforts in terms of attaining the targets at the right
time.
Critically analysing management accounting systems and reporting techniques to be used in
Jupiter Plc
In accordance with using the management accounting techniques as well as reporting system
which will help in governing operational aspects of the business. The tasks which have
implication of various costs such as direct, indirect, overheads etc. were identified easily with the
help of management accounting and reporting system (Bui and De Villiers, 2017). These
reporting techniques will be a helping tool in terms of bringing the transparent analysis of the
costs implicated in Jupiter Plc. The expenses which are to be bared by the professionals for
appropriate decision making and developing a proper financial statement.
There have been influences of reporting techniques which will be adequate and perfectly
relevant with making internal decisions (Saeidi and Othman, 2017). The income statement of the
firm will be based on transacting the revenue and costs implied in activities which will be
governing and appropriate to industry in standard accounting control over the business.
TASK 2
Income statement as per absorption costing
Particulars Figures
(in £)
Figures
(in £)
Sales revenue (16000 * 50) 800000
4

Production cost (19000 * 37.6) 714400
Less: inventory at the end of period (3000*37.6) 112800 601600
Gross profit (Sales – COGS) 198400
Less: Under absorption
Net gross margin
Absorption costing : It is a costing technique in which all the manufacturing cost is absorbed by
the units produced. It includes direct Labour, direct material and fixed cost and variable cost.
Computation of manufacturing cost per unit
Particulars Figures (in £)
Direct labour 20
Direct material 10
Variable production overhead 2
Fixed production overhead 5.6
Total manufacturing cost per unit 37.6
5

On the basis of above computation It can be interpreted that as per the income statement
according to absorption costing gross profit for the year is 198400. Also, it can be interpreted
that manufacturing cost per unit according to absorption costing is 37.6.
Income statement on basis of marginal costing
1. Marginal costing : In this costing techniques variable cost are charged to the cost of
units and fixed cost are attributable to the relevant period.
Particulars Figures
(in £)
Figures
(in £)
Sales revenue (16000*50) 800000
Less: Variable expenses
Direct labour (19000 * 20) 380000
Material cost (19000 * 10) 190000
Variable production overhead (19000 * 5) 95000
Less: closing inventory (3000 * 35) 105000 560000
Contribution (sales – variable cost) 240000
Less fixed production overhead cost 100000
Net profit 140000
2.
3. Computation of variable cost per unit
6

4. Variable cost per unit: 10 + 20 + 5
5. = £35
On the basis of the above computation it can be interpreted that Net profit as per the
income statement is 140000 and the variable cost per unit is £35.
TASK 3
Explaining merits and demerits of numerous types of budget
Budget is referred as an estimation of expenses and revenue over specified duration as it
is re-evaluate and complied on periodic aspect. It helps in forecasting the financial outcome and
position of Jupiter Plc with one or more future duration. It is formal statement through which
management creates estimate for upcoming duration with objectives of business. Management
could create budget as future goals and business plan is traced in written format with financial
aspect. The planning tools with context of its types of budget are categorised in two types of
budget as operating and strategic budget. The operating budget are for short term whereas
strategic budget are for long term perspective which is more than 1 year. Each budget has its
merits and demerits which are stated below:
Static budget: This budget is used for calculating fixed expense for forecasting amou8nt
to pay in bills as this budget can actually create problems for its solutions.
Advantages
 It helps in prioritizing as shows clear difference among things with requirement of
desired things.
 It is beneficial when regular spending has been brought in as it essentially allows for start
living with its means as it helps for solving problem of debt because of past financial
choices.
Disadvantages
 It does not account for unpredictable events of life as fixed bills like car payments or
mortgages are easily predicted.
 It has lack of flexibility as it cannot allocate additional resources for keeping it up.
 It will negatively impact revenue stream of Jupiter Plc.
7

Flexible budget: This budget helps in adjusting or flexing for alterations in volume of
activity. It is highly sophisticated and useful as compared to static budget which remain at single
amount regardless with context of activity volume.
Advantages
 It could be sued for adjusting big purchases during its occurrence with absence of need of
adjustments in particular months.
 It directly incorporates with irregular payouts in method for allowing it to be used with
requirement of funds.
Disadvantages
 It has need of huge planning for tracing expenses and to adjust any variation between
period.
 It directly complicates things which comprises rules which could be bent or broken to
stay in boundaries.
 It makes easier for adhering with following of similar rigid issues at each month as it
fosters similar discipline and long term habits as compared to traditional alternatives.
Rolling Budget: This budget is continually updated for adding innovative budget period
is completed. It has involvement of incremental expansion of existing model of budget.
Advantages
 It incorporates alterations from past year as it overlaps periods with increment of
oversight and continuity.
 It is highly updated as compared to static budget as it does not consider alterations during
forecast.
 It is highly responsiveness for unexpected alterations in its circumstances with allowance
of adjustments.
Disadvantages
 It shows high budget variances due to which the company is unable to compare the
actuals with the standards set for the budget.
 It is an expensive budget which is not affordable by many organisations.
 This budget take lot of time for preparation due to which other operations of the firm are
hampered.
8

Application of planning tool for forecasting and analysing along with preparation of budget
Particulars 2016 2017 2018 2019 2020 2021
Cash inflows
Opening cash inflow 79000 120401
164057.2
4
208501.3
696
253746.1
77184
299804.5
8812736
Total sales 54000 55080 56181.6 57305 58451 59620
Other income 12564 12564 12564 12564 12564 12564
Total cash inflows 145564 188045
232802.8
4
278370.6
016
324761.5
13824
371988.9
5150016
Cash outflows
Direct material 9580 8262 8427.24
8595.784
8
8767.700
496
8943.054
50592
Salaries and wages 1546 1546 1546 1546 1546 1546
Other expenses 3569 3711.76 3860 4015 4175 4342
Administration expenses 10468 10468 10468 10468 10468 10468
Total cash outflows 25163 23987.76
24301.47
04
24624.42
4416
24956.92
569664
25299.28
87145856
Cash deficit / surplus or
closing cash balance 120401
164057.2
4 208501 253746 299805 346690
Zero – based budgeting : It refers to a process of creating budget without using prior
year budget. It also uses zero base for preparing the budget.
Advantages
 This budget helps the Jupiter Plc in utilizing the resources in the effective way.
 It helps managers in identifying cost reduction methods.
9

 It assists Jupiter PLC in reducing wasteful activities.
Disadvantages
 This budget is very complex to prepare as it is not based on prior budget.
 It lays emphasis on short term benefits and ignore the Qualitative benefit.
 It is an expensive process as it involves lot of information so it cannot be affordable by
small businesses.
Strategic budget : It is a process of creating long range budget which are prepared for
more than lone year. The objective of this type of budget is to create long term vision for the
future position of the organisation. The focus of strategic budget is on strategic direction, risk
management, competitive threats , growth options and reallocation of resources to higher growth
areas.
Advantages
 It helps in achieving the long term goals of the organisation.
 Strategic budget provide helps in making strategies to reduce the risk factor.
 It also assists Jupiter PLC in utilising the resources in the effective manner to achieve the
organisational goals.
Disadvantages
 It requires more time for preparing this budget as it is related to long term .
 As it is prepared for the long term many expenses are not allocated due to which there are
high deviations in budget.
 It is based on assumptions due to which decisions based on this budget are not so
effective.
TASK 4
Adoption of management accounting system to respond to financial problems of the organisation
For identifying financial issues Jupiter Plc may use budgetary targets and key
performance indicators to solve financial problems of the company. This financial problems may
include financial and non-financial benchmarks which helps to identify problems and variances
of the organisation. Following are the responses which are used by organisations-
Financial governance- according to this point company will identify financial governance so
that they will able to understand its applicability which helps them in solving financial issues and
10

problems. This analysis helps them to in resolving financial issues of the organisation. Financial
governance is the effective tool for solving monetary issues of the organisation (Cowton, 2018).
Managerial accounting skill set- to achieve growth of the organisation, it is necessary for the
organisation to identify their effective managerial skills by which managers of the organisation
will able to solve financial problems of the organisation. Company will have to hire
knowledgeable skill accountant which have capabilities in solving financial problems of the
organisation.
Effective strategies and systems- to solve financial problems effective strategies and systems
have to developed by organisation. For developing effective strategies, managers of the company
first have to analyse financial statements by which effective decision will be developed in
solving financial problems of the organisation.
Planning and controlling- it is the important method by which financial problems may get
resolved. Managers of the company will first develop effective planning and with that execution
will be developed in solving the financial problems of the organisation.
Competitive advantages- management accounting will help organisation in developing effective
strategies by analysing financial statements of the competitors. These strategies help managers to
solve financial problems and stand competitive in business market.
Factors which leads to develop organisational growth by use of management accounting
To achieve growth of the organisation in business market, financial problems of the
company needs to be solved by the organisations. This financial problems may be solved by
developing effective managerial strategies in regulating business operations (Ho, 2018). For
achieving organisational growth company have to capture customers of the business market.
Factors by which management accountant will achieve overall success of the company by
developing effective market strategies are as follows-
Firstly, marketing managers of the company will have to do effective research in which
social and environmental trends of the business market be analysed. Social and environmental
factors like political, environmental, social and legal factors of the business needs to analyse so
that effective decisions will be develop to solve that factors in achieving overall success of the
company.
Secondly, to achieve sustainable growth of the company manages of the company will
have to develop challenging corporate technologies in which company will overlook financial
11

performance of the organisation in business market. By measurement of the performance
managers will able to develop effective business model and culture by which sustainable growth
will get achieved in business environment.
Another strategies by which company will achieve their growth is by describing impact
of sustainable issues among the employees of the organisation. Explanation of this issue among
employees will develop efficiency of the employees in meeting future goals of the organisation
(Booth, 2018.).
By developing effective tools and techniques in organisation, management will able to
develop their long- term success in business market. Such tools may be planning, carbon foot-
printing, etc. After executing successful planning, management will have to develop performance
report under which discussion held in solving financial problems which overall helps in meeting
organisational growth.
Response of planning tools for solving financial problems in achieving sustainable success
Planning tools are developed in preparing budget for organisation. Planning tools are the
best beneficial tools and techniques which overall benefit organisation in developing effective
planning strategies and budget for organisation in achieving sustainable success. There are
certain planning tools which helps in proving growth of the organisation. Responds of planning
tools are as follows-
Zero-based budgeting helps organisation to analyse needs and cost of the organisation by
which effective budget will be developed by management. This method helps in developing
effective budget by which needs and goals of organisation easily get achieved.
Activity-based budgeting helps organisation in analysing accurate cost of products of
organisation. This method also help to calculate cost per unit of overheads of business activities
which concerned by management in developing effective budget strategies for organisation.
Top down budgeting is the process of budgeting which develop by top level managers of
the organisation. Therefore, decision of developing budget is in accordance with management.
This overall helps company in achieving sustainable success in business market and in
developing their competitive advantages.
These are the planning tools which helps company in solving financial problems by
which company will able to achieve effective financial growth of the company in business
market.
12

CONCLUSION
From the above study it can be concluded that management accounting plays an
important role in analysing effective performance of the organisation in business market. This
report is based on the importance of management accounting for Jupiter Plc organisation. In this
report it is discussed about management accounting and its importance in achieving sustainable
growth and also in solving financial problems of the organisation. In this report planning tools
and technique is discussed to develop effective budget for the organisation with accordance with
management accounting. Therefore, it can be concluded that management accounting system is
the effective tool in achieving overall business success.
13

REFERENCES
Books and Journals
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research. 34.
pp.59-74.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review. 23(3). pp.222-226.
Booth, P., 2018. Management control in a voluntary organization: accounting and accountants
in organizational context. Routledge.
Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to
climate change risk exposure and regulatory uncertainty. The British Accounting
Review. 49(1). pp.4-24.
Cowton, C.J., 2018. Management Accounting and New Information Technology.
In Management Information Systems: The Technology Challenge (pp. 115-126).
Routledge.
Domingues, A. R. and et.al., 2017. Sustainability reporting in public sector organisations:
Exploring the relation between the reporting process and organisational change
management for sustainability. Journal of environmental management. 192. pp.292-301.
Hiebl, M. R., 2018. Management accounting as a political resource for enabling embedded
agency. Management Accounting Research. 38. pp.22-38.
Ho, A.T.K., 2018. From Performance Budgeting to Performance Budget Management: Theory
and Practice. Public Administration Review. 78(5). pp.748-758.
Hoitash, R. and Hoitash, U., 2017. Measuring accounting reporting complexity with XBRL. The
Accounting Review. 93(1). pp.259-287.
Mueller, D. and Trost, R., 2018. Erratum to: Game Theory in Management Accounting–
Implementing Incentives and Fairness. In Game Theory in Management Accounting (pp.
E1-E1). Springer, Cham.
Saeidi, S. P. and Othman, M. S. H., 2017. The mediating role of process and product innovation
in the relationship between environmental management accounting and firm's financial
14