Management Accounting Systems and Tools

This assignment covers various aspects of management accounting, including inventory management systems, job-costing systems, price-optimization systems, cost accounting systems, methods of management accounting reports, types of budgetary control planning tools, and more. It requires a detailed understanding of financial and operating budgets, fixed and variable budgets, non-monetary budgets, and other essential concepts in management accounting.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Report to General Manager regarding concept of management accounting and
requirements of their types to company......................................................................................1
P2 Report to General manager regarding explanation of methods of management accounting
reports..........................................................................................................................................4
TASK 2............................................................................................................................................7
P3 Difference between Marginal costing and Absorption costing and calculation of Income
statement through these methods:...............................................................................................7
TASK 3..........................................................................................................................................11
P4 Report to General manager regarding advantages and disadvantage of different types of
planning tools for budgetary control.........................................................................................11
P5 Uses of management accounting system in solving financial problems..............................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
A management accounting system gathers financial informations from operations of the
business like sales data, movement in inventories and changes in the costs of raw materials
(Banerjee, 2010). These useful informations than converted into valuable reports by management
accounting systems.
Bizdaq was established in 2015 with less than 10 employees, it comes under business
sales sectors. This company gives marketplace for sale and its annual turnover is near to
£100,000.
In this assignment, various types of management accounting systems have been
discussed. Advantages and disadvantages of budget control will support Bizdaq in making a
choice between different methods of budgetary-control. This assignment contains case study
which has two scenario's. First scenario has focus on accounting techniques implementation for
business, while second scenario consists of resolution techniques to reduce the impact of
financial issues. A report has been written to General manager, to convince him for adopting
different techniques of budgetary-control to solve Bizdaq's financial issues.
The main objective of this report is to explain application techniques of management
accounting tools like profit analysis, marginal costing and absorption costing methods.
TASK 1
P1 Report to General Manager regarding concept of management accounting and requirements
of their types to company
From: Management accounting officer
To: General manager of Bizdaq
Sub: Management accounting system
This report contains management accounting system meaning and its different types. It's basic
uses for company is also explained. The main purpose of this report is to explain management
about how it would support company in decision-making process.
Management Accounting System:
An accounting management system uses operational data and makes reports which is
valuable like sales analyses report, Inventory costs which is stocked and comparison report
between budgeted and actual expenses (Bebbington, Unerman and O'Dwyer, 2014). For
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instance, cost accounting system could provide direct and indirect cost of manufacturing of
companies product which allows company to identify actual price of the product to get mark up
price.
Below is given a diagram which consists of different types of Management Accounting
Systems:
 Cost Accounting System: It is also known as product costing system or costing system.
It is a basic guidelines which is used by firms to estimate the future costs of their
products and services for identifying their profits (Chandra, 2011). There are two main
cost accounting system:
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Management Accounting
System
Inventory Management
System
Job-Costing
System
Price-Optimization
System
Cost Accounting
System

◦ Job Order Costing: These type of cost accounting systems identifies manufacturing
costs for each job separately (Chapman, 2011). It is useful for those firms which are
into producing unique products or receiving special orders like niche furniture
producer, high cost air surveillance system, etc.
◦ Process Costing: These type of cost accounting system identifies manufacturing
costs for each process separately. It's useful for different departmental process like
oil refineries, chemical producers, etc.
Some times firms uses combination of both systems which is also known as hybrid
cost accounting system.
Benefits: Bizdaq could be benefited through this accounting system, as through this
method company might know about the products which are profitable or not profitable for firm.
Also a product costing system would help company in estimating the value of closing materials
inventory, work-in-progress and finished goods inventory for preparation of financial statement.
 Inventory Management System: An Inventory management system consists of
combination of the uses of desktop software, barcode scanners, barcode printers and
mobile devices to arrange the management of inventory like goods, consumables,
supplies, stock, etc (Christ and Burritt, 2013). Inventory management is important
because it control works of operations by tracking two main functions of companies
warehouses which is; Receiving incoming goods and shipping outgoing inventories.
The main objective of inventory control is to identify present inventory levels and
minimizing under-stock and over-stock accordingly.
Benefits: It could be useful for Bizdaq to manage its inventory because through Inventory
management system, company could create purchase orders, receive and deliver inventories,
creates sales orders, shipping inventories, calculates turnover of physical inventories and
schedule reports. Inventory management system could also help Bizdaq in improving bottom
line, accuracy of inventories and workflow of the company.
 Job Costing System: This type of management accounting system involves process of
collecting informations related to the costs attached to specific production or service job
(Damodaran, 2012). This data might be required by management to submit cost related
informations to their clients. Job costing systems gathers three types of data's which is
Direct materials, Direct labour and Overhead costs.
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Benefits: It is useful for Bizdaq because it could help company in modify informations
according to the requirements of customer. As clients only allows to charge certain costs to their
jobs.
 Price-Optimization System: These systems are mathematical programs which
calculates variance of demands at different level of prices and combines the data
information on costs and inventory levels to suggests prices for earning profits (David,
2011). Price-Optimization system works on three critical pricing elements like price
strategy of a company, value of product for buyer and sellers and strategies of
management to control profitability elements.
Benefits: It would help Bizdaq in determining starting prices, promotion pricing and
discount pricing.
P2 Report to General manager regarding explanation of methods of management accounting
reports
From: Management accounting officer
To: General manager of Bizdaq
Sub: Management accounting report
The objective of this report is to explain different methods of reporting in accounting
management process and to describe the possible applications of these reports to support
company for appropriate decision-making process.
Management Accounting Report
These management accounting reports supports business in determining performance of
the company. It is usually created at the end of every year and used by top management to know
financial status of the company in a market (Eastman, 2012). It gives guidelines to a manager to
modify some process to increase or improve performance of a company.
Management accounting report is also important because it supports company in
estimating future costs in advance, it helps in making budgets, make or buy decisions, reacts
against variances in financial performance of a company. It determines which factors is not
performing well. For instance variable costing and marginal costing methods identifies per unit
cost of machineries, labour, materials and variable overheads to know exact production costs of
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a product.
Below is the diagram of different types of Management Accounting Reports methods:
 Accounts Receivable Aging Report: Accountable aging is a periodic report that
periodically receives a company's account, which is an invoice outstanding. It is used as
a gauge for determining the financial position of the customers of the company (Goetsch
and Davis, 2014). If the account receives a qualified age, indicating that the receipts of a
company are being collected more slowly than usual, it is a warning sign that the
business may be slow or the company is more vulnerable to its sales practices.
This method could be applied by Bizdaq to identify the tenure taken by buyers of a
company to pay back its amount. Like for example, company might control its debtors through
analysing debts given to them in previous year. As increase in trade debtors would affect
efficiency of companies cash flows. Therefore Accounts receivable aging report might support
Bizdaq in controlling excess distribution of cash among buyers.
 Job Costs Reports: These reports lists down all types of job costs which are incurred
for each job or project. It is subtotalled by vendors. To support the cost of a job for an
accounting system, it should be assigned job numbers and different items of revenue
(Granlund, 2011). A job can be defined as a specific project for a client, or a unit of
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Methods of Management Accounting Report
Accounts receivable
Aging Report
Job costs Reports
Income statement
report
Cash flow reportBudget Report
Inventory reports

manufactured product or a batch of units of the same type, which are produced
simultaneously.
The application of Job Costing Reports might support Bizdaq in identifying those
activities which are consumed lots of cash. Through this reporting method company could
modify informations according to the requirements of customer. As clients only allows to
charge certain costs to their jobs.
 Budget Reports: To support the cost of the job for the accounting system, it should be
assigned the number of jobs and different items of revenue. A job can be defined as a
specific project for the customer, or a batch of units of the same product or the same
type of units which are produced simultaneously (Kimmel, Weygandt and Kieso, 2010).
According to the report of this budget, the estimate should be based on the previous
trends of actual expenditure, revenue and prices. This organization also helps in the
distribution of incentives among its employees. Budget reports are generally limited to
the reporter's strong analytical and assessment skills. Financial status, income and
expenditure data can be modified on a regular basis by a company. Financial data is
usually recorded in the budget report, which is also known as the financial report, it has
been written and written based on the requirements of a company.
Application: Through application of budget reports, Bizdaq would get a support in
analysing the variances between budgeted and actual costs. As more deviation reflects
inefficiency of a company to manage demands and supply of a product, while less variances
indicates that Bizdaq is very well utilising its resources and successfully eliminating the extra
wastes.
 Cash Flow Statement Report: In management accounting reports, this types is also
known as statement of cash flows. Cash flow statement is a financial statement which
tracks the changes of balance sheet and Profit&loss accounts (Linoff and Berry, 2011).
It determines how much cash is inflows and outflows from operating, investment and
financial activities.
Application: Bizdaq could apply this reporting method, in order to obtain the liquidity of
its business through analysis of cash flow statement reports, for example, the net profit of the
company is £9300 according to the direct cost, which has been earned which means that it is
actually in exchange for cash Not earned by business. Therefore, the realization of how much
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cash is survived with the report of cash flow, helps in identifying.
CONCLUSION
After analysing key points of above report it can be concluded that, it is always a smart
business decision that select Management Accounting Reporting System which integrates with
the company's financial accounting system. This eliminates redundancy and increases the
timeliness of the management report. With precise, timely information, management can make
informed decisions about operating commodities like cost reduction, increase in production
time, increase in hand list, and increasing marketing budget. Businesses with a management
accounting system have a definite benefit in organizing the capital, to reduce costs and increase
the expansion of the future.
TASK 2
P3 Difference between Marginal costing and Absorption costing and calculation of Income
statement through these methods:
Marginal Costing: Its calculation is based on marginal costs of a product. The marginal
cost of a product is variable cost of it, whereas the marginal production cost of a product is sum
of its direct materials cost, direct labour cost, direct expenses cost and variable production
overhead costs per unit (Macintosh and Quattrone, 2010). This indicates that, total variables
costs would rise with the increase in volume of production and sales of business.
On the other hand, fixed costs are those expenses that remains same for year and it is not
affected by volume of production and sales. Marginal cost of production are the costs per unit of
product which is produced by the company and it can be avoided if firm is not producing units.
Like for example, suppose production cost of 100 units is £1000 and if company manufactures
101 units than cost of product is increased to £1010, that means per unit cost of production is
£10. Hence, company can avoid this additional cost of £10 by not producing one extra units.
Marginal costing is an accounting system where variable costs are added to costs per
units. Fixed costs are charged against contribution to determine exact profits earned by company
during a year. Variable costs are those which are changes with the output of units produced. This
method is also known as principal costing techniques which is helpful for companies in decision-
making.
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Absorption Costing: It is an accounting cost method of management which associates
particular costs with manufacturing of a product (McNeil, Frey and Embrechts, 2015). There are
various direct costs that are associated with manufacturing of a product such as raw materials,
overhead costs, utility costs, etc. in producing a good as the base of a cost.
Absorption costing is also know as full costing because it includes fixed overhead
charges and product costs. In this method all expenses are allocated to products which is
manufactured. This techniques of cost analysing doesn't considered whether the products
manufactured is sold or not. The main benefits of Absorption costing is, it doesn't considers all
fixed expenses of unsold inventories, as it reflects only those fixed costs which is attached to
items within ending inventory. This method provides the values for under and over-absorption of
costs. While under-absorption is treated by deducting it from gross profit and over-absorption is
added back to profits to find accurate value of net earnings during the year.
Under-absorption is a situation in which actual overhead is more than budgeted while in
over-absorption, actual overhead incurred by company is less than budgeted one.
Below is the calculation of Income statement through Marginal costing and Absorption
costing techniques:
Net profit calculation on the basis of marginal costing
Per unit price(£) No. of units Amount(£) Amount(£)
Sales revenue 35 600 21000
Less: Marginal cost
Opening Inventory Nil
Total Variable production cost 14 700 9800
Less: Closing Inventory 14 -100 -1400
8400
Contribution 12600
Less: Fixed overhead
Production overhead -2000
Administration cost -700
Selling cost -600
-3300
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Net Profit 9300
Direct materials 6
Direct labour 5
Variable production Overhead 2
Variable sales overhead 1
Total Variable production cost 14
Net profit on the basis of Absorption costing
Per unit price(£) No. of units Amount(£) Amount(£)
Sales revenue 35 600 21000
Less: Cost of Production
Opening Stock Nil
Cost of goods Produced(700*16) -16 700 -11200
Less: Closing Stock(100*16) -16 100 -1600
-9600
Gross Profit 11400
Less: Selling and Administration cost
Selling and Administration cost per
unit(1300/600) -2 600 -1200
Sales Overhead -1 600 -600
-1800
Net Profit 9600
Closing stock = (Production cost –
Actual sales) * 16 (700-600)*16 1600
Cost of goods produced:
direct M + direct L + VP overhead +
(overhead/700)
£6 + £5 + £2 + £3
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£16
Interpretation: On the basis of above calculation of marginal costing and absorption
costing, it can be concluded that net earnings from both the methods are different because of
difference between budgeted production and actual production which is 100 units. Also, there is
£200 difference in its fixed production overhead. There's 100 units of closing inventories having
value of £1400 in term of marginal costing and £1600 in term of absorption costing is left at the
end of a year. It will be consumed first according to the FIFO principal which is First In First Out
next year.
Both Marginal costs and Absorption costs are different techniques and uses different
ways for calculating overall costs (Papaspyropoulos, 2012).
Below is the difference between Marginal costs and Absorption costs:
Basis for comparison Marginal Costing Absorption Costing
Meaning It is an accounting system in
which variable overheads
charges costs per unit of a
product and fixed costs are
deducted to get total net
earnings from the business.
It is a method of calculating
cost of production by indirect
expenses or overheads as well
as direct costs (Renz, 2016).
Cost Identification In marginal costing, product
cost lies under variable cost
and fixed cost is considered as
a periodic cost.
Here both fixed and variable
costs considered as cost of the
product.
Costing & Inventory
valuation
Here only variable cost is
considered.
Here both variable and fixed
cost are considered.
Treatment of fixed overhead In this technique, fixed cost is
considered as period cost and
profitability of different
products is judged by
profit/volume ratio.
Here, fixed cost is charged
against cost of production.
Each product has to share fixed
cost through apportionment of
fixed overheads among
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different departments.
Unit cost of production It is not affected by difference
in opening stock and closing
stock.
It is affected by unit cost of
production due to impact of
related fixed overheads over it.
Lucrativeness In marginal costing,
profitability is calculated
through cost-volume analysis.
In absorption costing, due to
deduction of fixed costs
profitability get affected.
High spot Contribution per unit is the
high spot of this techniques.
High spot of this techniques is
calculation of both gross profit
and net profit from the cost of
various department centres.
Categorization of Expenses Costs are classified into
variable and fixed in marginal
costing. To find contribution
and net profit separately.
In absorption costing, there's
different classification for
Production to find gross profit
and selling & administration
costs to find net profit.
Cost Collection Cost is collected by outlining
the total contribution of each
product.
Cost is collected through
customary way to show the
cost of data.
On the basis of above differentiation, it can be concluded that Marginal costing allocates
its costs into variable and fixed expenses, while Absorption costing considers costs of production
in common.
TASK 3
P4 Report to General manager regarding advantages and disadvantage of different types of
planning tools for budgetary control
From: Management accounting officer
To: General manager of Bizdaq
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Sub: Types of accounting tools for budgetary control
In this report, all advantages and disadvantages of using different types of planning tools such
as financial, fixed & variable, operating and non-monetary budgets for budgetary-control has
been discussed. This report will also help management in selecting best alternatives for
controlling budgets.
Budgetary-control
It is management accounting tools for controlling budgets of a company. In this budget
controlling process, real income and expenditure is compared with estimated income and
expenditure figures (Schaltegger and Csutora, 2012). It helps in ensure about schemes are being
followed properly. In this method, budget is required to be created by company. A budget for
company's performance is set of financial goals which is to be achieved by management, like
sales goals. In the next step, management compares and analyses its actual performance with
budgeted goals. A budget report is used for this comparison.
Below are the various tools used in budgetary-control process:
Financial Budgets: These types of budgetary-control control, supports companies in
allocating or distribution its funds among different financial activities on the basis of financial
budgets (Uyar, 2010). Overall its a plan which includes budgeted balance sheet and it shows the
impacts of planned operations and capital invested on its various assets, liabilities and equities.
It considered cash budget to forecasts the flow of funds in its business.
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Types planning tools of Budgetary
control
Financial
Budgets
Operating
Budgets
Fixed and variable
budgets
Non-Monetary
Budgets

As like operating budget, the financial budget is a part of business's master budget. The
financial budget helps company in planning and controlling its cash inflows and outflows. The
financial budgets are usually in three parts; cash budget, budgeted balance sheet and capital
expenditures budget.
Advantages of Financial Budget:
It would allow Bizdaq to create its plan for spending their funds, it also ensures that
company should have enough cash to utilise it in important development activities of a
company.
Disadvantages:
It could give false statement or base, if the benchmarking is not done properly by Bizdaq.
Sometimes the practise of controlling financial budgets may rise issue of experiencing stress by
people.
Operating Budgets: These budgets are combination of predetermines expenses, expected
future costs and forecasted incomes during a year. In simple terms, operating budgets are
projection of all estimated income and expenses which is based on sales revenue forecasted
during a year (Van Deventer, Imai and Mesler, 2013). It is consists of sales budget which is
short-term budget and capital expenditures are not included in it as these are long-term costs.
Advantages:
It would support Bizdaq by determining all expenses which are associated with the
operations of a business. Knowledge of cost per unit of a product would help company in
ensure about proper allocation of charges on operating activities.
Disadvantages:
Allocating company's resources in operational budget might make Bizdaq rigid at the time
of spending. Operational budget doesn't considers tax amount which might trouble companies
actual net profit when the budget is implemented by Bizdaq.
Fixed and Variable budgets: A fixed budget is always remained unchanged despite of
changing in level of productions. It is based on a level of activity. A fixed budget performance
report compares data from the actual work of a level of activity reflected in the budget. It is
based on the assumption that the company will work at some specific level of activity and said
that one will be produced. This shows that when the production level changes, the budget is not
adjusted.
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A flexible budget is a budget which is identified by measuring difference between fixed,
semi-fixed and variable costs. It is prepared for more than one level of activity.
Advantages:
The main advantages of fixed and variable budget for Bizdaq is its adaptability. As no one
can control changes like external factors impacts, hence flexible budget is better for a company
to face challenges of the market place through this budget.
Disadvantage:
The main disadvantage of Fixed and flexible budget is, Bizdaq requires to continuously
watch the changes in business environment which is time-consuming. These budgets also
requires adjusting operational activities to suit these changes.
Non-Monetary Budgets: This type of Budgets are measured in non-financial sales or
revenues and expenses like profit. In these budgets, if the figure of profit earned is too small
than companies might be needed to increase the budget of sales or cost cutting in budget.
Advantages:
The main advantage of this budget is, it take into considerations of non-financial activities
which is also important for Bizdaq to analyse its net profit.
Disadvantage:
These budgets are not directly related with Bizdaq's operational activities and thus creates
extra burden of tax on the company.
P5 Uses of management accounting system in solving financial problems
From: Management accounting officer
To: General manager of Bizdaq Group
Sub: Uses of Management Accounting System in solving financial issues
This report consists of various tools which is related to financial performance of the company.
The main focus of this report is on different options available with the company to solve these
issues.
Management Accounting Tools
These tools supports management in utilising financial informations for solving companies
issues like error in budgeting, too much borrowing of funds, inappropriate purchasing decisions
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and failed investments (Wrisberg, 2012).
Application of this accounting tools, supports Bizdaq in increasing sales revenue and
returns on its investments. Linear trend analysis could direct the management towards right path
and help company in identifying factors or obstacles in financial performance of Bizdaq.
Below is the three techniques or alternatives through which financial issues could be
solved by company:
 Key Performance Indicators (KPI): This techniques would support Bizdaq in
monitoring the financial performance of various resources like inventories, labour,
funds, assets, etc. It would help company in measuring its performance on the bases of
returns received by business on its capital expenditures. It can solve financial issues
such as additional loans and non-execution of assets, through the application of the
KPI indicators to eliminate these issues at the initial level, by reducing the credit
amount given to those customers. Can eliminate financial issues of extra blockage of
funds. This company needs to recognize whether it is beneficial on the high-priced
food items for the company.
 Benchmarking: This techniques would help Bizdaq in measuring financial
performance on the basis of others companies financial strengths. It could minimise
the mistakes which other companies did, this practice would eliminates the wastage of
resources and funds.
 Controlling Budgets: It supports companies in meeting with financial issues like over
expenditure of cash on unnecessary events that doesn't have any values to a product.
Bizdaq could use these techniques to control variances between its estimated and
actual sales.
CONCLUSION
After analysing all key points of this assignment, it can be concluded that there are
numerous factors which affects companies budgets like wastage of resources, unplanned
activities, etc. So, it is must required for Bizdaq to do their task effectively as this will affect the
profit of a company. It is mandatory for a manager to prepare a estimated plan to provide proper
directions to their operational employees. Various tools and techniques of Budgetary-control
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helps company in monitoring all activities and guide in decision-making process. Job costing
method is useful in modification of costs according to the requirements of a client.
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REFERENCES
Books and Journals
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Online
Bizdaq makes selling simple, 2017. [Online]. Available through<https://www.mybizdaq.com/>.
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