Management Accounting and Costing Systems

INTRODUCTION
Management accounting is one of the most important domains that assist firm in
managing cost in its business. In present research work management accounting concept is
defined clearly and requirements of varied systems are explained. In middle part of the report,
profit computation is done on basis of marginal costing and absorption costing approaches and
their suitability for business is identified. Along with this, merits and demerits of different
planning tools is explained in respect to budgetary control. At end of the report, varied methods
that can be used to respond to financial problems are explained. By covering all these things in
proper manner research work is completed.
P1 Management accounting and essential requirements of different management
accounting systems
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting system
Management accounting refers to the tools and methods that are used for doing costing of
product and identifying lots of facts and figures in respect to costing of products and services.
Usually, in management accounting there are number of tools and methods like variance analysis
and budgeting that can be used for cost control and analysis (Burns. and Scapens, 2000). There
are number of advantage and disadvantage of these methods and due to this reason it is very
important to use all these methods in proper manner in appropriate manner so that best rules can
be obtained in the business. Management accounting systems are widely used by all sorts of
business firms. It is the system in which in systematic manner and in specific way transactions
related to specific product are recorded. There are varied sort of management accounting systems
and essential requirement of these accounting systems are explained below. Cost accounting systems: Cost accounting system is one of the most important systems
because under this all sort of expenses related to all products that are produced by the
firm are recorded collectively. All these expenses are aggregated to arrive at amount of
overall cost that is incurred in the business. White elephant restaurant can make use of his
accounting system because it simply need to sum all relevant expenses in category of

fixed, variable and semi variable expenses. By using this accounting system managers
can prudently make decisions. Under cost accounting systems all expenses are classified
into fixed expenses, variable expenses and semi variable expenses (Angelakis, Theriou
and Floropoulos, 2010). Fixed expense is the cost which remains stable and does not alter
during entire life of the project. It can be said that cost accounting system have due
importance for the firms because in it one can easily get segregation of expenses in
different categories. It can be observed that managers always required classification of
cost in all these categories because on basis of same they identify that to what extent
variable expenses increased in the business. Variable expenses are those expenses that
keep on fluctuating consistently in the business and never remain stable at specific point.
This reflects that there is huge difference between fixed and variable expenses in the
business. It is very important for the firm to maintain control on its expenses so that
profitability can be enhanced in the business. Cost accounting system is currently
employed by all range of enterprises in their business due to its unique and easy
implementation phase. This is the reason due to which cost accounting system is gaining
wide popularity among business firms. It can be said that there is huge importance of cost
accounting system for the business firms. Job cost system: Job costing is one of the unique methods of costing and under this for
each job or product line separately costing is done. For example there are 5 products then
in that case for each product separately costing will be done in the business (Figge and
Hahn, 2013). Under this accounting system aggregately costing of products is not done
and due to this reason this accounting system is considered better than other accounting
systems. This is because in other managers does not get an overview of product lines
separately but in case of job cost system for each product individually information is
obtained by the business firms. Thus, it can be said that there is huge importance of job
cost system for the business firms. This is because under this system management gets
report of costing of all products separately. On the basis of information obtained they
become able to identify that which of product lines is more profitable and expenses are
low. In other words it can be said that managers comes to know about products where
expenses are very high. It can be said that there is huge importance of job cost system for
the business firms. This accounting system is used in the firms that are operating

production plant and producing multiple sorts of products in the business (Lavia López
and Hiebl, 2014). On the basis of reporting system they get an entire detail about single
product specifically and decide that on which product they need to pay due attention. It
can be said that there is huge importance of job cost system for the business firms. Process accounting system: Process costing system is one of the important system and
under this for entire process costing is done separately. It can be seen that for each
product there is specific process that is followed for production of goods at workplace. In
this process there are different stages that are performed by the business firms in order to
produce specific product. For each product production stage separately costing is done.
This is one of the important costing systems that are followed by the business firm. This
is because under this more accurately overview of costing of product is obtained (van der
Steen, 2011). In the stage of production where cost is much high can be analyzed by
performing process reengineering stage and activities that are producing high amount of
wastage can be simplified so that cost can be reduced in the business. It can be said that
process costing system is one of the most important system that is used by the business
firm’s at large scale in the workplace. In current time period there are large numbers of
firms that are operating process costing system at workplace because it has number of
advantage for the firm. Hence, it is the attractive features of the process accounting
system that make it more popular among business firms. Throughput accounting system: It is one of the common accounting systems that come
in modern category. It is the accounting system which is newly prepared by the Israeli
business man so that wastage can be detected in the business and same can be removed. It
can be said that there is huge importance of throughput accounting system for the firms
because it lead to reduction in cost in the business along with decline in wastage in the
business.
P2 Different methods use for management accounting reporting
From: Budgeting officer
To General manager of White elephant restaurant
Subject: Management accounting reporting
Reporting is the one of the major task that is performed in every business. This is because in

reports lots of facts and figures are presented that are used by the managers for making business
decisions. These facts may be related to sales and revenue that are earned in the business. On the
basis of these facts managers comes to know about area where they need to work in order to
improve performance of the business firm (Kotas, 2014). Different sort of reporting are used by
the firms in their business and same are explained below. Job cost report: Job cost report is one under for each product separately report is
generated in the business. White elephant restaurant can use this sort of report so as to get
better overview of costing of all products separately. In the job cost report there are
different product lines that are operated by the business or different orders of customized
products that are received from customers are also treated as job. It can be said that there
is huge importance of job cost report for the business firms. From this report managers
get information about different sort of variable expenses that are made in the business.
Job cost report is prepared by most of business firms because it help them in making
relevant business decisions. In large size firms usually there are job cost system and due
to this reason job cost report is prepared in the business. Time to time on monthly basis or
within every 15 days job cost report is prepared. This is done because by doing so
managers keep close track of variable expenses in the business (DRURY, 2013). On
other hand, by preparing cost control strategy on initial stage expenses are control in the
business. This lead to strict control on expenses in the business. Overall due to reduction
in expenses in the business product cost decline and due to this reason firm earn good
amount of margin in its business on per unit sold. It can be said that this sort of reporting
greatly help managers in managing efficiency in the business. Hence, it can be said that
there are multiple reasons due to which it is assumed that there is wide level of benefits
of using job cost report in the business. Budget report: Budget report is also one of the important tools of reporting because in
this report standards are clearly communicated and actual facts are recorded in alignment
to it. On this basis it is identified whether firm perform good or bad in its business. Firm
performance is considered good when it successfully beat standard and considered worst
when it failed to beat standards. It can be said that it is one of the important tool of
reporting for the firms. On basis of variance analysis that is done in budget report it is
identified that which are areas where work need to be done in the business. For example