Benefits of Management Accounting Systems

The assignment evaluates the benefits of different management accounting systems, including job costing, batch costing, contract costing, price optimizing system, cost accounting system, and inventory management system, in the context of Ryanair. It highlights how these systems provide information for specific jobs, compare batches, evaluate contracts, optimize prices, determine costs, and manage inventory levels.

Unit5: Management Accounting_February 2018

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Unit5: Management Accounting _February2018
London School of Science
and Technology
Pearson BTEC Level 5 HND
Diploma in Business
Unit 5: Mangement Accounting
Assignment Title: Mangement Accounting
Module Leader : Mubashir Qureshi
Internal Verifier: Mohammad Haider
Issued on: 19th Feb 2018
Deadline: 08th June 2018
Submitted on:
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Campus: Alperton/Luton/Birmingham (delete as appropriate)
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MA
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Vocational Scenario or
Context
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Unit5: Management Accounting _February2018

Introduction
Management accounting is a vital component of the accounting systems that help to identify the
costing activities of any firm and, by controlling the costing items, ensuring the profit for the firm.
The manager should prepare the management accounting very carefully if he/she wants to control
the costing activities properly and earn a profit for the organization. In this report, the significance
of management accounting will be shown in details considering Ryanair and how this accounting
system helps the management of Ryanair to control its cost and earn a significant amount of profit.
Like any other companies, Ryanair calculates per unit cost using two different types of approaches.
One is called absorption costing method and the other is called marginal costing method (Bhimani,
A. 2015). If we focus on these methods, we will have found that both of these methods have some
advantages and disadvantages. It is up to the management of the business about which method they
should pursue. The difference between these methods will be shown with some relevant examples. I
will also present income statement by considering these methods and how the budgetary controls
tools have been presented.
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Unit5: Management Accounting _February2018

Task-1
P1. Defining and explaining the Management Accounting and different types of
Management Accounting
Date: 04 April 2018
To
Line Manager
RYANAIR
Dear Sir,
With due respect, I will try to define and explain the Management Accounting and its different
types.
Management Accounting
Management accounting is an accounting approach to managing the cost structure of any
organization in such a way that it helps the manager or decision maker to take the best decision for
the betterment of the organization. Management accounting is necessary for every business as it
manages the cost structure prudentially and provides sufficient information to the decision maker to
make a perfect decision. However, there is some difference between financial accounting and
management accounting. Management accounting provides quick information for decision-making
purposes as it performs the accounting on segmentation basis (Belloc, H. 2007). The management
account is not like another accounting method. And in some cases, it doesn’t consider the accuracy
or verifiability of the data rather it focuses on the relevance to take a decision in a crucial moment.
There are some aspects of management accounting in which it performs its activities. These are
identifying variable cost, identifying fixed cost, break-even analysis, and contribution margin etc.
Although management accounting is helpful for the manager to take a useful decision, it is not
required by GAAP (Hansen, D. and Mowen, M. 2007). Because the information of managerial
accounting is solely for the managers and the external parties don’t need that. The distinction
between managerial and financial accounting are given below:
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Unit5: Management Accounting _February2018

The distinction between managerial accounting and financial accounting:
Managerial Accounting Financial Accounting
Managerial accounting gathers data and
provides information to the internal parties
only.
Both the internal and external parties are
dependent on financial accounting.
Not required by GAAP Required by GAAP
Give useful information for decision making
to the internal parties
Provide general condition of the business to
both internal and external parties.
Concerned with a specific segment Concerned with the overall condition of the
business
Management takes a decision based on the
information provided by this accounting
Different parties gather their necessary
information from this accounting system
No obligation The business is responsible for providing this
information
Different types of Management Accounting Systems
There are four different types of Management Accounting Systems. these are described below
shortly:
1. Cost Accounting System: costing accounting system in which the cost of the items is
determined in order to identify those products which are profitable for the business (Harris,
P. 2007). Cost Accounting System in Ryanair helps the business to capture the most
profitable products which provide higher returns or profits for the business. there are some
other benefits of cost accounting system. This system helps the management to take
corrective actions for those product items that provide fewer benefits.
2. Inventory Management System: inventory management system in Ryanair helps the
management to keep the necessary level of inventory so that it can minimize the cost
associated with keeping a higher level of inventory as it freezes the valuable money of the
business (Bhimani, A. 2015). Proper inventory management system in any business keep a
good balance between the supply side and demand side of inventory.
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Unit5: Management Accounting _February2018

3. Job Costing System: job costing system is a technique that provides good information
about the cost of different types of products. because we know that different jobs have a
different level of cost. Job Costing System in Ryanair helps the management to identify
those jobs which require more cost than others and take corrective actions for them.
4. Price Optimizing system: a price optimizing system is a scientific approach of selecting the
best price of the products so that it can attract the customers to purchase those types of
products and keeping the firm profitable by covering the cost of production (Hilton, R. and
Platt, D. 2005). price optimizing system seeks for the best combination of the demand and
price of the product so that it can give a higher return to the business.
P2. Explaining the different methods used for management accounting reporting
There are different types of ways by which the management accounting reports can be presented.
Among these methods, the most useful techniques are performance report, budget report, cost report
and some other reports. these are described below shortly:
Cost Report
Cost reports present the information regarding the cost of different types of products so that the
business can identify the best product and the worst product. As we know that, it is highly unlikely
that the cost of every product will be same. Some products are costlier than the other. From the cost
report, the business will get the idea of how the profit of the organization can be maximized. We
can follow these two approaches (Hansen, D. and Mowen, M. 2007). One is reducing the cost of
production and usage of materials. And the other approach is increasing the price level of the
product. However, both of these approaches have some advantages and disadvantages.
Budget Report
The budget report shows the planned activities of the organization. It helps the firm to allocate the
resources based on the needs. The budget also helps the manager to take proactive actions.
However, the actual outcome may be different from the budget (Belloc, H. 2007). So, in that case,
the management should adjust the budget properly. In Ryanair, the activities are being taken based
on the budget and if there are any discrepancies then the management can identify who is
responsible for that results.
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Unit5: Management Accounting _February2018

Performance Report
Performance report publishes overall performance of the employees, their actions related to the
organization etc. based on the performance report the management can arrange required training
facilities for the employees. the management also can reward the employees based on the
information collected from performance report (Harris, P. 2007). Performance report records the
information of the employees considering different types of skills and criteria. In Ryanair, the
performance reports are prepared after a certain time period and training facilities and reward
options are given in order to foster their skills and knowledge in their fields.
Other Report
There are some other types of a report prepared by the management team. Among the most
common types are business condition report, ordering report etc. the management prepares these
reports on their own discretions. Former reports give the information about the current condition of
the business so that the management can take corrective actions. And, the latter report provides the
information about the customers demand and then the management can take reactive actions based
on the report.
Different types of methods for making these reports are given below:
Job costing it provides the information for specific jobs so that the management can compare
between the jobs and select the best jobs which require fewer expenses but provide more profit.
Because we know that there are some variations of cost among the jobs (Hilton, R. and Platt, D.
2005). In Ryanair, the cost of the jobs is screened out properly and the most useful jobs are selected
for further development.
Batch Costing when the products’ categories are almost same, the management follows batch
costing method. In this method, similar types of products are combined in a single batch. After
preparing all of the batches, the cost of these batches then compared and take necessary actions in
order to minimize the extra cost associated with some batches.
Contract costing the company earns some specific returns form individual contracts. So, before
involving in any contracts, the company evaluates the condition of the contracts and then select
those contracts which will provide the company good return. based on the performance of the
contracts, the company prefer those contracts which are better than the others.
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Unit5: Management Accounting _February2018