Management Accounting Systems and Methodologies

This document discusses the different types of management accounting systems used in organizations, such as inventory management system, job costing system, and cost accounting system. It also explores the different methodologies used in management accounting reporting, including inventory management reports, cost accounting reports, and performance reports. Additionally, it covers the calculations of costs using appropriate techniques to prepare an income statement. Lastly, it examines the advantages and disadvantages of different planning tools used for budgetary control.

Management
Accounting

Table of Contents
TASK 1..........................................................................................................................................................3
P1. Management accounting systems.....................................................................................................3
P2 Different methodologies used in management accounting reporting................................................4
TASK 2..........................................................................................................................................................4
P3 Calculations of costs using appropriate techniques to prepare income statement............................4
TASK 3........................................................................................................................................................12
P4 Advantage and disadvantage of different types of planning tools used for budgetary control........12
TASK 4........................................................................................................................................................13
P5 Compare how organisations are adapting management accounting systems to respond to financial
problems...............................................................................................................................................13
CONCLUSION.............................................................................................................................................14
REFERENCES..............................................................................................................................................15

INTRODUCTION
Management accounting is the set of Management and accounts that help to know about business and it's
transactions. It is used to maintain the proper accounts with organization. The main purpose of
Management accounting is to give true and fair vies for increasing the profits in a firm (Bloomfield,
2015). To understand the importance of Management accounting Mazars has been taken that provides
consultants services to different companies and help to make correct business decision. Airdri Ltd is one
of its client which get suggestions to run a business and the report is based on this organization. This
report will cover different topics like management accounting system, reports and planning tools that can
be used to control the budget in a company. Moreover, report will discusses about financial problem
which can be occur in an organization while using system.
TASK 1
P1. Management accounting systems
Management accounting system is the systematics process of identifying and making business decision
within organization. It is helpful for all company by maintaining the proper records and transaction in
entire company. Management accounting comprehends various methods and concepts which are
necessary for set up a business with controlling the business activities. It help to evaluate the data and
interpretation in order to make profitable company. Moreover, it gives financial and non-financial
information that help to take right action. Such as Airdri is the hand drier manufacturer company which is
using different types of management accounting system for making right business decision
(Abdelmoneim Mohamed and Jones, 2014). The different types of management accounting system
are follows by Airdri company that are:
Inventory management system: This is a system which is used to keeping records of inventory like raw
material, finished goods or unfinished goods. This is mainly used in manufacturing company to maintain
the records of stock which are available in a organization. It helps in stock forecasting, automatic
reordering, , materials tracking inventory alerts and many more for keeping records within organization. It
is essential required in Airdri as it help to keep and maintain the records of inventory
(Bagautdinova,Kundakchyan and Malakhov,2013). The manager of Airdri track the inventory and
make further decision for placing next order. It considers various method to use the stock like:
LIFO: It means last in first out which can be used by company to sell the products.
FIFO: It mean sell first in first out that can be used by company to sell the first ordered products.
Average: It means combination of price and units produced to sell the products within organization.
Job costing system: This means a specific contract, assignment or work which is needed to complete as
per customer’s requirement. This is the form of particular order costing which help to ascertain
the cost of individuals or jobs. It is required to maintain the records of specific jobs or contracts.
The manager of Airdri Ltd are using this system to make estimation of individual unit cost or
assignment in order to deliver hand driers. The essential requirement of such system in Airdri is
that it contains specialized rules which are applicable to all types of jobs and helps in estimation
of costs for ascertaining the jobs (Collis and Hussey, 2017).

Cost accounting system: This system is used to estimate the cost of products and services for the
valuation of stock, analyzing the cost and maintaining the profitability. It is very important for
organization to maintain the cost of organization as well as products. It is essential required for
Airdri and other organization to manage the cost in order to increase the profitability. The
manager of Airdri uses such system to is to estimate as well as record the costs like variable cost
and fixed cost (Demski, 2013).
P2 Different methodologies used in management accounting reporting
Management accounting reports means reports which are prepared by the manager of the organization in
order to make business decision. The main purpose of this reports is to give the inside
information which is received through financial accounting. In Airdri, managers prepares
different types of reports which is described below:
Inventory Management Report: Inventory means goods which is manufactured by organization
in order to sale the products and services. the main aim of preparing this report is to generate more
income with the help to preparing inventory management reports. In Airdri, managers prepare these
reports by containing all information which relates to maintenance and recording of inventory. Managers
also maintains proper records of inventory by using advanced technology. Ths report help to maintain the
proper records of all stock such as raw material finished goods etc and prepare inventory reports
(Kanellou and Spathis, 2013).
Cost accounting report: This means a report that can be used to collect, classify, analysis and
reporting the data for ascertaining the cost of products and services. It helps to calculate the cost
efficiently and manage the cost within industry. In Airdri, managers prepares cost accounting reports for
allocating the cost in to various cost centers and maintaining the cost trend within company. This report is
useful to calculate the cost of products and help to make further business transactions (Maher, M. W.,
Stickney and Weil, 2012).
Performance Report: This report is prepared by managers to analysis the performance of
company as well as employees who help to accomplish the goals. It is mainly used for evaluating the
efficiency of industry and improve the performance that help to make profitable organization. In Airdri,
managers build such type of report that help to maintain the performance of activities and make
improvements as per requirement. Moreover, this report helps to control the cost and managing the
workforce in order to increase the productivity (Malinić and Todorović, 2012).
TASK 2
P3 Calculations of costs using appropriate techniques to prepare income statement
Marginal Costing: This is a costing method which can be used to know the profits of a organization. It
involves a systematic classification of expenses and cost a fixed and variable contribution per
unit.
Absorption Costing: This is another method that defines profits of the organization after analyzing the
cost. In this method, all overheads are relates with production or unit cost of products. Herein, no
classification of expenses is needed in fixed and variable cost (Bargate, 2012).

May June
Selling per unit price 50 15000 25000
Less: Various Marginal
Costs
Per unit Direct materials
cost 8 2400 3040
Per unit Direct labour cost 5 2500 1900
Per unit variable
production
overheads cost 3 1500 1140
Sum total 6400 6080
( Less: ) Inventory:
Opening - 3200
( Add: ) Inventory:
Closing 3200 1280
Gross Profit 11800 17000
( Less: ) Fixed Cost
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000
Fixed Production cost 4000 4000
Less: Sales commission 750 1250

Net Profit 1050 5750
Absorption Costing:
May June
Selling Price 50 15000 25000
Less: Absorption Costs
Per unit Direct materials
cost 8 4000 3040
Per unit Direct labour cost 5 2500 1900
Per unit variable
production
overheads cost 3 1500 1140
Production cost: Fixed 10 3000 3800
Total 11000 9880
Less: Opening inventory - 5200
Add: Closing Inventory 5200 2080
Gross Profit 9200 12000
Less: Fixed Costs
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000

Less: Sales commission 750 1250
Net Profit 2450 4750
Budgeted and actual cost of metal used in
producing Product A
Budgeted material cost
per unit of the
product 2kg at £10/kg
Actual output 1000 units
Actual material purchased
and used 2200kg
Actual material cost £20,900
Using
L
I
F
O
Date Purchase Issues Inventory
Units Cost Total Units Cost Total Units Cost Total
01/05/19 40 3 120 40 3 120
12/05/19 20 3.6 72 20 3.6 72
12/05/19 60 192

15/05/19 36 3.6 129.6 24 3.6 86.4
20/05/19 20 3.75 75 20 3.75 75
20/05/19 44 161.4
23/05/19 10 3.75 37.5 34 3.75 127.5
27/05/19 25 3.75 93.75 9 3.75 33.75
30/05/19 5 3.75 18.75 4 3.75 15
Using Average
Cost
Method
Date Purchase Issues Inventory
Units Cost Total Units Cost Total Units Cost Total
01/05/19 40 3 120 40 3 120
12/05/19 20 3.6 72 20 3.6 72
60 192
15/05/19 36 3.2 115.2
Average cost of
Inventory
(1) 24 3.2 76.8

20/05/19 20 3.75 75 20 3.75 75
44 75
23/05/19 10 3.45 34.5
27/05/19 25 3.45 86.25
30/05/19 5 3.45 17.25
Average
c
o
s
t
o
f
Inventor
y
(
2
)
4 3.45
1
3
.
8
Average

c
o
s
t
o
f
inventor
y
(
1
)
3.2
(
4
0
*
3
=
120 +
20*3.6 =
72) /
(40+20)
Average
c
o

s
t
o
f
inventor
y
(
2
)
3.45
(
2
4
*
3
.
2
= 76.8 +
20*3.75
= 75) /
(20+24)

TASK 3
P4 Advantage and disadvantage of different types of planning tools used for budgetary control
Budget- Budget is the estimation of cost which is required in all industry. It is prepared by
business entity to evaluate the performance and set the budget within organization. The main
purpose of budget is to evaluate the actual performance of company for ascertaining the future
and take further actions. In Airdri, accountants analysis the past trends in order to increase
reliability and accuracy of budgets. It helps to build a strategy and formulate a actions plan for
increasing the profits margin. The manager of Airdri uses different planning tools to control over
budget and maintain the profits (Morden, 2016). The planning tools and it's merits or demerits
are follows as:
Cash budget: This means a budget which covers all cash transaction and information is consider
as cash budget. It is prepared by accountant or mangers to compute the real cash availability
within organization. It mainly focus on cash and its equivalent item that shows cash information.
In Airdri, managers uses this tool that helps to identify and improve the weak area that leads to
negative cash flow. This also help to handle the cash and provide information (Gullkvist, 2013).
Advantage: It helps Airdri to track the movement and flow of cash or it's equal items. Moreover,
it is helpful to increase the cash availability by monitoring the performance.
Disadvantage: It may be costly for company because it need to maintain the high cost. It may
be fail sometimes due to fraud which can be through accountant or managers of Airdri.
Operating budget: This budget is prepared by business entities while considering only
operational expenses and income incurred. It involves estimation of income and expenses which
are arises within industry due to monitoring on expenses. In Airdri, the manager firstly collects
all information and prepares different small budget. After making small budget managers
prepares operational budget that help to evaluate the operational efficiencies and capabilities of
entity. Such as Airdri is Manufacturer Company who prepares production budget, purchase and
sale budget that help to make a complete budget (Zoni, Dossi and Morelli, 2012). It help to
define the define the operational efficiencies of Airdri while using small budgets.
Advantage: It assist company to allocate the weak operational area and provide a basis for
removing the weakness. The manager of Airdri organise and control day to day activities
by focusing on operational budget.
Disadvantage: It maybe complex and time consuming budget because it involves numerous
budgets and information. Moreover, Airdri cannot control over weakness due to time
consuming procedure.
Master budget: This is more relevant and useful budget which is prepared by managers to focus
on financial statement of business entities. It is used to assess the combined and total
performance of organization. Such as manager of Airdri is using master budget to make
manufacturing and other business decision. Managers make plan for future by analysing

this budget. It is the superior budget that can help to increase the profitability within
organization (Robalo, 2014).
Advantage: It helps Airdri's manager to identify profitable financial event that creates profits. It
also help to make effective coordination among product and departments.
Disadvantage: This is time consuming process that take too much time to prepare the master
budget. Sometimes it creates chance of error or mistakes due to analyzing the budget.
TASK 4
P5 Compare how organisations are adapting management accounting systems to respond to financial
problems
Management accounting system is the systematic procedure which is used to address the
financial problems. There are different types of Management accounting system that help
to maintain the productivity as well as profitability. Financial problems are issues that can
arise due to lack or shortage of monetary funds, unmatched cash flow, high spending and
low income etc. Financial problem helps business industry to achieve goals and growth of
organization. The different types of financial problems are given below:
Cash mismanagement: Airdri is facing financial problem due to poor management of cash.
Managers of Airdri need to manage the funds which are available with organization.
Unequal cash flow: This means company faces financial problem due to outflows are more than
inflows. Airdri is facing this problem because it does not maintain proper records of
income and expenditure. It need to solve the problem by monitoring the performance.
Financial governance: This is a tool which is used to measure and solve the financial problems.
Such as Airdri is using financial governance to solve the financial problems which is
arises while business activities. In this techniques government set up some rules and
regulation that need to follow to address the problems and increase the profitability.
There are following techniques which are used by managers to solve the financial
problems. The techniques are follows by Airdri company that are:
Benchmarking- This is a systematic process that is used to compare the performance with
competitors to know the productivity and profitability. The main aim of this technique is
to compare with other Enterprise and improve the business a activities. In Airdri,
managers concentrate on benchmarking to identify or address the problem and get
improvements in performance.
Key performance indicators- It is used to measure the financial and non-financial performance
through evaluation. Under this technique managers analysis the performance and get the solution
of financial problems. The manager of Airdri can use this technique that will help to keep
records of performance and will leads to increase the profits (Demerjian and et.al., 2012).
Comparison between Airdri and TPG processing company:
Basis Airdri TPG
financial problem Airdri is facing financial
problem that is unequal
cash flows. Due to this it
TPG is also manufacturing
company which is facing
financial problem such as

has low profitability and
productivity. The
manager of Airdri has
found that there is
difference between
inflows and outflows.
As outflows are more
than inflows that creates
financial problem.
cash mismanagement. The
manager of TPG is does
not keep proper records of
cash and its equaling items
that generate financial
problems within
organization
System To solve the financial problem
Airdri should use
inventory management
system that will help to
maintain the proper
records of inventory and
also help to maintain the
records of inflow and
outflow that will leads
to get solution of
financial problems
TPG should use cost accounting
system that will help to
maintain the cost of
products. moreover, it
would help to manage the
cash which is facing by
company.
CONCLUSION
From the above report it can be concluded that management accounting is essential for
organization as it help to maintain the records of transaction and also help to make
business decision. Company are using different types of management accounting system
that help to manage inventory, cost and job assignment for specific work. Budget reports
are prepared with the help of management accounting system in order to control over
income and expenses. Planning tools such as master budget, cash budget and operating
budget helps to control over budgets. Managers prepare different types of report to know
the financial position of company. In other words, management accounting system also
help to identify the problems and provide best solution to increase the profitability.

REFERENCES
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