Various types of management accounting systems

Management Accounting Contents INTRODUCTION 4 TASK 14 P1 Management accounting system and their essential requirement 4 P2 Type of management accounting reports and its importance to management 6 M1 Various type of system and their benefits 8 D1 Management accounting systems reports integrated in organisational processes. 8 M2 Range of management accounting techniques.13 D2 Financial reports that accurately apply and interpret data 13 TASK 313 P4 Advantage and disadvantage of various types of planning tool. 13 M3 Evaluation planning tool for preparing and

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................4
TASK 1 ...........................................................................................................................................4
P1 Management accounting system and their essential requirement..........................................4
P2 Type of management accounting reports and its importance to management.......................6
M1 Various type of system and their benefits ...........................................................................8
D1 Management accounting systems reports integrated in organisational processes.................8
TASK 2............................................................................................................................................8
P3 Cost analysis techniques to prepare income statement to calculate cost. .............................8
M2 Range of management accounting techniques....................................................................13
D2 Financial reports that accurately apply and interpret data...................................................13
TASK 3..........................................................................................................................................13
P4 Advantage and disadvantage of various types of planning tool..........................................13
M3 Evaluation planning tool for preparing and forecasting budgets........................................15
TASK 4..........................................................................................................................................15
P5 Adaptation of management accounting system to respond financial problems...................15
M4 Management accounting system lead to long term sustainable success.............................17
D3 Planning tool to avoid financial problem............................................................................17
CONCLUSION .............................................................................................................................17
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is also termed as a cost accounting termed as an managerial accounting.
With the help of this procedure organisation can effectively able to evaluate their cost and
operations that will further guide them to prepare organisation internal financial report
(Anderson and Sedatole, 2013). This, further aid manager to effectively perform their decision-
making process in order to effectively accomplish goals and objectives in best possible manner.
In addition with this, management accounting also aid organisation to conduct their process
which is related to planning, organising, staffing, directing and controlling. Present report has
been conducted on The Berkeley Partnership. Company was founded in the year 1990 and
perform their operations as an Independent management consultancy and have different types of
Client Company. In this report Essentra Packaging is been selected, which is manufacturing
company that use to produce tear tapes, labels, seals etc. In this report formative discussion has
been made on concept of management accounting along with their requirement within an
organisation. In addition with this report include cost suitable techniques with the help of which
organisation can effectively able to perform their decisions. Along with this, report include
merits and demerits of taking use of planning tools with the help of which financial issues can be
overcome.
TASK 1
P1 Management accounting system and their essential requirement
Management accounting system is linked with the process of collection, evaluation and
presentation of non-monetary and monetary information’s and data and showcase them to end
users as per the accordance with requirement. It is essential that management accounting system
must have following characteristic that support in better decision making. With the help of
management accounting Essentra Packaging can effectively able to attain their desirable set of
objectives. Some of these are as follows:
Reliability: All the information that is provided through different system must be reliable
so that essential decisions are made for future improvement.
Up to date: It is the main role of manager to ensure that various system of management
accounting musty holds every information on the same date and accurate time so that actual
performance can be identified.
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It acts as an one of the most important part in an organisation with the help of which company
can able to control their internal organisational system in best effective manner. In addition with
this, with help of management accounting organisation can able to keep their financial records in
well-defined manner (Drury, 2015). There are numerous form of management accounting system
that stimulate organisation towards building their market image. Mentioned below further
explanation of these system are defined below:
Price optimisation system –
Each and every organisation performs their operation with holding a motive which is
linked with increasing their organisation profit. In this regard, they mainly tend towards
structuring their price structure of their company products and services. With the help of this
system company can effectively able to set their products and services price. In relation with
Essentra Packaging it is firstly required for company to take advantage of this system as to
evaluate overall cost as to produce a particular product in order to set a best price of the product.
In addition with this, with the help of this strategy company can easily able to attract large base
of customers that further lead towards increasing profitability of organisation. In this, it becomes
essential for company to evaluate market conditions and identify customer behaviour and
perceptions in context with products and services.
Inventory management system -
It is essential for an organisation to manage their organisation stocks and inventory
record as to effectively manage them and use organisational resources in best effective manner.
With the help of inventory management system organisation can able to maintain regular track of
their stock and production ratio with the help of which they can further able to conduct their
operation in well effective manner while utilizing company material within appropriate ratio. It
further help organisation to decrease their wastage level and produce products and services in
cost effective manner. In addition with this, Inventory management system allow Essentra
Packaging to effectively control their overall base of raw material as to further use them to
increase production capabilities. Along with this, it also allow organisation to control their
excess wastage. Mentioned below there are some techniques with the help of which organisation
can manage their inventory:
 LIFO – As per this method stock which come last will goes out first. Thus, LIFO is
simply last in first out.
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 FIFO – There are stock coming first and sale out first. Thus, it depends that in FIFO
method first in first out take place.
 AVOC – It is calculating cost of inventory on average basis.
Cost accounting system –
With the help of this accounting system organisation can effectively able to concentrate on their
cost which further help them to increase their profit ratio. Cost accounting system is mainly a
systematic set of activities that include understanding, evaluation, entering, services and
summarizing of cost of goods. This accounting system allow organisation to conduct their
process of manufacturing as per accordance with estimated cost. This in turn provides benefit to
organisation as to improve their production level that will further lead towards increase in their
profitability level (Hilton and Platt, 2013).
Job costing system –
With the help of this costing system organisation can effectively able to evaluate their
expenditure that takes place during particular job. This will further provide benefit to an
organisation to extract each and every bit of detailed evaluation of cost which is related with
accounting period. In addition with this, with the help of job costing system organisation can
effectively able to gain information related to assigned job. There are different type of
information data and information that can be acquired with the help of job costing system that
are:
Direct material –
Direct material acts as a most essential part of variable cost with the help of which
organisation can able to evaluate their production unit as to track cost in order to measure
particular job.
Direct labour –
In this factor labour cost can be effectively able to track specific related job. This will
further help to complete their time as per accordance with time sheet.
Overhead -
At the end of every accounting period the total amount of each cost to apply methodology
regarding to allocation.
Management Accounting Financial Accounting
It is mainly for internal parties and are future Financial accounting is for external parties are
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oriented process. mainly based upon historical data.
There is no specific format to design
management accounting system it further
benefits in management of plan, record and
control activities as to offer aid in decision-
making process.
This is required to be in a specific format. In
addition with this, it also helps in making in-
credit rating and financial decisions.
P2 Type of management accounting reports and its importance to management
There are numerous form management accounting report that can be undertaken by
organisation as to effectively keep their record. With the help of this report organisation can
further able to conduct decision-making in best effective format. This will further allow them to
increase their profitability ratio and initiate organisation towards more growth prospective.
Mentioned below there are some reporting system that can be consider by organisation:
Cost managerial accounting report
With the assistance of this report organisation can effectively able to identify their cost
which they spend and expense on their manufacturing process. In addition with this, cost
managerial accounting report allow organisation to have detailed evaluation of the total amount
that has been spend by them on operating business operations. Thus, become essential for
organisation to take advantage of this report, in order to effectively control their cost as to
increase profitability of company. This will further provide them assurance to conduct operations
in well effective form (Innes and Mitchell, 2015).
Accounts Ageing reports: In recent time companies are looking for new tactic and
strategies to increase the sales figure by a good margin. Thus they are distributing goods on
credit basis providing suitable time to customer which makes them satisfy. With the help of this
report manager of Essentra Packaging manager are able to keep a date wise record of customer
those have buy goods on credit. The report also provides them the benefit to determine the list of
customer whose payment is outstanding for the specific period due to which there is no delay in
collection process.
Budget report: This reports mainly contains information about different assessed
spending arranged for various divisions in the association just as records of genuine results at the
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finish of an accounting year. The manager uses these budget reports to compare and determine
the variances between the budget and the real results. In chosen company upper level manager is
responsible for assessing favourable or negative variance with the assistance of budget reports
and taking action depending on the scenario to improve the business growth. With the help of
this report they use to manage the expenses incurred by different cost centres and reasonable
budget estimates if necessary. Usually these reports contain data on market trends and goods cost
patterns and the difference between real projections and forecasts.
Performance report: This report is mainly formulated to evaluate the actual efficiency and
profitability of different business operation and individual. The main part of this report primarily
holds information and data related to that specific work completed by an individual and number
of output produced within particular operation. Manager use to set benchmark in order to
measure the overall performance and make suitable improvement for better future productivity.
In Essentra Packaging the main role of manager to make sure that each operation and worker are
doing and putting their entire effort to deliver the best output for company so that desired results
can be fulfilled. With the help of performance report they also make suitable changes and advice
upper manager to shift the role and duties of weaker employees or make innovation in operation
process so that more favourable outcome can be ascertain during a year (Ittner and Larcker,
2012).
M1 Various type of system and their benefits
System Benefits
Cost Accounting system  This scheme helps to determine costs by managing
unexpected costs and improve profit.
Inventory Management System  To maintain proper record of total inventory
available within company so that goods can be
offered to customer on demands.
Job Costing system  The primary advantage is that it helps businesses
to identify the most profitable employment and
reduce unprofitable activities.
Price Optimisation System  The foremost importance of this system is to boost
client base and profitability through sealing
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products and fair cost.
D1 Management accounting systems reports integrated in organisational processes.
It has been observed that different types of reports and system are both useful and
incorporated in the organizational procedure in order to achieve useful results for improved
enhancement. All systems are crucial for the preparation of genuine reports that are additional
used to create expressive decisions and to resolve distinct business situations. Various reports
like cost, budgets, etc. are used in Essentra packaging to create dependable records of all
economic and other transactions within a particular time span. Furthermore, the manager
prepares the account ageing report so that detailed records of debt payment can be obtained that
directly improve the company's performance in the near future.
TASK 2
P3 Cost analysis techniques to prepare income statement to calculate cost.
Marginal Costing: This costing strategy is essentially related with the significant
procedure in which variable expense is charged to the all-out unit of expense, on the opposite
side variable expense for a particular timeframe gets discount against real commitment during a
time period. It is for the most part infers the additional cost that in incorporated into assembling
an extra unit of item. The recipe to figure minimal expense with the goal that increasingly solid
outcome for net benefit can be determined during a bookkeeping year. The basic formula to
calculate marginal costing is:
Marginal Cost= Direct material+ Direct Labour+ Direct expenses+ Variable overheads.
Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
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D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
Absorption Cost per unit
Direct Labour cost per unit 5 5
Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
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Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
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Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
Sold units 300 500
Closing stock 200 80
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
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(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000
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05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £
3.75 each 20 3.75 75. 49 3.4427 168.6923
05/23 Issued 10 units 10 3.4427 34.4270 39 3.4427 134.2653
05/27 Issued 25 units 25 3.4427 86.0675 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.2135 9 3.4427 30.9843
Absorption costing: It is connected with the costing strategies that is otherwise called
administrative or cost bookeeping that utilization to incorporate each cost that are connected with
creating a particular decent and which is basic for GAAP outer announcing (Roslender 2016). It
incorporates both variable and fixed cost that are compensation, cost of crude material and
different overheads that are connected with assembling an item as the cost base.
M2 Range of management accounting techniques.
In present business age there are number of costing methods that are being continuously
applied within the help of different important management accounting system that deliver the
best solution for preparing important yearly reports and statements. By using marginal and
historical costing manager are able to estimate the net profit for respective and calculate the total
cost included within operation and production process. Therefore it is stated that manager can be
any one method as per the nature of business as there is different treatment of variable cost in
both of these method due to which there is a difference within the figure of net earnings for a
year.
D2 Financial reports that accurately apply and interpret data
There are primarily three types of financial statements, such as cash flow statements,
revenue statements and balance sheets which are significant which show the financial power and
status of the business as a whole. In the above table the result for net profit are different from
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both method as in case of marginal costing techniques fixed cost are consider as periodical cost
while in case of absorption costing fixed cost are treated as valuable part for producing specific
goods. It has been interpreted that profit in the month of May is £1050 and for June it was £5750 by
using marginal method, whereas, profit for month may is £2450 and June is £4750 by using
absorption costing. manager needs to make efficient use of these scheduling instruments, as they can
determine the complete costs and count the revenue to be earned from various project runs in the
business.
TASK 3
P4 Advantage and disadvantage of various types of planning tool.
Budgets are consider to crucial internal tool that are mainly used to estimate the future
expenses related with number of business activities and define income that can be attained from
these operation in nearby time. These can be made for households, business firm, government
etc. with the main motive to define the total expense and income that can be received in
upcoming time (Schaltegger and Csutora, 2012). In Essentra packaging, manager use to different
budgets that are essential for calculating total expenses associated with activities and mainly
develop ways to resolve number of uncertain business situation by maintain proper reserve.
Some of them with advantages and disadvantages are defined below:
Flexible Budgets:
This kind of budgets is known for its flexibility as they can be adjusted or changed as per
the capacity or situation of business. In most of the companies it is used as one main document
that is continuously modified deepening upon the nature of business operation or market
condition. In Essentra packing this budgets have more importance than any other because of its
unique feature as manager can make changes and increase expenses amount in order to satisfy
the business requirement.
Advantages:
It allows manager to match the real cost within actual capacity of operation with
estimated cost that are disclose in actual books. This also enables the business director to
analyse the difference between actual output and predictable output.
Disadvantages:
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This budget requires more infoldment of managerial personal as they have to make
changes on regular basis to meet the business requirement. Flexible budgets are sometime
confusing as it includes number of guidelines that are essential for making modification (Ward,
2012).
Fixed Budgets:
It is consider to be one of the most vital instrument that ease the work of manager in
assessing the overall accomplishment of company in short and long run. Fixed budgets use to
predict the fixed values of expenses linked with each activities of business so manager are
needed to be more careful while operating these operations. In respective firm this budget play
an important role by defining the total cost needed to be spending on particular activity so that
desired income can be received to increase profitability.
Advantages:
This budget aid management to teach every worker engaged within respective project
about the expensive so that they put more effort to reduce cost. Fixed budget allows a business
entity to measure both the long-term and short-term finances required for a solo project.
Disadvantages:
In many situations it fails due to uncertain business environment that hamper the overall
working of company. It is much less flexible and may face difficulties and clashes with other
macroeconomic factors with the use of this budget manager.
M3 Evaluation planning tool for preparing and forecasting budgets
It is noticed that budgets help by playing a significant role in helping businesses to gain a
clear view of future expenditures. It is useful to plan future company operations by
understanding the anticipated results and expenditures for a specific project. Some common type
of budgets such as flexible and fixed budgets is likewise essential in future planning. Essentra
Packaging manager needs to make efficient all mention planning instruments, which support to
govern the complete costs and amount the income to be received from various crucial project.
This enables them achieve predefined objectives. The budget mainly derives from last year's
expenditure and determines that it will be efficient if the scheduled outcome matches.
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TASK 4
P5 Adaptation of management accounting system to respond financial problems.
In recent time the business situation are not constant and there re number of reason due to
which situations keeps on chaining and this hamper the business performance of companies
(Wickramasinghe and Alawattage, 2012). The condition when an organisation is not able to pay
their outstanding debt, manager workforce or operate essential business activities this situation is
known as financial problems. In Essentra Packaging, there are number of financial problems due
to which they are not able to generate huge profit and performance of employees is also getting
reduces. Some of these are discussed below:
Late payment from clients: Company is facing problem with its collection process as
customer miss to pay the due amount as there is no intimation or any message send by company.
As a result there is always a late payment for customer which has impact on the business
performance of respective firm.
More spending than earning: It has been observed that company have adopted number of
promotional activities in greed to increase sales and receive huge income and save good profit.
As a result, there is excess payment made by manager on these activities and there is low income
generation due to which other activities gest affected.
These above discusses problem have a major influence on overalls performance of
respective firm due to which employees get irritated and they not able to put their entire
efficiency to resolve these issues. Thus c\manager use to apply crucial management accounting
tool for determine the reason of issues and tool to resolve these issues and increase profit margin.
KPI: With the help of Key performance indicator manager are able to assess the each
section and component of business and determine the weaker from the complete. In Essentra
Packaging by using financial indicator manager are able to evaluate the areas due to which there
is mismanagement of cash and there is more spending on unnecessary activities. This makes easy
for them to easily eliminate the odd one from the list and makes proper adjustment to improve
flow of cash.
Benchmarking: It is related with setting a benchmark and measuring the performance
and efficiency in context to that benchmark with other organisation dealing within same industry.
In respective company manager basically set the credit period by closing assessing the other
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companies dealing in manufacturing of goods so that they are able to determine the actual reason
for delay payments.
Financial governance: This tool is mainly related with collecting, posting, assessing,
evaluating, measuring important information related with different business activities part of
organisation. With the help of financial governance manager can make effective decision
focusing on reducing the impact of different issues that can arise in future. In respective
company by keeping proper record of each cash transaction manager unable to re\due the amount
spend on promotional activities and also define the credit period of each customer which makes
easy for them to collect the money on actual time period (Windolph and Moeller, 2012).
Comparison.
Essentra Packaging TPG
The major issue faced by company is late
payments from customer due to which
it is not easy for the manager to handle
business activities and other operation
in meaningful manner and as a result
the overall productivity reduces.
In respective firm the major problem is
related with mismanagement of
inventory due to which supply chain
gets affected and there is more number
of unsatisfied customers.
By adopting the price optimisation system
manager use to reduce the fix price of
different product and makes it available
on reasonable price due to which
customer buy goods immediately with
asking for credit period.
In order to overcome the finanacial issue
manager uses inventory management
system which help in maintaining
proper record of total stock used in
production and number of finished that
can be sold according to need of clients.
M4 Management accounting system lead to long term sustainable success
The financial issue must be resolved when it occurs, otherwise the efficiency and
productivity of the business will be reduced. Different accounting system plays an important role
in overcoming different economic problems. Like cost accounting systems, the problem of
unexpected expenditures is determined and resolved. Price optimization helps to boost the
quantity of sales and overcome the company's elevated amount of debt. Managers have adequate
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understanding of inventory regulator system, thus enabling them to mechanism and record stock
and helping to solve economic problems due to absence of managed personnel member.
D3 Planning tool to avoid financial problem.
In present time each kind of business wants to prevent the economic issue scenario as it
decreases the market position and decreases business profitability. Essentra Packaging Manager
attempts to solve the various economic issues with the assistance of various planning od
scheduling tools. They use to prepare budgets from the last occurrence to determine the real
outcome. Manager prepares different types of budgets depending on their significance in a
scenario. By formulating budgets such as fixed, flexible and incremental they are able to solve
the business issues such as adequate fund flow, late bill payment, record mismanagement, etc.
CONCLUSION
In the end it has been founded that the concept of management accounting is useful for
companies as it help in decision making regarding various crucial internal framework. The entire
process of management accounting is beneficial for an organisation to determine the reason of
different financial problems and with the help of various types of tools and accounting system
internal manager are able to resolve these issues in better manner. There are various management
accounting system and reports that are effectively playing an important role in making business
operation more accurate and authentic so that better decision are made for future growth and
development. With the help of several planning tool manager are able to prepare budgets and
impressively develop ways to reduce the issues that can hinder performance of company.
Different of costing techniques are beneficial to ascertain the net profit for the year by preparing
valuable financial statements.
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