Management Accounting and Systems

This report provides an understanding of management accounting and its systems, methods used for management accounting reporting, determination of costs using appropriate techniques, advantages and disadvantages of planning tools, and comparisons of organizations on the basis of adoption of management accounting systems. The case study focuses on GSQ Ltd., a manufacturing company based in the United Kingdom.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Explanation of management accounting and its systems......................................................1
P2: Methods used for management accounting reporting............................................................2
TASK 2............................................................................................................................................4
P3: Determination of costs using appropriate techniques............................................................4
TASK 3............................................................................................................................................5
P4: Advantages and disadvantages of planning tools..................................................................5
TASK 4............................................................................................................................................6
P5: Comparisons of organisations on the basis of adoption of management accounting systems
......................................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is referred as managerial accounting and is helpful for managers
by providing them crucial information to aid them in decision-making process (Alomari and
et.al., 2018). It helps the management in preparation of various reports which can help them in
developing strategies for future. In this report, GSQ Ltd. has been considered which is a
company based in United Kingdom. In this project, analysis will be made on demonstration of
understanding of management accountant systems, application of range of techniques,
explanation of use of planning tools, comparison of ways in which organisations can use
management accounting systems.
TASK 1
P1: Explanation of management accounting and its systems
Management accounting systems are used to provide information to the managers and to
aid in operations of the firm. In the context of GSQ Ltd., it can be used for helping in managing
costing of the processes.
Types of management accounting systems- Different types of management accounting
systems are used by companies for their varied requirements according to their nature of business
(Beuselinck and et.al., 2019). GSQ Ltd. uses cost accounting system and inventory management
system.
Cost accounting system- This is used by organisations for finding out the costs of their
products using its different tools like profitability analysis, inventory valuation and cost control.
This is helpful to reduce the costs and maximisation of profits. As GSQ Ltd. is a manufacturing
firm it can use this system for analysing the excessive costs in its manufacturing processes and
decreasing them for increasing its level of profitability.
Benefits-
 Using this system activities can be classified into profitable and unprofitable which will
therefore help GSQ Ltd. to find unprofitable activities.
 This system helps in controlling the cost of materials which is very much helpful for a
manufacturing firm like GSQ Ltd.
Essential requirements-
1

 The cost accounting system should be simple and practical to use. It is so because a
complex system can create problems for the company.
 The data used in the system must be accurate. This is essential because it will give the
results as required by the enterprise. Inaccuracy of data can result in wrong interpretation,
variances and deviations.
Inventory management system- Inventory management system uses technology as well
as other processes for monitoring the level of stock in the company (Cord, 2018). GSQ Ltd.
which is a manufacturing firm can use it for tracking its level of materials and for determining
their right usage.
Benefits-
 It helps in development of better forecasting abilities as GSQ Ltd. can effectively use it
for predicting its stock level. It can therefore manage its inventory in a better manner for
optimum efficiency.
 It ensures better transparency in usage of materials which can help GSQ Ltd. in
monitoring and controlling activities. It helps the firm in knowing the movement of
materials and keeping a track on it.
Essential requirements-
 A good inventory management system should facilitate management of suppliers. It
should facilitate the company to prepare their lists for maintaining records.
 An effective inventory management system must manage the orders. This is needed so
that they can be completed on time.
P2: Methods used for management accounting reporting
Management accounting reports- These reports are used by managers of a company for
the purpose of planning, decision-making and regulating performance (Din and Habibullah,
2017). Management of GSQ Ltd. can use them for taking important decisions for the benefit of
the firm. GSQ Ltd. primarily uses Accounts receivables ageing reports and cost managerial
accounting reports.
Accounts receivables ageing reports- It is a report which lists out those debtors and
customers who haven't paid their dues to the firm (Types of managerial accounting reports,
2019). It makes lists using different ranges depending upon the date of debt. It can be used by
GSQ Ltd. to find out unpaid amounts not yet received by it.
2

Benefits-
 It ensures that GSQ Ltd. can regularly contact its clients for recovering their unpaid dues.
This can help in enhancing the liquidity position of the firm. It maintains the operational
cycle by regular inflow of cash. It also reduces the chances of bad debts.
 It helps in maintaining of liquidity in the company through systematic inflow of cash. It
ensures that the debts are collected well in time so that issues are not created in the future.
Cost managerial accounting reports- It is a report which includes all the costs of an
enterprise such as raw materials, overheads and labour (Glushchenko, Yarkova and Kucherova,
2017). GSQ Ltd. can use it to manage its costs.
Benefits-
 It helps GSQ Ltd. in maintaining efficiency in its processes. This can be achieved by
finding out overheads which are increasing the costs and removing them.
 It helps GSQ Ltd. in finding out unnecessary costs so that they can be reduced for
maximising profits. They can be either in material or in labour and therefore must be
decreased for enhancing profitability.
Budget reports- It is used for comparison of results obtained by company with a pre-
established budget (Jusoh, Zulkifli and Zainal, 2017). It can be used by GSQ Ltd. for
determining expenditures which are high and for controlling the financial position of the
business. They can be prepared on a daily, weekly or fortnightly basis. It detects variances and
deviations if any sot that they can be quickly removed for achievement of optimum performance.
Benefits-
 It can help GSQ Ltd. in finding out errors and mistakes in its financial information so that
corrective action can be taken quickly for rectification.
 It provides flexibility to GSQ Ltd. for revising the budget if it is deemed to be necessary.
It can be done if it is felt that revision is essential to meet the needs and requirements of
the company.
3

TASK 2
P3: Determination of costs using appropriate techniques
Costs have to be determined in a firm by the use of different techniques and procedures.
GSQ Ltd. is a manufacturing company and therefore should follow various budgeting
approaches which are explained as follows-
Incremental budgeting- It uses the actual data of the previous year by adding
increments to it. It can be used by businesses like GSQ Ltd. where not much deviation is seen in
costs. It helps in reflecting how much a business has grown from the past.
Benefits-
 This approach is quite straightforward to use and simple in nature. This will help the
company to simplify budgeting work.
 It helps in setting the standards to be followed in future. This allows GSQ Ltd. to measure
performance.
Activity-based budgeting- In it, total cost is calculated for addressing the target level of
activities. GSQ Ltd. can use it to effectively allocate resources for its different activities.
Benefits-
 It helps the organisation in managing its cost which is essential for maximising
profitability.
 Any activities which are not essential in the context of firm can be removed easily.
Justification- GSQ Ltd. must use continuous budgeting method because it will help it to
evaluate its performance and also enhance mitigation of risks present in the manufacturing
business.
Marginal costing- Marginal costing refers to additional cost which is involved in
production of an extra unit of output (Li and Yang, 2016). GSQ Ltd. can use it for determining
the price and profitability of products.
Absorption costing- Absorption costing is a method which is used for identifying costs
associated with manufacturing of products. GSQ Ltd. can use it as it as it includes direct as well
as indirect costs.
4

TASK 3
P4: Advantages and disadvantages of planning tools
Planning tools like budgets, cost-volume-profit analysis and pricing strategy is used by
GSQ Ltd. for making detailed plans for maximisation of profits and bringing efficiency in
operations. These tools have been detailed as follows-
Budgets-
A budget is an estimation of expenditures and receipts of a business over a certain period
of time. GSQ Ltd. uses it as a tool of planning which allows it to compare its expenses and
incomes to identify deviations and rectifying them (Lunkes and et.al., 2019).
Advantages-
 It helps GSQ Ltd. in monitoring and controlling its activities so that maximum efficiency
and effectiveness can be achieved.
 It enhances periodical evaluation of policies and goals so that guidelines for the entire
enterprise can be set.
Disadvantages-
 The approximations and judgements used in budgets may not be accurate which can lead
to potentially wrong decisions by management of GSQ Ltd.
 Preparation of budget is a time-consuming and costly affair which can create burden on a
company's finances.
Cost-volume-profit analysis-
It is a method of cost accounting which analyses impact of costs and volume on operating
profit. It is helpful for GSQ Ltd. as it identifies its break-even point where it neither makes profit
nor incurs a loss.
Advantages-
 It helps GSQ Ltd. in taking certain decisions which are based on its contribution margin
and P/V ratio.
 It gives the company detailed perspectives and information related to profitability which
can help it in identifying the areas where profits can be maximised.
Disadvantages-
 It can be erroneous in conclusions and therefore can give wrong insights about business
which can create issues for GSQ Ltd.
5

 It uses different kind of approximations and estimates which may not always be accurate.
Thus it can lead the company's managers to take wrong decisions which can impact its
profitability.
Pricing strategies-
It refers to use of different methods and techniques which are required for establishment
of a right price for a product or service which will increase the revenue from it. GSQ Ltd. uses
these strategies as a tool of planning so that appropriate price is set for its products to derive
maximum profits from them.
Advantages-
 They help in setting an appropriate price for products suitable for generating optimum
level of profits.
 They can facilitate GSQ Ltd. to gain competitive advantage by setting a lower price then
them and getting ahead of them in the long-run.
Disadvantages-
 If the pricing strategies adopted by firm are not successful they can substantially reduce
the profits.
 Certain pricing strategies can lead GSQ Ltd. tot set high prices which can lead to
undercutting by rivals.
TASK 4
P5: Comparisons of organisations on the basis of adoption of management accounting systems
Different organisations can use management accounting systems according to their needs
and requirements (Zgarni, Hlioui and Zehri, 2016). A comparison between GSQ Ltd. and
Marshalls plc is as follows-
Financial problems of GSQ Ltd.-
 Excessive cost- As GSQ Ltd. is a manufacturing organisation sometimes excessive cost
incurred by it on material, labour etc. which reduces the profits of the company.
 Problems in tracking inventory- GSQ Ltd. is facing problems in tracking its stock and
therefore the movement of goods is not being properly monitored.
Application of management accounting systems-
6

 By using cost accounting system GSQ Ltd. can address the problem of excessive cost
incurred. This system will help it in identifying areas where extra costs are being incurred
so that proper measures can be taken to reduce it for increasing the profits (Łada and
Białas, 2017).
 Using inventory management system, GSQ Ltd. can resolve the issue of lack of proper
management of inventory as this system will help the firm in keeping a track of its
inventory.
Basis GSQ Ltd. Marshalls plc
System used GSQ Ltd. uses cost accounting
system.
Marshalls plc uses job costing
system.
Rectification of problem Using this system, firm can
address its issue of excessive
cost incurred.
By adopting this system,
company can solve its problem
of mismanagement of orders.
Usage It will help the company in
reduction of costs and
maximisation of profits.
It will help the organisation in
properly and effectively
managing its orders for
ensuring their timely
completion.
Example GSQ Ltd. is using cost
accounting system by
identifying unnecessary
overheads being incurred in its
manufacturing process and is
developing plan to remove
them.
Marshalls plc is using job
costing system by using
computerised system to keep a
track of its orders and the time-
limit to complete them to
ensure better efficiency in
work.
7

CONCLUSION
From the above project, it can be concluded that management accounting refers to use of
financial data in such a manner so that organisation's development can be facilitated. In this
report, explanation of management accounting systems, different methods used in reporting have
been included. Also, the calculation of costs by marginal and absorption techniques, advantages
and disadvantages of planning tools, comparison of organisations in using management
accounting systems has been covered as a part of this assignment.
8

REFERENCES
Books and Journals:
Alomari, I. A. and et.al., 2018. Effect of enterprise resource planning systems and forms of
management control on firm’s competitive advantage. Asian Journal of Accounting and
Governance. 9. pp.87-98.
Beuselinck, C. and et.al., 2019. Earnings management within multinational corporations. The
Accounting Review. 94(4). pp.45-76.
Cord, B., 2018. Team based learning in management accounting: A comprehensive guide to
flipping the classroom. Journal of Higher Education Theory and Practice. 18(4).
Din, B. H. and Habibullah, M. S., 2017. The adoption of performance measures and management
accounting system in enhancing managerial performance in Malaysian local
government. Geografia-Malaysian Journal of Society and Space. 11(13).
Glushchenko, A. V., Yarkova, I. V. and Kucherova, Y. P., 2017, December. The Role of the
Ecologically-Oriented Accounting Systems from the Perspective of Minimizing the
Strategic Risks in Terms of Ecologizing the Production. In Perspectives on the use of
New Information and Communication Technology (ICT) in the Modern Economy. (pp.
741-747). Springer, Cham.
Jusoh, R., Zulkifli, N. and Zainal, D., 2017. Environmental management accounting and other
environmental/sustainability related practices: An exploratory case study. In Enhancing
Business Stability Through Collaboration. (pp. 13-28). CRC Press.
Łada, M. and Białas, M., 2017. Financial settlements as a core of inter-organizational
management accounting–case study of bancassurance cooperation.
Li, X. and Yang, H. I., 2016. Mandatory financial reporting and voluntary disclosure: The effect
of mandatory IFRS adoption on management forecasts. The Accounting Review. 91(3).
pp.933-953.
Lunkes, R. J. and et.al., 2019. Study on the Adoption of Management Accounting Practices in
Hotel Companies in Florianópolis, SC, Brazil. Turismo em Análise. 29(2).
Zgarni, I., Hlioui, K. and Zehri, F., 2016. Effective audit committee, audit quality and earnings
management. Journal of Accounting in Emerging Economies.
Online
Types of managerial accounting reports. 2019. [Online]. Available
through:<https://www.completecontroller.com/types-of-managerial-accounting-
reports/>
9