Management Accounting Systems and Techniques

This document provides an overview of management accounting systems and techniques, including cost accounting, inventory management, price optimization, and job costing. It also discusses the benefits and critical evaluation of these systems. Additionally, it explores the calculation of costs using marginal costing and absorption costing techniques. The document concludes with an analysis of planning tools and their advantages and disadvantages.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P2: Management Accounting Reporting......................................................................................3
M1: Benefits of Management Accounting Systems....................................................................4
D1: Critical evaluation of Management Accounting Systems.....................................................4
TASK 2............................................................................................................................................4
P3: Calculation of costs...............................................................................................................4
M2: Application of these techniques...........................................................................................9
D2: Producing of financial reports...............................................................................................9
TASK 3............................................................................................................................................9
P4: Advantages and Disadvantages of planning tools.................................................................9
M3: Analysis of the use of planning tools.................................................................................11
TASK 4..........................................................................................................................................11
P5: Comparison of organizations in the use of management accounting systems to solve
financial problems......................................................................................................................11
M4: Analysis of response to financial problems........................................................................13
D3: Evaluation of planning tools...............................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management Accounting refers to the use of different types of financial data and
information in an effective manner so that the managers are able to take appropriate decisions in
the future time period leading towards achievement of goals and objectives (Alsharari and
Youssef, 2017). Its use is recommendable for the management so that they are able to manage
their funds and analyse and interpret the financial statements in a better manner leading towards
drawing of conclusions and recommendations. It is a branch of accounting which relies more on
using techniques so that an organization maintains strong financial position and raise its level of
profits in the future time period. This report is based on Innocent Drinks. It is a company which
provides smoothies and juices to its various customers in the market. In this assignment, detailed
focus will be made on demonstration of understanding of management accounting systems,
application of its techniques. Additionally, analysis of planning tools and comparison of ways in
which organizations can make the use of management accounting to solve their financial
problems will be discussed as a part of this project.
TASK 1
P1. Describes management accounting system
A Management Accounting is systematic process where the specific managers can
approach their decision making through overall analysation and evaluation as per the situation
which it arises to provide financial information. There are different kind of system under
management accounting. Some of systems are as follows :
Cost Accounting System: According to this accounting system, it allows different types
of techniques and tools which allows to assort in such a manner where a manger could calculate
the cost in effective way (ter Bogt and Scapens, 2019). As per the situation in Innocent Drinks,
from this technique of system a manager used to measure their business activity costs effectively
as well as it support to reduces the unwanted expenses. Through this process company would
generates optimum profits from their investment.
Essential Requirement:
 Through this accounting system the company's manager would easily evaluate the
various type of costs in the organisation that ensures some favourable outcomes. In the
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case of Innocent Drinks, their manager would proper optimise the costing which
implemented for production in overall perspectives.
 To proper utilising the cost accounting system, the Innocent drinks managers could
easily able to find the way to cut down the further cost that unnecessary incurred in the
production.
Inventory Management System: It is the part of technology, processes and procedure
that ensures the monitoring and high maintenance of assorting good amount of assets, raw
material and excellence suppliers or finished product that are essential to provided to the
customer point of view (Yigitbasioglu, 2016). As per the consideration of Innocent Drinks, this
sort of system is been utilised by their working activities through from mangers is because they
could investigate their inventory requirement and make order according to the unit or quantity
manner.
Essential Requirement:
 To making use of this system for organising the stocks with the support from proper
management procedure. This exercises to identify shortage of stocks and tries to make it
available in before the time.
 On the practises of this system it very helpful for managers where they could easily
reduces the cost of maintenance of the inventory. Through this their overall cost ca be
managed and it helps to lead toward the maximisation of profits.
Price Optimising System: As per this system, there would uses of different types of
mathematical calculation as well as techniques to evaluate the price, where the manager could be
identify the right price of the product. Through this company can figure out their optimum profit.
For Innocent Drinks, this system is utilised for assuring the profit which generates on the basis of
setting the product price.
Essential Requirement:
 On the basis of this system it helps to identify the demand level of various goods in the
organisation.
 According to this system it help to the manager to fixing the prices through that profit
could arises or raise in maximisation manner.
Job Costing System: In this factor of system, the organisation manager are able to
scrutinize the cost in different jobs or at the time of recruitment. In the context of Innocent drinks
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this system could be helpful to measure different roles of Job and hire candidates in effective
source of manner.
Essential Requirement:
 Through the Inventory Management System, it generally helps to the managers for
making assurance of inwards and outwards of products and proper maintained.
 By providing help to the manager for identifying the right form techniques to measure the
product quantity for placing the order. In the perspective of Innocent drinks, this tools
which optimised from Inventory system could be very supportive to the mangers .
P2: Management Accounting Reporting
There are various methods which can be used by the organizations for the purpose of
Management Accounting Reporting (Armitage, Webb and Glynn, 2016). These methods are
explained as follows in the context of Innocent Drinks-
Job Costing Reports- These reports are prepared to analyse the various costs incurred in
the completion of job orders in the organization (Burritt and et.al., 2019). Also, they are useful
for the management of inflows and outflows of job orders in the company. They are particularly
useful in those firms where there is a manufacturing of goods. Thus the managers of Innocent
Drinks can make their use so that they are able to identify the costs and manage them in an
effective manner. By making use of these reports they will be able to identify the excessive
expenses which they are incurring in completing them and can use the right techniques to reduce
them which will enable them in targeting the maximization of the available profits.
Inventory Management Reports- In these reports, there is an analysis of inventory level
in the organization and the inflows and outflows of stock are tracked in a better manner
(Chiwamit, Modell and Scapens, 2017). In Innocent Drinks, the managers can make use of them
so that they are able to properly maintain a track record of movement of goods in the company.
These are quite helpful in the identification of various problems which are associated with the
inventory of the firm so that correct methods can be used to rectify them.
Departmental Reports- In an organization, there can be various departments (Cooper,
Ezzamel and Qu, 2017). These are Production, HR, Finance, Sales, Marketing etc. Therefore the
managers are required to make sure that a detailed report can be framed which covers the
performance of all of them. In Innocent Drinks, these reports will be very helpful in ensuring that
the performance of these departments is evaluated and deviations and variances can be identified
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in them. Thereby rectifying techniques can be used so that these are removed. In this way the
management will be able to achieve the desired level of efficiency and effectiveness.
Product Profitability Report- In a company, there can be various products which are
provided to the customers (Dekker, 2016). Some of them may be earning higher profits and some
of them may not be earning sustainable level of profits. In the context of Innocent Drinks, these
reports are highly useful so that a proper analysis of different goods of the organization can be
made. The level of profitability of each one of them can be analysed and thus the right decisions
can be taken by the managers regarding the techniques to be chosen for raising the profits. If the
management finds out that certain goods are not making the desired profits than they can remove
the shortcomings in them so that overall profitability level can be maintained.
M1: Benefits of Management Accounting Systems
Cost Accounting System is useful in the identification and segregation of costs. Also it
helps a lot in the reduction of these costs. Inventory Management System is helpful in the
management of level of stock. Also it helps in the lowering of maintenance costs of items. Job
Costing System is helpful in the ascertainment of job costs. Also it is used to reduce the job costs
which are incurred. Price Optimization System is helpful in the ascertainment of prices. Also it
helps in identifying the prices to be set in the future time period.
D1: Critical evaluation of Management Accounting Systems
All of these systems are very useful for the organization. If they are properly integrated
within the organizational processes then it will help the managers a lot in ensuring that the
functioning of the firm is done in a proper manner. Thus in this way the goals and objectives
which are set for the future time period can be achieved without problems and issues. Therefore
the management of Innocent Drinks is required to make their focus on ensuring that the
integration of these systems within the organizational processes is performed smoothly.
TASK 2
P3: Calculation of costs
The use of various types of techniques can be made for the purpose of calculation of
different costs in the organization (Hall, 2016). These techniques are explained as follows-
Marginal Costing-
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It is a technique in which the variable costs are charged to the units of cost and the fixed
cost is completely written off against the level of contribution (Honggowati and et.al., 2017). By
making its use the managers of Innocent Drinks can make sure that they are able to ascertain the
level of profits without problems and issues.
Advantages-
 The use of marginal costing technique results in constant results for the management of
the organization so that they can identify the right conclusions and recommendations to
be followed. This can help the managers of Innocent Drinks to be able to identify the
profits in an effective manner.
 The use of this method will be helpful for the management in order to practice cost
control as the excessive costs can be identified and appropriate actions can be taken to
reduce them. For the management of Innocent Drinks this can create an advantage.
Disadvantages-
 By making the use of this technique it becomes very difficult to analyse the overheads
and thus this can create a disadvantage. Therefore this can create difficulties for the
managers of Innocent Drinks.
 When the managers make the use of this method they have to make the use of unrealistic
assumptions. Thus for the management of Innocent Drinks this can create certain
problems.
Absorption Costing-
This is a method which identifies the various types of costs which are incurred while
producing a particular product in the stock level of the organization (Kastberg and Siverbo,
2016). It takes into account indirect expenses as well as direct costs. For the managers of
Innocent Drinks it is useful to use it so that they are able to ascertain the profits in an effective
manner.
Advantages-
 This technique is highly useful to allow the managers to be able to ascertain the level of
profits in an effective manner. For the managers of Innocent Drinks it will help them a lot
in ensuring that they can ascertain the overall profitability.
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 Use of this method is very helpful in the estimation of overheads within the organization.
The management of Innocent Drinks will be able to identify and segregate the overheads
in this manner.
Disadvantages-
 The use of this technique is not helpful in taking of certain types of decisions. For the
managers of Innocent Drinks this can create problems and issues as it will affect the
decision-making of the managers.
 When this method is used it can create difficulties for the managers if they want to
prepare a flexible budget. The management of Innocent Drinks will be in disadvantage
due to this.
Justification- Both of these techniques are very useful for the management so that they
are able to take decisions concerning the organization. Thus for the managers of Innocent Drinks
the use of both of them is recommended so that they are able to ascertain the profitability level
without problems and issues. Thus the relevant analysis and interpretation can be carried out
easily when it is used in the firm.
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M2: Application of these techniques
These techniques are helpful for the organizations so that they are able to ascertain the
level of profits. This further is required in the preparation of financial statements such as Income
Statement, Balance Sheet etc. By making their use the management of Innocent Drinks can
ensure that they are able to prepare certain reports which will accurately depict the financial
position and the steps which can be taken for the purpose of ensuring improvement.
D2: Producing of financial reports
The use of these techniques is recommended for the managers in order to prepare the
financial reports. Analysis and Interpretation of the findings through financial statements can be
done by making appropriate use of them. In Innocent Drinks, these reports should be used by the
management so that they are able to accurately find out the steps which they are required to take
in order to ensure that profitability of the organization can be enhanced.
TASK 3
P4: Advantages and Disadvantages of planning tools
There are various types of planning tools which can be used by the organizations for the
purpose of budgetary control (Kumarasiri and Jubb, 2016). The tools which can be used are as
follows-
Sales Budget-
It is a budget in which an estimation of the sales to be made in the future time period is
made (Lindholm, Laine and Suomala, 2017). It covers various revenues and expenditures which
can be incurred within the organization. For the managers of Innocent Drinks it is very useful as
it helps them in the estimation and forecast of sales which will be made in the future time period.
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Advantages-
 The use of this budget is advantageous for the organizations in ensuring that a proper
comparison can be made with the data of previous years so that it can be seen whether the
sales have increased or decreased.
 For the companies the use of this budget can be very helpful in ensuring that they are able
to raise their revenue levels in an effective manner.
Disadvantages-
 This budget is based on various forecasts which can also be wrong if the company
operates in a fluctuating market.
 The use of this budget sometimes leads the managers to make wrong comparisons with
the competitors.
Personnel Budget-
It is a budget which records the various details which are related to different people within the
organizations (Malmi, 2016). By making its use, the management of Innocent Drinks will be able
to ensure that they can estimate the requirements related with its workers in a more appropriate
manner.
Advantages-
 The use of this budget is helpful in the estimation of expenses which are required to made
for the personnel of the organization.
 Using this budget, the firms are able to ascertain that they can fulfil the various types of
requirements which are related with the personnel.
Disadvantages-
 This budget is not helpful for the organizations to be able to take certain decisions which
are related with the various employees.
 There is a lot of expenditure involved in the preparation of this budget which can lead
towards creation of a disadvantage for the organizations.
Marketing Budget-
The use of this budget is very helpful in the firms in order to forecast the marketing expenses to
be incurred in a fixed period of time (Otley, 2016). Thus it will be very helpful for the
management of Innocent Drinks to ensure that they are able to attain their marketing goals and
objectives in the future time period.
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Advantages-
 This budget can be helpful for the organizations in the determination of their marketing
goals and objectives.
 For the companies the use of this budget can be helpful in the controlling of various types
of marketing expenses.
Disadvantages-
 Using this budget in the context of the organizations can be quite time-consuming in
nature.
 The preparation of this budget can lead towards increase in the overall expenses of the
organization.
M3: Analysis of the use of planning tools
These tools are very helpful for the management to ensure that the right forecasting of
data can be done in a highly effective manner. Thus budgets and forecasts can be prepared
effectively by making their use. In Innocent Drinks, there is a requirement to ensure that they are
used appropriately by applying them in the processes. The managers can use them for
comparison purposes and also to find out their problems and issues so that rectifying approaches
can be used for solving them. For the purpose of creating plans these tools are very much
helpful.
TASK 4
P5: Comparison of organizations in the use of management accounting systems to solve financial
problems
Financial Problem- It refers to a situation where an organization is not able to control its
financial expenses in an effective manner (Quinn and et.al., 2018). It can create losses for the
organization. Like other companies, Innocent Drinks also faces financial problems. The
problems which it faces are as follows-
 Excessive costs- This is a situation which is created when the costs of various
departments are not controlled. In Innocent Drinks, the expenses of different departments
have increased which is creating an impact on the overall level of profits.
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 Wrong price selection- When this situation prevails within an organization it can affect
the profitability level. For the managers of Innocent Drinks, it is not good because it is
reducing their profits.
Techniques for solving financial problems-
 Benchmarking- It is a technique which is used so that benchmarks and standards can be
set within the organization (Soderstrom, Soderstrom and Stewart, 2017). The
management of Innocent Drinks can make its use so that they are able to solve the
problem related to costs as by setting standards for costs it can ensure that the costs do
not exceed them and can be controlled effectively.
 Balanced scorecard- It is a tool which tracks the measures which are taken to estimate
the performance level within an organization (What is the balanced scorecard? A
framework for organizational success, 2018). The managers of Innocent Drinks can make
its use so that an effective solution to the problem of wrong price selection can be found
as by identifying the wrong prices the organization can make sure that it can set the right
prices to enhance the level of profits.
Financial Governance- It refers to the way in which the financial information is
collected, managed and organized within an organization (Turner and et.al., 2017). In the context
of Innocent Drinks, it can be very helpful so that the management is able to properly manage the
financial discipline within the company.
Comparison between organizations-
Basis Tesco Sainsbury's
Financial Problem Tesco is facing the financial
problem of improper inventory
management within the
company.
Sainsbury's is facing the
financial problem of
mismanagement of job orders.
Management Accounting
System Used
Tesco can make the use of
Inventory Management
System.
Sainsbury's can make the use
of Job Costing System.
Application of the system Tesco can apply this system by
ensuring that inventory can be
Sainsbury's can apply this
system by estimating the job
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tracked and managed in a
proper manner. Systems like
LIFO, FIFO, Weighted
Average Cost etc. can be used
to ensure the right
management of inflows and
outflows of stock.
orders and their inflows and
outflows. The company can
make sure that proper
techniques are applied so that
the overall costs related to
these orders are reduced
effectively.
From the above comparison, it can be recommended to the managers of Innocent Drinks
that they should learn from the examples of Tesco and Sainsbury's and use management
accounting systems to solve the financial problems. They can make the use of Cost Accounting
System for solving the problem related with costs. Also they can make the use of Price
Optimization System to be able to forecast the prices effectively so that sustainable level of
profits can be maintained which will solve the problem related to prices.
M4: Analysis of response to financial problems
An adequate response has to be provided to these financial problems by the management.
This can be done by identifying them quickly and applying the appropriate technique and the
right management accounting system so that they can be solved. In this way the required help
will be provided to Innocent Drinks by enabling them to be able to enhance their profitability
level by getting rid of these issues.
D3: Evaluation of planning tools
The managers in the organizations should make use of the planning tools so that proper
short-term, medium-term and long-term plans can be made by them in order to attain their goals
and objectives in the future time period. Thus it is required from the management of Innocent
Drinks that they must put their concentration on using these tools in a proper manner so that
sustainable success can be achieved by them in the long-run by the organization in the market.
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CONCLUSION
From the above report, it can be concluded that management accounting is quite helpful
in ensuring that the management of a firm is able to take appropriate decisions whenever
required. It is also helpful in analysis and interpretation leading towards taking of actions which
are needed for the future for the organization. When it is used in the companies they are able to
find out the deviations and variations in the processes and use rectifying approaches to resolve
them. There are different types of management accounting systems in an organization. Its reports
are very useful in deriving the conclusions and recommendations. Its techniques are helpful in
the determination of profitability level. Planning tools can be used appropriately for the purpose
of creation of various plans. The use of management accounting systems can be made if the
company has to ensure that the financial problems can be resolved in an effective manner.
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Online
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Available through: <https://www.cio.com/article/3298580/what-is-the-balanced-
scorecard-a-framework-for-organizational-success.html>
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