Management Accounting Study and Analysis

This assignment is a detailed study and analysis of management accounting, covering various aspects such as historical development, modern practices, and emerging trends. The document draws from multiple sources, including books, journals, and online publications, to provide a comprehensive overview of the subject. It includes references to specific studies, case analyses, and theoretical frameworks, making it an ideal resource for students and professionals seeking to deepen their understanding of management accounting.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting system and its types.......................................................................1
P2 Management accounting reporting and its types...................................................................2
M1 Benefits of management accounting system........................................................................4
D2 Integration of management accounting system and its reporting in organisational success. 4
TASK 2............................................................................................................................................5
P3 Calculation of cost using an appropriate techniques..............................................................5
M2. Various management accounting techniques......................................................................7
D2. Data interpretation................................................................................................................7
TASK 3............................................................................................................................................7
P4. Advantages and disadvantages of different planning tools used for budgetary control.......7
M3: Uses and applications of planning tools for preparing and forecasting budgets.................9
TASK 4..........................................................................................................................................10
P5: Responses of management accounting system to deal with financial problems................10
M4 Management accounting can lead an organisation to sustainable success in responding to
financial problems.....................................................................................................................11
D3 Planning tools respond appropriately to resolve financial problems..................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting system is a process of determining, examining, understanding
and measuring information. These informations help the management to pursue organisational
goals and facilitates in the decision making process of the managers (Management accounting
definitions, 2018). It is used to prepare various reports that provide the information of actual
performance of the company. It also help to control the operational activities of the enterprise.
Agmet Ltd is a leading recycler and manufacturing company which is based in UK's
management accounting system helps the manager to prepare reports for internal as well as
external stakeholders of the company.
These reports include various informations such as revenues, cash, receivables, payables
etc. This report covers various topics such as management account report, various costing
techniques, planning tools used in budgetary control and financial problems that an organisation
have to face etc.
TASK 1
P1 Management accounting system and its types
Management accounting is a method i.e. used by the managers of an organisation to
measure and evaluate its performance. It helps to keep a track record of various business related
information such as outstanding income, cash, account receivables, account payable and
revenues of the company. Managers of Agmet Ltd use management accounting to gather internal
information of the production process and business operations. It helps the management to make
good decisions that helps to improve productivity and increase profitability. It facilitate internal
and external parties to get internal informations of the company (Belfo and Trigo, 2013). The
managers of Agmet Ltd use different type of management accounting system such as cost
accounting system, price optimisation system, inventory management system, job costing
method etc. These methods are explained below:
Price optimisation system: This system relates to the customer's reaction towards price
changing system of the company. It is the process of increasing the price against the customers
willingness to pay. Agmet Ltd use price optimisation system to set such price for its products
that can increase profits for the company and attract the customers. With the help of this system,
managers get the idea of customers reactions towards price change. Price optimisation system is
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very beneficial for an organisation to minimize its losses and maximise profits by reducing the
loss. Estimation of actual cost will help to reduce the loss or waste in production process.
Cost accounting system: It is the process of scripting, classifying, examining,
compacting and distributing the costs to the various projects. This system provides the detailed
cost information that managers need to control the running operation's cost and plan for
upcoming projects of the company ((Budding, Grossi and Tagesson, 2014)). This system is very
helpful while estimating cost of production of company. Agmet Ltd use cost accounting system
to record various kinds of costs that incurred in manufacturing process. This system helps the
managers of Agmet Ltd to separate different kind of costs such as direct materials, labour,
overheads etc.
Job costing system: This system is used to determine cost involved in every job. It is
used in such situations when each job is different and performed according to the customer's
description. It includes the record of direct and indirect cost involved in the job. Agmet Ltd use
this system to evaluate and measure the cost related to each job that are performed in and out of
the company. It also help the managers of Agmet Ltd to determine the exact cost of various jobs.
This is a measuring tool and used to trace specific costs of individual jobs ( Gates, Nicolas and
Walker, 2012).
Inventory management system: Inventory management system is a framework that
helps the management to record inventory related information to reduce the loss of inventory.
This system help the managers to keep a track record of inventory that is taken into the
warehouse or going out of the company. The managers of Agmet Ltd use inventory management
system to supervise the flow of inventory within and outside of the enterprise. This system is
very helpful for the managers to keep an eye on every activity that is related to the inventory. It
includes ordering, controlling and storing the inventory.
P2 Management accounting reporting and its types
Management accounting reports are prepared to analyse overall performance of the
business whether it is related to operations or production. These reports are prepared after a
certain period. These reports are used to program, modulate, make decisions and measure
performance of the company. Agmet Ltd prepare these reports to collect accounting informations
which is helpful for the company to trim cost and reward employees for their good performance
(Ji, 2017). These reports provide various informations such as budget related informations,
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various receivables of the company etc. Different kinds of management account reports are
explained below:
Account receivables reports: These reports are prepared to get the idea of exact
outstanding amount that is owed by the customers. This report is mainly based on customers who
are not able to pay their amount at the time of purchase but willing to pay the amount later.
These reports show the outstanding amount of such customers. Agmet Ltd prepare such reports
to keep a track record of those customers whose amount is owed. Managers get the information
of actual account receivables for the company. These reports are very beneficial for the company
because it provide the accurate information of those clients who haven't paid their amount
(Johnson, 2013).
Budget reports: These reports help the managers to control costs of the operational
activities of the organisation. It help the managers to estimate the future expenses then prepare
budget for upcoming year. It is mainly prepared to cut the production cost and maximize the
profits of the organisation. These reports also help the managers to determine the performance of
employees and provide them incentives according to their performance. Agmet Ltd use these
reports to estimate overall cost and profits of the company. These reports also help the company
to plan for possible future expenses.
Inventory and manufacturing report: These reports show the actual information
related to inventory and manufacturing process of the company. These reports are prepared by
the managers to get the exact information of the stock such as the quantity of the inventory in
warehouse, location of goods whether it is in transit or in process. These reports also help to
reduce loss in manufacturing process by keeping proper record of the business execution process.
Agmet Ltd is a manufacturing company and these reports are very important for it. Managers of
the company use these reports to analyse manufacturing process and to keep a record of
inventory. These reports are very beneficial for the company because these reports can show the
exact information of the inventory and also help to reduce the cost involved in manufacturing
process.
Performance reports: These reports are the detailed statements that show the result of
those activities that are performed by the company. These reports show the actual performance
of the business and individual employee of the company. Managers use these reports to make
strategic decisions. Managers of Agmet Ltd use such reports to analyse the performance of the
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company. These reports are very beneficial for the company and managers because it shows the
actual position of running business. These reports portrays the market image of the company.
Performance reports are very beneficial for any kind of business whether it is small or large. It
helps to analyse the performance of the business activities to know that business is running well
or bad.
M1 Benefits of management accounting system
Management accounting system Benefits
Cost accounting system  It is used to measure and improve the efficiency of
the company.
 It helps the management to make appropriate
decisions to reduce cost in an appropriate manner.
Price optimisation system  With the help of this system managers set
appropriate prices for company's products.
 This system is used to set the prices according to
customers willingness.
Inventory management system  It helps to get the accurate information of inventory.
 Helps to improve the quality of the products.
Job costing system  It helps to improve profitability of the company.
 Provide accurate cost information incurred in
various jobs.
D2 Integration of management accounting system and its reporting in organisational success
Management accounting system and its reporting help the company to improve
productivity by evaluating its performance. It also help the managers to make strategic decision
to increase the profits and reduce the losses of the company. Agmet Ltd use this system to
evaluate the cost and set appropriate prices for its products. Management accounting reports
show various informations to the managers that is helpful for them. These reports also show the
actual performance and market value of the company. It also help to create a positive market
image by providing pocket friendly products to the customers. When a company is able to retain
and attract customers, it can lead towards success.
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TASK 2
P3 Calculation of cost using an appropriate techniques
Cost: Cost is a monetary value which is involved in the production of a product. It
includes various expenses such as direct material, overheads, direct labour etc. It is the amount
that a seller is receiving from a buyer by selling a product (Klychova, Faskhutdinova and
Sadrieva, 2014). A customer is always willing to know that the cost of that product which is
going to be purchased by him. If the customer think that the cost is not relevant to the product
then it is not possible for him to buy. Agmet Ltd is a manufacturing company and it is the duty of
management of the company to set an appropriate price for the products that can attract the
customers and contribute to the success of the company.
Marginal costing: It is a costing technique which is used to evaluate the additional cost
that is related to the additional unit of production. Marginal cost is a variable cost that increases
or decreases with the production units. It is an opportunity cost that increases with extra
manufacturing units.
Absorption costing: It refers to the technique that is used by the companies to cover the
manufacturing costs of various units from the revenue generated from the same units. It gives the
exact idea of the cost that is involved in the production. This technique is used by Agmet Ltd to
record the actual cost of the production (Malmmose, 2015).
Calculation of net profit by using marginal costing method:
Total sales= 33000
Marginal cost of sales= 9600
Total production = 12800
Stock at the end= 3200
Contribution = Sales – marginal cost
= 33000-9600= 23400
Fixed cost= 5900
Net profit = contribution- fixed cost
= 23400-5900
= 17500
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Computation of net income by using absorption costing method: Formula: Total sales- cost
of goods sold = gross profit
=33000-14075
= 18975
Net operating profit= Gross profit- selling and distribution expenses
= 18975- 3300
=15675
Break even analysis: This analysis is the state of no profit and no loss. A company use
break even analysis to determine the future sales of the company to earn a particular level of the
profits. It calculates break even point which is based on fixed cost, variable cost and sales of the
company (Mistry Sharma, and Low, 2014).
A .Total number of product sold
Formula: Fixed cost- contribution per unit
Selling price per unit- variable cost per unit = contribution per unit
=40-28 = 12
Fixed costs= 6000
BEP in units= 6000/12
= 500 units
B. calculation of BEP sales:
Formula: Fixed cost/ PV ratio
PV ratio= contribution per unit/ selling price per unit *100
=12/40*100
= 30%
BEP = 6000/30%
= 20000
C. Calculation of sales to get a profit of 10000
Formula: Sales= fixed cost + desired profit/ contribution per unit
= 6000+10000/12
=1333.33
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Margin of safety: It is the deviation of actual sales and BEP sales. When market price of
a product is lower then the intrinsic value of the product is called margin of safety. It also
evaluates the quantity where sales exceed the break even point (Ngoc Phi Anh, Nguyen and Mia,
2011).
D. Calculation of margin of safety if the organisation is selling 800 units
Margin of safety= actual sales – BEP sales
= 800-500
=300
M2. Various management accounting techniques
Agmet uses three types of management accounting techniques such as standard, marginal
and historical costing for cost analysis to produce suitable financial reporting documents.
Company use historical costing technique to determine original cost of asset which is shown in
balance sheet. Standard costing identify the variation between actual cost of product and
budgeted cost. Marginal costing technique is used to calculate the cost of additional unit is
produced. This accounting techniques is the most important for determining company's net
operating income.
D2. Data interpretation
From the above calculation company finds marginal costing as an appropriate method for
determining net operating profit. Agmet is calculating and comparing it's net profit by
absorption and marginal costing method. It finds a variation of £1825 in profit. Net profit by
marginal costing and absorption are £17500 and £15675 respectively. Company also indentify its
break even point by evaluating its BEP sales i.e. £20000 and 500 units were sold. Agmet wants
to earn minimum profit of £10000, for this it sale 1333.33 units. If company sale 800 units then
its margin of safety is 37.5.
TASK 3
P4. Advantages and disadvantages of different planning tools used for budgetary control
Budgetary control involves regular comparison of actual outcomes with the planned ones
and take corrective actions in the organisation. The main objective of budgetary control is to
enable the management to conduct the working in the most effective way within the
organisation. Agmet use budgetary control as a planning tool that help management in allocation
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of responsibility and authority. It also assist in making estimates and plans for future, to aid in
analysis of variation between actual and estimated production. It helps in strategic decision
making (Proctor, 2012). Company uses three planning tools or budgetary-control, which are
explained below:
Forecasting Tool: It is an essential part of budgetary control process, where future
events of organisation are estimated or predicted. These estimation effects on company's budget.
This tool help in forecast of general business conditions. Agmet use forecasting tool to allocate
their plan for anticipated expenses for future and estimating the number of revenues that will be
achieve. This is based on the projected demand of products and services offered.
Advantages Disadvantages
The main advantage of this tool is that it keeps
customers happy because company predict
future demand of its product and fulfil
customer order on time.
Sometimes forecasting is influenced by change
in market trends.
Company learn from its past experience and
make stronger decision and most likely more
profitable.
It is very costly and complicated for the
company.
It helps company in looking ahead on regular
basis, analyse the market trends and defeat the
competitor.
Agmet cannot fully depend on forecasting
which is based on previous years information.
Contingency Tool: This planning tool is a key part of every organisation. It is not only
for major disaster but on small level. It is about preparing for events like loss of people,
information, customers and suppliers etc. Agmet use this tool to prepare their employees for
uncertain events that might be occur in future. Company prepare contingency plan and
communicate it with everyone by informing their roles and responsibility related to plan
(Schaltegger and Burritt, 2017).
Advantages Disadvantages
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When unexpected events occur, this planning
tool assist manager in making best of possible
operations.
This tool works as per predetermine situation
but in practical all uncertain events are not
same as expected.
This planning tool make Agmet employees
aware of their duties.
It is basically reactive in nature because
manager deal with problem according to the
situation.
This tool save the time if worst event happen
by making plan in advance.
It only gives direction to manager but it does
not satisfied the needs of manager.
Scenario Tool: This tool help in identifying and evaluating future possible events and.
Then make a professional framework for exploring that events. Company make assumptions on
the basis of upcoming events that impact on business environment. Agmet can use scenario
planning tool for identifying a specific set of uncertainties that might happen in future. Company
also find this tool helpful for predicting favourable and unfavourable events which impact on its
performance (Smith, Brännström and Jansson, 2015).
Advantages Disadvantages
It identify company's driving forces like
society, economics, politics and technology
factor that will affect in future working.
It is more a subjective technique than
information driven analysis.
It simplifies complex systems by this manager
understand the critical issues that impact on
future.
This tool is time consuming and expensive.
It improves long term planning and assist in
decision making.
It is difficult to implement because of rapidly
changing market trends.
M3: Uses and applications of planning tools for preparing and forecasting budgets
Above mentioned planning tools such as forecasting, contingency and scenario helps
Agmet in preparing budgets properly. Scenario tool help in identifying company's favourable or
unfavourable events that occur in future and improves long term planning. Forecasting tool assist
company in predicting future such as product demand, revenues and expenses which impact on
its profitability. Contingency tool aid to interpret uncertain event such as loss of data, customers
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etc. in company's operations. All planning tools help management to communicate with
employees and understanding them their roles and responsibilities towards work. That assist in
preparing and forecasting budgets appropriately.
TASK 4
P5: Responses of management accounting system to deal with financial problems
Financial problems is a situation where lack of money causes problem in company's
operations. Debt recovery, loan repayments, insufficiency of funds, excess of spending, improper
money management etc. are some financial issues that many organisation are facing now a days.
These problems impact on company's overall performance and sometimes it appears like
impossible to resolve this issues. Agmet also suffer from some financial issues i.e. debt recovery,
insufficiency of finance and excess of spending which impact on its financial position in the
market. Company uses benchmarking, key performance indicators and financial governance
techniques to deal with its financial issues. These techniques are explained below:
Financial Governance: It is a process where company's policies and procedure are used
to manage its information which ensure that information is correct. It includes internal control,
financial policies, internal and external investigation and workflow. This techniques helps in
attracting stakeholder which impact on company's performance. Agmet follow financial
governance technique for resolving financial issue like insufficient fund. It can be resolved by
tracking financial transactions, manage and control business performance(Viere, von Enden and
Schaltegger, 2011).
Benchmarking: It is a technique where quality of organisation's policies, programs,
products, strategies etc. are compared with its competitors. It is a continues process that regularly
improve company's practices. Agmet use benchmarking tool to establish standards to resolve
financial issue like debt recovery. Company will set credit policies similar to its competitor
which follow healthy standards regarding credit recovery. That company does not face problem
related to debt recovery.
Key Performance Indicators: It is a most important technique for measuring
performance effectively that helps in achieving business goal. Company's overall performance is
considered under higher level of KPI and its process and employees performance at various level
of management that are considered under low level of KPI (Wynn, Low and Nauta, 2013).
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Agmet is suffering from excess of spending over its expenses. For this company use leading KPI
tool. Types of key performance indicators are described below:
 Leading KPI: In this indicator, Agmet predict its future performance on the basis of
forecasting its sales revenues and estimate expenses. With the help of this tool, company
measure its excess expenses and identify the area where unnecessary expenses are
incurred.
 Lagging KPI: This tool focus on company's success and failure based on its activities
which is measured by using this tool. Agmet use lagging KPI to achieve success in future
(Zainun Tuanmat and Smith, 2011).
Agmet Aston Chemicals
Company use key performance indicators
for resloving financial issue related to excess
of spending.
It use benchmarking for formulating several
product policies.
It use benchmarking tool for formulating its
credit policies.
Financial governance for money
management.
It follow financial governance for improving
insufficiency of finance in the company.
Company use KPI tool to maintain product
performance.
M4 Management accounting can lead an organisation to sustainable success in responding
to financial problems
Management accounting is considered as an integral part of Agmet Ltd as it helps to
attain sustainable success. It assists the superior level staff to tackle various financial issues such
as insufficiency of funds and unexpected expenses which can not be predicted. In order to
manage these issues, the above mentioned company uses performance measuring tools such as
key performance indicators, benchmarking etc. These tools are used in order to measure position
of the company by setting few standards and compare actual performance from that standards.
The main purpose of using these tools is to attain sustainable success and maintaining a sound
financial position in the market.
D3 Planning tools respond appropriately to resolve financial problems
Forecasting, scenario and contingency are the planning tools under management
accounting which Agmet Ltd. is using in their future planning. These tools are used for
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budgetary control in order to set standards for organisational operations so that in future actual
performance can be measured from these standards. Forecasting helps in predicting near future
which can assist in preparation of budgets. Whereas contingency and scenario tools helps in
developing range of possible scenarios for future and helps in preparing measures for future
contingencies. These tools helps to tackle all the financial issues.
CONCLUSION
From the above project report it can be concluded that management accounting is that
branch of accounting which is related with managerial aspects of an company other financial
aspects. Company adopt methods and techniques of management accounting in order to manage
and control their performance. Price optimisation, cost accounting, inventory management and
job costing are few systems which are used on several levels of an organisation so that company
can operate and function efficiently. This method also helps in future planning by using planning
tools such as forecasting, contingency, scenario etc.
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REFERENCES
Books and Journals
Belfo, F. and Trigo, A., 2013. Accounting information systems: Tradition and future directions.
Procedia Technology. 9. pp.536-546.
Budding, T., Grossi, G. and Tagesson, T. eds., 2014. Public sector accounting. Routledge.
Gates, S., Nicolas, J. L. and Walker, P. L., 2012. Enterprise risk management: A process for
enhanced management and improved performance. Management accounting quarterly.
13(3). pp.28-38.
Ji, X. D., 2017. Development of accounting and auditing systems in China. Routledge.
Johnson, H. T., 2013. A New Approach to Management Accounting History (RLE Accounting).
Routledge.
Klychova, G. S., Faskhutdinova, М. S. and Sadrieva, E. R., 2014. Budget efficiency for cost
control purposes in management accounting system. Mediterranean journal of social
sciences. 5(24). p.79.
Malmmose, M., 2015. Management accounting versus medical profession discourse: Hegemony
in a public health care debate–A case from Denmark. Critical perspectives on
Accounting. 27. pp.144-159.
Mistry, V., Sharma, U. and Low, M., 2014. Management accountants' perception of their role in
accounting for sustainable development: An exploratory study. Pacific Accounting
Review. 26(1/2). pp.112-133.
Ngoc Phi Anh, D., Nguyen, D. T. and Mia, L., 2011. Western management accounting practices
in Vietnamese enterprises: Adoption and perceived benefits. Pacific Accounting Review.
23(2). pp.142-164.
Proctor, R., 2012. Managerial Accounting: Decision Makling and Performance Management. FT
Press.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Smith, D., Brännström, D. and Jansson, A., 2015. Redovisningens språk. Studentlitteratur.
Viere, T., von Enden, J. and Schaltegger, S., 2011. Life cycle and supply chain information in
environmental management accounting: a coffee case study. In Environmental
management accounting and supply chain management (pp. 23-40). Springer,
Dordrecht.
Wynn, M. T., Low, W. Z. and Nauta, W., 2013, January. A framework for cost-aware process
management: generation of accurate and timely management accounting cost reports. In
Proceedings of the Ninth Asia-Pacific Conference on Conceptual Modelling-Volume
143 (pp. 79-88). Australian Computer Society, Inc..
Zainun Tuanmat, T. and Smith, M., 2011. Changes in management accounting practices in
Malaysia. Asian Review of Accounting. 19(3). pp.221-242.
Online
Management accounting definitions. 2018. [Online]. Available through:
<https://efinancemanagement.com/financial-accounting/management-accounting>
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