Management Accounting System: Requirements, Methods, and Benefits

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
Essential requirements of different types of management accounting system.........................................3
Different methods used for management accounting reporting...............................................................5
Benefits of management accounting system............................................................................................6
Integration of management accounting and reporting system..................................................................7
TASK 2..........................................................................................................................................................8
. Calculation of marginal and absorption costing.....................................................................................8
TASK 3........................................................................................................................................................10
Advantages and Disadvantages of various planning tools for budgetary control...................................10
TASK 4........................................................................................................................................................12
Adaption of management accounting system to solve financial problems.............................................12
Analyzing planning tools in solving financial problems........................................................................14
CONCLUSIONS...........................................................................................................................................14
REFERENCES..............................................................................................................................................15

INTRODUCTION
Management accounting is the application of skill and preparing information on various
accounts which help the management of the company in making policies for future planning and
carrying on the operations. It is used to provide information to the internal users and helps the company
in making decisions. With the help of available information, statistics and other financial as well as
non-financial data, the managers and employees can make sound investment decisions. The
objective of management accounting is to provide all the necessary financial information to the
management for making decisions. For further information on management accounting, the report will
state various requirements of management accounting systems which includes Cost accounting system,
Inventory management system, and Job costing system. The present report is based on ABC limited
which is a manufacturing company. The present report will discuss different types of
management accounting systems available and how organization can seek benefits. Further, the
report will discuss about the concept of management accounting reporting and it uses in decision
making. Income statement under marginal and absorption accounting of ABC limited using
appropriate technique for analyzing cost factor will be disclosed.
TASK 1
Essential requirements of different types of management accounting system
Management accounting helps internal users in providing all the relevant information. It
takes financial information of the company and develop reports which are used by managers.
Management accounting system of the company makes it easy for mangers by collecting
information based on trend charts, budgeting, break even charts etc which help the company in
forecasting future. It helps the company in improving its performance and increase its efficiency
and effectiveness (Martello, 2016). The management accounting system identifies, analyses and
record all the quantitative transactions which lead to overall development of the company.
Inventory Management System – This method of management accounting emphasizes
on cost controlling function which has been incurred on producing goods and services for
meeting the customer demands. It also assists in managing inventory and stock level of the
company. ABC limited can assess, monitor and track the quantity of goods, inventory and stock
through the supply chain or with the help of areas in which business operations takes place
(Gunarathne, 2018). This method helps company in making inventory valuation, improving the
accuracy of inventory by maintaining continuous workflow and its reorder so as to facilitate
smooth functioning of business operations. Valuation of inventory can be done with the help of
following two methods:
1. LIFO – It stands for Last In First Out. In this method, goods which are bought or
purchased at last are available for sale at first place.

2. FIFO – This stands for First In First Out, it emphasizes on selling first of that stock
which is purchase or bought in at first place.
Cost accounting system
Cost accounting system of the company helps the company in estimating its cost for their
particular products that are being offered to the customers for the purpose of profitability
analysis, valuation of inventory and controlling cost. It tracks the cost of raw materials as they go
through the stages of production . When company come to know about exact costing of products,
it can be critical for the production. It helps ABC limited in figuring out which products are
profitable and which are not. It takes raw materials, work in progress and finished goods for
preparation of financial statements. There are two main cost accounting system that includes:
Job order costing – It combines manufacturing cost separately for the job or task. It fits
to the firm who operated in unique and different products and can help the firm in finding out
which product is generating the highest profit.
Process costing – It collects manufacturing cost for each process separately. The firms
who involves in different departments and cost flow from one department to another can use
process costing.
Job costing
The information provided by job costing system helps in determining accuracy of estimating
system of company. This method is used when there are various products produced by the
company and have different cost. It included direct material and cost of direct labor that is used
in carrying out the particular activity along with overhead costs that includes depreciation, rent
etc. This system helps in improving efficiency of the company and to now better performing
product or service by comparing standard and actual performances of all the products. The job
costing method of management accounting is that business practice which aids ABC limited in
collecting and analysing all the important and relevant information related to the cost incurred
with the production function of some specific job or product group. It acknowledges company in
assessing the cost of operations and helps in taking corrective measures by minimising the cost
of that activity which is incurring more cost expense (Toussaint and et.al., 2015.). This method
considers each part of information which relates to direct materials, labour and overhead costs.
Under this system, information related to cost incurred for every job work completed is provided
to the customer for getting cost reimbursed as per the contract or agreement made. This system
helps in improving efficiency of the company and to now better performing product or service by
comparing standard and actual performances of all the products.
Different methods used for management accounting reporting