Management Accounting Systems and Costing Techniques

This document provides an introduction to management accounting and its importance in decision making. It discusses different management accounting systems such as inventory management, cost accounting, price optimization, and job costing. It also explains various methodologies used in management accounting reporting and appropriate costing techniques to prepare income statements. Additionally, it explores the advantages and disadvantages of different planning tools. The document is relevant for students studying management accounting or related courses.

Management
Accounting

Contents
INTRODUCTION.................................................................................................................................3
TASK 1.................................................................................................................................................3
P1. Management accounting systems................................................................................................3
P2 Different methodologies used in management accounting reporting;...........................................4
TASK 2.................................................................................................................................................6
P3 Appropriate costing techniques to prepare income statement.......................................................6
TASK 3...............................................................................................................................................11
P4 Advantage and disadvantage of different types of planning tools...............................................11
TASK 4...............................................................................................................................................13
P5. Management accounting systems to respond to financial problems:.........................................13
CONCLUSION...................................................................................................................................14
REFERENCES....................................................................................................................................15

INTRODUCTION
In business world the concept of management accounting is defined as the systematic
approach that collect, analyse, report crucial business operations so that essential decision are
made by management in order to grow entire performance and profitability of business
(Abdelmoneim Mohamed and Jones, 2014). To better recognise the importance of
management accounting LVS Small Plastic Parts Ltd is selected which is a client company of
Aon Consulting. Company use to manufacture plastic product that are further used in
producing essential goods.
The reports cover importance of management accounting, different types of report and
system that are helpful in dealing with various financial problems. In this report several
costing techniques are used to calculate net profit for the year. In Addition, advantages and
disadvantages of planning tool and benefits of management accounting in dealing with
various financial problems are defined in detail.
TASK 1
P1. Management accounting systems.
The process of collecting, gathering, analysing, reporting and evaluating meaningful
information to internal manager in order to make effective decision are known as
management accounting. Each kind of financial and non-financial information is presented
which help manager to estimate budgets, plan accordingly and focuses on analysis of
business activities. There are different kinds of effective management accounting systems
that support in decision making and improving overall productivity of company. Some of
these in the context of LVS Small Plastic Parts Ltd are discussed below:
Inventory management system: One of the most crucial system for Manufacture
Company as it help to maintain a valid record of Inventory Company holds during a specific
period. This system aids manager of company to forecast inventory, materials tracking,
automatic reordering etc. It is recycled for defining goods accessible through whole supply
series along with business processes events (Bloomfield, 2015). In respective company
manager use this system to keep a valid record of entire inventory available during a period.
This helps them to produce goods accordingly and make order for raw material in case of
shortage of good. This system also benefits them supporting required inventory, real time
movement and various kinds of inventories essential in achievement of customer demands.

Cost accounting system: In large or small companies it is essential to maintain an
authentic record of overall cost included in maintaining inventory, cost utilised in production
process etc. thus cost accounting system is very much essential. Approximation of definite
cost is very essential for any industry as it support to calculate overall profitability of
business. It includes events founded on accepting, recording, examining, grouping and
summarizing costs related with valuable goods and services. In LVS Small plastic Part Ltd
cost accounting system is useful to calculate the total; cost included in running different
production operation, cost incurred of workforce and other miscellaneous cost. This further
useful to calculate and measure the entire profitability of business and in case of any miss-
happening improvement are made to attain desired results.
Price Optimisation system: It is also consider an important system, used by
companies that help to analyse the perception of customer in respect to price of different
goods offered by company. With the support of Price optimisation system manager are bale
to calculate the best possible price of their goods that will attract large number of customer
and support them, top maintain desired profit. In Respective company manager first analyse
the entire cost utilised on producing a specific product then the use to set the best possible
price so that cost can be covered and profit are maintain during an year. Appropriate price are
beneficial to draw the interest of customer and build an effective relationship that further
support in increasing overall profitability of business (Bagautdinova, Kundakchyan and
Malakhov, 2013).
Job costing system: This system is used for accumulation of information related to
cost associated with particular job or service. In LVS Small Plastic Part Ltd this system is
beneficial to determine the expenses related with particular job involved in production
process and other department. Thus it motivate the employees as they received the best
possible pays due to systematic record maintain by company with the help of Job order
costing.
P2 Different methodologies used in management accounting reporting;
Cost accounting report: Companies are not able to maintain desired profit unless
and until they have an accurate record of total cost involved in entire financial and non-
financial operation. Cost accoutring system is a method this tis related with gathering,
examining, grouping and posting important cost related traction into accounts so that compete
cost can be calculated. In LVS Small Plastic Part Ltd this report maintain a detail record of

total cost company use on producing plastic goods, cost related with depreciation, rent, wages
etc. so that actual earning can be calculated and future cost reduction decision are made.
Performance Report: It is very crucial to analyse and evaluate the performance of
different operation, business dealing and worker as it support to make possible changes in
order to increase entire performance of company in upcoming year. Performance report are
mainly maintained by every kind of organisation in order to fix few measurements which
further support to accomplish objectives and compare the victory of consequences in relation
to the capacities (Bargate, 2012). In respective firm this report is used to evaluate and
measure the total performance of every project and performance of employee. This supports
them to increase the efficiency and capability of company by making suitable changes for
better results. This technique helps in supervisory the price and handling the staff.
Budget Report: Budget are effective techniques that help companies to execute the
business operation in desired manner so that budgeted target are meet and profit margin are
attained. Basically manager of LVS Small Plastic Parts Ltd this report use to include every
variances and reasons of variances among budgeted outcomes and authentic results related
with different operation company during a year. This process benefits the association in
figuring out the mistakes in budget, balances in budget and adjusts the cost and adverse
alterations. It also supports the manager to make sure that each resource are utilise in definite
manner that gives favourable results.
Inventory Management Report: This report is very much crucial for company as it
aid to maintain the total inventory hold during a year. Inventory management report covers
essential detail of total raw material available in warehouses, goods in transit and finished
products ready for sales. Therefore, managers are required to maintain an authentic record of
goods as they are the main source of income for company. In this context of Client company
manager are required to maintain a valid record of total raw material present in storehouse
that is ready to be use in producing valuable product, total goods that are already in transit
and actual manufacture goods which are ready for sales that use to generate income and
increase profit margin. Thus the actual greatest way to keep the stock aid to path the
accessibility of the goods, reduce the cost of storing goods and take advantage of the
profitability, mechanize the addition between the various departments and attain a high
cheerful customer base.

TASK 2
P3 Appropriate costing techniques to prepare income statement
Marginal Costing: This is consider being an effective and mostly used costing method
that is used to calculate the total cost included by company on producing an additional unit of
output. It mostly highlights on methodical sorting of expenditures into fixed and variable.
Once the total cost are classified than contribution per unit is used to be calculated by
allowing only variable manufacture expenses and the fixed cost are accused as period costs.
Absorption Costing: This method is also known as historical costing methods that use
to include every type of expenses that are linked with producing a specific good of company.
So it uses to consider all fixed or variable cost (Demski, 2013). Most of the company use to
applies absorption costing techniques as it include each cost so net profit are more accurate
for a particular time.
May June
Selling per unit
price 50 15000 25000
Less: Various
Marginal Costs
Per unit Direct
materials cost 8 2400 3040
Per unit Direct
labour cost 5 2500 1900
Per unit variable
production
overheads cost 3 1500 1140
Sum total 6400 6080
( Less: ) Inventory:
Opening - 3200
( Add: ) Inventory: 3200 1280

Closing
Gross Profit 11800 17000
( Less: ) Fixed Cost
Fixed selling
expenses 4000 4000
Fixed admin
expenses 2000 2000
Fixed Production
cost 4000 4000
Less: Sales
commission 750 1250
Net Profit 1050 5750
Absorption Costing:
May June
Selling Price 50 15000 25000
Less: Absorption
Costs
Per unit Direct
materials cost 8 4000 3040
Per unit Direct
labour cost 5 2500 1900
Per unit variable 3 1500 1140

production
overheads cost
Production cost:
Fixed 10 3000 3800
Total 11000 9880
Less: Opening
inventory - 5200
Add: Closing
Inventory 5200 2080
Gross Profit 9200 12000
Less: Fixed Costs
Fixed selling
expenses 4000 4000
Fixed admin
expenses 2000 2000
Less: Sales
commission 750 1250
Net Profit 2450 4750
Budgeted and actual cost of metal
used in producing Product A
Budgeted material 2kg at

cost per unit of
the product £10/kg
Actual output 1000 units
Actual material
purchased and
used 2200kg
Actual material cost £20,900
Using
LIFO
Date Purchase Issues Inventory
Units Cost Total Units Cost Total Units Cost Total
01/05/19 40 3 120 40 3 120
12/05/19 20 3.6 72 20 3.6 72
12/05/19 60 192
15/05/19 36 3.6 129.6 24 3.6 86.4
20/05/19 20 3.75 75 20 3.75 75
20/05/19 44 161.4
23/05/19 10 3.75 37.5 34 3.75 127.5
27/05/19 25 3.75 93.75 9 3.75 33.75
30/05/19 5 3.75 18.75 4 3.75 15

Using Average
Cost Method
Date Purchase Issues Inventory
Units Cost Total Units Cost Total Units Cost Total
01/05/19 40 3 120 40 3 120
12/05/19 20 3.6 72 20 3.6 72
60 192
15/05/19 36 3.2 115.2
Average cost of
Inventory (1) 24 3.2 76.8
20/05/19 20 3.75 75 20 3.75 75
44 75
23/05/19 10 3.45 34.5
27/05/19 25 3.45 86.25
30/05/19 5 3.45 17.25
Average cost of
Inventory (2) 4 3.45 13.8
Average cost of
inventory (1)
3.2 (40*3 =
120 +

20*3.6 =
72) /
(40+20)
Average cost of
inventory (2) 3.45
(24*3.2
= 76.8 +
20*3.75
= 75) /
(20+24)
By applying marginal costing technique so as to plan pay articulation it has been
dissected that substance's benefit is GBP 1050 in the long stretch of May and GBP 5750 in
the period of June. Though according to ingestion costing strategy benefit are GBP 2450 in
the long stretch of May and GBP 4750 in the period of June. Such contrast is emerging
because of various treatments of fixed expenses in the two strategies. Under peripheral
costing fixed expense is viewed as period cost.
TASK 3
P4 Advantage and disadvantage of different types of planning tools
Budget: It is simply related with projection and is mail prepared by companies to
predict overall performance in future. Manager of company makes several types of budgets in
order to critically assess the real performance of within a year. The use to look on the past
happening and make budgets for future and take valuable decision for present time so future
estimation is attained easily. In respective firm manager use to make effective budgets that
help in performing current business activities with more concentration and efficiency that
support to accomplish the desired goals. There are number of crucial budgets that are
prepared by LVS Small Plastic Part Ltd within a year that are defined below:
Cash Budget
Cash budget are mainly formed by manager of company in order to keep a record of
total cash flow either inflows or outflow within an accounting year. As name suggest it only
includes cash related dealing of business organisation so that valuable decision are made in
respect to cash. In respective company cash budget is basically prepared to classify and
recover the weak areas of business due to which there is huge and negative cash flow. In

company cash budget is set department-wise and there are various advantages and
disadvantages that are defined below:
Advantage:
 It benefits company to track the movement of overall cash arrivals and discharges that
maintain effective cash management.
 It supports company as cash budget accumulates funds for upcoming possibility so
that operation can be managed and controlled well.
Disadvantage:
 This budget uses approaches that are many time manipulative and do not relates with
the cash transaction of company.
Operating Budget
These type of budgets are set by companies that are related with total income and
expenses related with operation during a year. Operation budgets covers approximation of
revenue and expenditures apprehensive with operating functions of with company (Malinić
and Todorović, 2012). This budgets are most useful for manufacture company has the
manager use this budget to calculate the total expenses incurred on production activities and
actual income received by company through these operation. Some advantages and
disadvantages are discussed below:
Advantage
 Managers in LVS Small Plastic Part Ltd use this budget to organise and control day to
day operations and measure total income.
 It also assists company in improving and weak area of operation so that it provides a
foundation for overcoming from such weakness.
Disadvantage
 This budget is set usually on everyday basis so it require specific team to look which
increase liability of company (McLaren, Appleyard and Mitchell, 2016).
Master Budget
It is most applicable and widely used budget by companies as it includes all other
budgets. A master budget is mainly used by respective firm for assessment of mutual and
entire performance by seeing all financial and accounting aspects of business. This budget is

use to take crucial decision related with manufacturing and other activities. Some advantages
and disadvantages are discussed below:
Advantage
 It is used to classify any possible monetary occasion that may make danger for
company in upcoming time.
 Master budget also aid respective company to make effective co-ordination among
various product sections so important decision are made.
Disadvantage
 This type of budget requires professional staff member that requires extra cost and
time which increase burden for company.
TASK 4
P5. Management accounting systems to respond to financial problems:
Financial problems are faced by companies at different phases of entire business
activities so they are required to make proper planning in order to recuse the impact of these
problems. There are various financial problem that are faced by LVS Small Plastic Part Ltd
are related with Lack of liquid funds and special order. Thus it reduces the overall
performance and profitability of company.
In order to determine and overcome these problem different management accounting
tool are used by company that are discussed below:
Benchmarking: In respective company this tool is used to measure and compare the
performance with other companies dealing within same industry. With the help of this tool
manager are able to determine the problem of Special order.
Key financial indicators: This is related with positive measures that assist firm to
assign financial areas and resolve financial problems. It is related with analyse and evaluating
internal performance of company during an accounting year. This helps them to determine
the problem of lack of liquid funds.
Financial Governance: It is related with collecting, grouping, analysing and
evaluating the important financial and internal information of company. This help to define
different crucial decision so that any kind of problem can be resolved. With the help of this
tool manager are able to resolve the issues of Special order and lack of liquid funds.

Comparison between Airdri and TPG processing company:
LVS Small Plastic Part Ltd TPG
 This company faces problem of lack of
liquid funds, and enable to effectively
handle of daily manufacturing actions
and functions.
 TPG is continuously facing problem of
excessive costs or increase in
manufacturing and production costs.
Due to this company's profit margin per
unit has been decreased.
 Respective company can use cost
accounting system to solve such
financial problem..
 Managers in TPS can use price
optimisation system to control
excessive costs and expenses in
manufacturing activities.
CONCLUSION
In conclusion of this report it has been stated that management accosting is helpful for
companies in order to make crucial decision for improving the total performance and
profitability during a particular time frame.

REFERENCES
Books and Journal
Abdelmoneim Mohamed, A. and Jones, T., 2014. Relationship between strategic management
accounting techniques and profitability–a proposed model. Measuring Business
Excellence. 18(3). pp.1-22.
Bagautdinova, N., Kundakchyan, R. and Malakhov, V., 2013. Development of management system of
manufacturing companies on the basis of management accounting elements.
Bloomfield, R. J., 2015. Rethinking managerial reporting. Journal of Management Accounting
Research. 27(1). pp.139-150.
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International Higher
Education.
Demski, J., 2013. Managerial uses of accounting information. Springer Science & Business Media.
Kanellou, A. and Spathis, C., 2013. Accounting benefits and satisfaction in an ERP
environment. International Journal of Accounting Information Systems. 14(3). pp.209-234.
Maher, M. W., Stickney, C. P. and Weil, R. L., 2012. Managerial accounting: An introduction to
concepts, methods and uses. Cengage Learning.
Malinić, S. and Todorović, M., 2012. How does management accounting change under the influence
of ERP?. Economic research-Ekonomska istraživanja. 25(3). pp.722-751.
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management accounting
systems: A case study investigation of EVA™. The British Accounting Review. 48(3).
pp.341-358.
Mitchell, R. K., Van Buren III, H. J., Greenwood, M. and Freeman, R. E., 2015. Stakeholder
inclusion and accounting for stakeholders. Journal of Management Studies. 52(7). pp.851-
877.