Analysis of Cost Management Accounting Systems

The provided document is a detailed analysis of cost management accounting systems. It draws from various research papers and studies to discuss topics such as organizational absorptive capacity, data mining applications, and energy management in mobile devices. The assignment also touches upon management information systems, human resource accounting, and the role of accounting logics in reconfiguration of ERP systems. This document is likely a past paper or solved assignment for students studying business or accounting-related subjects.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirement to use various accounting system........1
P2 Different management accounting methods for management accounting reporting.............3
P3 Calculation of cost and prepare income statement by using marginal and absorption
costing.........................................................................................................................................4
TASK 2............................................................................................................................................7
P4 Budgetary control and use of different planning tool............................................................7
P5 Use of management accounting in response to financial problems.......................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Accounting is a helpful term which enable an organisation to maintain their financial
records in an appropriate manner. All the accounting related information will include in
statements of a company (Burritt, Schaltegger and Zvezdov, 2011). For long period context,
financial statement get prepared on the other hand for short term decision making managerial
accounting concept has derive. Managerial accounting is a process in which all the information
which are related with regular operations are included. It enables managers to take beneficial
decision for the betterment and growth. This assignment is based on Waitrose which is one of the
largest super market chain of UK. Management of reference organisation have to use this
approach in business for removing differences and deviation in their operations. This report
includes, understandability of management accounting concept and different techniques which
are used to enable an organisation to prepare these statement. Along with this, there are various
planning tools and techniques can also used by an organisation so that they can deal with
financial problems in an effective manner.
TASK 1
P1 Management accounting and essential requirement to use various accounting system
Managerial accounting is a process which provides information to all the management
and authorities for internal decision making. This process involves preparing and timely focus on
financial and statistical information to a business managers so that they become able to take
decision for short term and regular basis operations. Managerial accounting support in improving
performance of a company by removing all short coming of a business organisation
(Dillard2014).
A keen focus will made by leaders and executives on all things and facts which taking
place in an entity (DRURY, 2013). This is completely differ from financial accounting which
leads to prepare for making strategies during an entire year. Financial data prepare and based on
historical information but management accounting is totally differ from this and support in
forwards looking. Managerial accounting promote confidentiality in report formation as this is
for internal users of a company. According to IMA which stands for Institute of Management
Accounting define this term as “Management accounting is a profession that involves partnering
in management decision making, devising planning and performance management systems, and
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providing expertise in financial reporting and control to assist management in the formulation
and implementation of an organization's strategy”. Thus as per their context it get measure that
managerial accounting process assist strategy formulation and its execution in an adequate
manner. Along with this, it also enable a firm to maintain appropriate performance of their own
as compared to rivalries.
Managerial accounting has several number of benefits which promote in effective
performance and operation (Elbashir, Collier and Sutton, 2011). Timely and accurate information
will support management to make some informed decision about operational items in which
cutting of cost, increase in market budget etc. are some major factors. Another major benefit of
managerial accounting is to eliminate redundancy from business and conclude some beneficial
judgements.
There are various types of management accounting system are used and introduce by
scholars but some get selected for making appropriate records which are as follow:1. Cost accounting system: This process usually used by the firms and business entities to
estimate the value of their products and analyse profitability, inventory valuation and cost
control (Cost Accounting Systems, 2013). It is quite difficult for an organisation to
estimate the accurate cost of product. If they become able to ascertain this fact then the
chances of profitability tend to rises. By using cost accounting system, management will
able to measure the best product which is suitable in long term context and adequate
actions can be taken on them.2. Price optimising system: Another major work which have to execute by management is
to ascertain the response of customers on different range of goods and services through
different channels. Thus, management determine that prices which will aid them in
meeting with their objectives such as increase in operating profit of a business.
3. Inventory management system: With change in time, many companies make their process
digitalise. This help in performing and doing all the things in an appropriate manner.
Inventory management system is a system which enable an organisation to identify level
of orders, sales and deliveries of product and services. By using advanced inventory
management system, company can determine the level of stock through such software.
For forming a best and suitable value for the product and offer them at right price is one of a
challenge for business. Waitrose have to determine the best cost which is suitable for their users
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and deliver products at such rates. Along with this, at such price level, management have to
determine their users perspective as well. This will support to super market in increasing their
profit level. Along with this inventory management system will aid them in maintain proper
stock so that user get satisfied.
P2 Different management accounting methods for management accounting reporting
Management accounting is an essential component of business which enable managers to
deal and respond various problems and issues which affect business. Managers have to determine
the different methods of management accounting for formulating reports. Reports are such things
which made with a specific purpose to act upon various number of things. Management
accounting reporting are such sort of information which prepare with an aim to increase
efficiency of an organisation and increase productivity and profitability. This is helpful for small
business owners who usually want to used these documents for important strategic insights for
firm (Flamholtz, 2012).
Accounting reports support in maintain health and performance of business for long term
context. There are different kinds of reporting method are identify for a business which can use
by Waitrose to maintain appropriate health and performance for a business in long term context.
Some of the managerial accounting reports for Waitrose are as follow:
 Budget report: This is a most fundamental report in management accounting process. It
enable managers and leaders to control the cost of various departments in a large entities
(Granlund, 2011). By preparing budget report, Waitrose can estimate their overall
expenses and use them according to requirement. Along with this proper cost cutting
also get done by applying this technique into business. By using cost accounting system
budget can be prepared and at necessary place cost will be cut down. Although proper
valuation of producta lso get done by this approach.
 Account receivable aging report: Management have to determine all of their payment
and debts in a proper framework so that they can align their policies according to that.
Account receivable aging report is a helpful element of reporting method which includes
the data of such customers who get failed in meeting their obligations on time. There are
three main columns prepare by managers with 30, 60 and 90 days late users. Waitrose
have to maintain this data in software and take some strict actions against these bodies.
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 Job cost report: A major responsibility of every leader in a business is to identify the
most profitable sector of whole business environment. This critical evaluation of every
business project directly increase chances of more and more profit ascertainment. Job
cost report provide a regular view of the project with cost which incurred on that along
with expected return yielded from that (Jaber, 2016). Thus, leaders and managers have to
choose such projects which are highly profitable in nature and support sustainability of
an organisation. This is a part of cost accounting system which facilitate an option to
adopt and grab such market opportunities which are highly revenue generating and
maximise operations at moderate cost rate. Waitrose managers have to determine such
projects and analyse them properly in relation to taking betterment and growth related
decision.
 Inventory report: Grocery stores are dealing in physical procurement of goods which
lead to increase chances of risk for getting product obsolescence. Hence, proper
management of stock will support them in increasing customer base by rendering more
and more satisfaction. Waitrose is one of the largest super market chain and have to use
inventory accounting system for identifying proper stock of products which will further
deliver to users. This report is valuable for reference company because in every super
market product availability is major thing behind their success.
Waitrose have to determine these things and work properly according to methods and reports
which prepare by managers. Hence, in attainment of goals and targets effectively reports of
accounting play an appropriate role. Along with this, various system also have to be used for
conducting successful business operations.
P3 Calculation of cost and prepare income statement by using marginal and absorption costing
Cost management accounting is a concept of managerial accounting segment which
enable managers to control expenses and perform all task in an adequate budget. For success and
big decision it is essential for management to determine the cost – volume – profit relationship.
This is helpful to business in thriving at appropriate manner by analysing the sectors from
where company is earning and losing money. On the basis of these reports, long term decision
can be taken in maximising profitability of business.
Costing techniques are helpful terminology for ascertaining cost for cost control and for
decision making purpose. Costing techniques are helpful in arrive at the different cost elements
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which are related with material, overhead and labour. Marginal costing and absorption costing
are two best costing techniques on the basis of which appropriate actions will be carried down.
The profit and loss by both of these approaches are distinct from each other as marginal costing
is based on reliving one segment for other one or can say that based on differences but
absorption costing includes every material at the time of preparing income statement (Koh and
Tan, 2011).
Waitrose wants to identify their cost of products and ascertain their profit or loss. For this
relation they are going to use marginal and absorption costing techniques for measuring job
costing and process costing scenarios and impact on business operations.
Absorption costing: An organisation have to take in account all of their indirect as well as direct
expenses. This enable a business firm in calculating the actual cost of their products which really
incur after estimating all expenses at once. This cost is stated as absorption costing which stated
that incurred cost get determine by recovering all expenses through selling of goods and services.
Absorption costing for Quarter 1:
Particulars Amount (in £)
Sales 6600
Less: Cost of sales
Opening inventory
production cost (78000*0.85) 66300
Closing stock (12000*0.85) 10200
7650
Gross profit -10500
Less: Fixed & selling expenses 520
Net profit -1570
Absorption costing for Quarter 2:
Particulars
Sales 74000
Less: Cost of sales
Opening inventory (12000*0.85) 10200
production cost (66000*0.85) 56100
Closing stock (4000*0.85) 3400
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69700
Gross profit -4300
Less: Fixed & selling expenses -5200
Net profit -9500
Interpretation: On the basis of absorption costing which aid in identifying the profit and loss of
a company during their production or selling of goods s negative. As Wiatrose is suffering from
heavy loss during both the quarters. As it includes overall expenses of a company which used to
incur at the time of production.
Marginal costing: Every product or goods manufacturing, variability taking place. Variable cost
are charged to full unit cost and fixed cost of the production will lead to get written off.
Sometimes variability of goods and services affect their quality and chances of increase in cost
are so high.
Marginal costing for Quarter 1:
Quarter-1
Particulars Amount (in £)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Closing stock (12000*0.85) 10200
60900
Gross profit 5100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit -16100
Marginal costing for Quarter 2:
Quarter- 2
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Particulars Amount (in £)
Sales 74000
Less: Cost of sales
Opening inventory (12000*0.85) 10200
production cost (66000*0.65) 42900
Closing stock (4000*0.85) 3400
56500
Gross profit 17500
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit -3700
Interpretation: Fluctuation in cost of production is not appropriate for business context. Thus,
this was the major reason behind loss of Waitrose by calculating marginal costing. It does not
include overall direct and indirect cost of goods and services but variations which present into it
affect business.
TASK 2
P4 Budgetary control and use of different planning tool
Plan is define as the process which is used by many firms in operating whole work in an
adequate manner (Liao, Chu and Hsiao, 2012). It is an essential duty of managers to prepare an
action plan and work on that in an appropriate manner. Planning process during every business
project increase chances of its efficiency and effective output. Not only this but performance also
get enhance by this procedure. Management accounting support in reframe plan and strategies
according to time scale so that modifications will enhance the growth and development.
A major thing which is related with business their earning and expenditure. Hence,
appropriate and suitable decisions have to be carried down by preparing budget for all expenses
and earning of business. This also aid in control cost and maintain proper expenditure of
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business. Budget is define as the process which is helpful in estimating in advance what will
going to be happen in near future course of time (Laudon and Laudon, 2016).
Budgetary control is a process which signifies the ability of managers for using the
budget properly and control cost which is associated with project. It is an process which get done
by managers to compare their actual result with estimated one and alter performance according
to requirement.
Nero limited is a funding organisation which support many small business firms at the
time of requirement of money. They usually arrange fund through investing in many big projects
and gain appropriate return from that. Hence, they have to use budgetary control process to
analyse that all of their fund is investing in right direction or not. There are three essential
planning tools are determine for an organisation which are:
 Cash budget
 Capital expenditure
 Target cost pricing
 Market led pricing
These planning tools have several number of advantages and disadvantages which have to take in
account by managers and use them properly. Along with this, managers become able to control
all unnecessary cost of products and maintain good environment as well.
Cash Budget Definition Advantages Limitations
It is an estimation of
cash inflow and
outflow of a company
for operating a specific
business plan. Along
with this, it also
support in determine
that company have
sufficient cash or not
for operating all of
their projects properly.
Provide an overview
that company have
sufficient cash or not
for meeting their
regular obligations.
Organisation who used
to maintain sufficient
cash have to calculate
their cash coverage
ratio for better
operations.
Advance estimation
for overall expenses
make hard to operate
business in an
appropriate manner.
Thus this is one of the
limitation for cash
budget which estimate
whole year expenses
in advance.
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Cash budget is helpful
in boosting
profitability of
business by
maximising their
credit sales.
Credit sales might be
not appropriate for
business as most of the
time it get identify that
many debtors will not
pay their obligations
on time.
Give detail description
about where the cash
is going or from where
it is earn. Along with
this, control over
expenses by cash for a
specific period of time.
Sometimes few project
require more and more
cash. Cash budget
restrict over usage of
cash for such projects
which require it more.
Capital Expenditure
budget
Money spent by an
organisation to acquire
and maintain fixed
asset and increase
future investment of a
company are consider
as capital expenditure
budget.
It enable an
organisation to invest
in future projects
which have capability
to invest more in
projects.
Large and big projects
investment can not be
reverse in minimum
time period. As
chances of failure is
high.
Ascertain risk which is
related with project for
choosing the right
project.
One wrong decision
will directly push
business around 5 -10
years back.
P5 Use of management accounting in response to financial problems
Financial problems in business arise due to lack of generation of profit and produce low
quality goods and services by management. Thus, management have to take some frequent steps
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through which they can easily respond to these financial problems and make their business
operations appropriate and adequate in nature (Petty and et. al., 2015).
Management accounting facilitate such decisions which are based on short term provision
of a company and appropriate steps have to take against them. Thus, by evaluating all things on
right time in appropriate format will directly increase chances to deal with them properly (Stair
and et. al., 2011).
Nero limited have a project in which they can invest 10,00,000 and gain a return of 15%
every year. But as present it get analyse that, company do not have sufficient cash for investment
and this is a major financial problem for a company. For this scenario, company managers have
to analyse the major reason behind this thing and work on them. By analysing all facts and
figures, management determine a major thing from their books and statement which:
 Their profitability level get decline by 10% as compared to last few years. This become a
major reason behind their inability to perform all the things properly.
 Another factor which increase their inability is productivity. From last 2 years,
organisation only provide fund to 50 – 60 which is low as compared to other years.
Thus, this signifies that their services are not render in an appropriate manner or might be their
resources are wasting. Hence, for dealing these two things, Nero limited have to use appropriate
tools and techniques to minimise financial inability and promote growth and development.
Moreover, by using corrective measure, organisation become able to sustain at market and gain
success again within next few years. For this perspective, two major techniques get determine
which are:
1. Key performance indicator
2. Budgetary targeting
By using these two approaches, management become able to deal with ever sort of threat and
risk for their firm. By using KPI, managers can identify such factors or elements which are
helpful in long term context (Roy and et. al., 2011). As they have to analyse past few years
record for this. Along with this, by preparing budgetary control or measure, Nero limited become
able to utilise all resources in an appropriate manner. But all these things will not stop here and
company have to prepare an action plan which is helpful in operating all things properly and in a
systematic manner.
 Identification of proper cause is essential. This is a first step of action plan.
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 Use suitable tools and techniques to deal with such problems and issues. This is another
major thing which have to work on by managers.
 Implement the things into business according to step by step.
 Use all resources in an appropriate manner which is essential task for managers and
leaders as well.
Managers and leaders have to work and take all these steps in account so that proper working get
done. Nero limited can rid out from this thing by using adequate steps for their betterment and
future context. If they get failed in operating either of the step properly then such situation will
not get improved.
CONCLUSION
It get concluded from above report that managerial accounting is a helpful concept in
business scenario. It enable an entity to avoid all misdoing and promote strength to an
organisation. For this relation, various management accounting system get determine which are
essential to deal with many problems. On the basis of accounting reporting, management can
control their expenses and investment get done at right place at right time. By using marginal and
absorption costing approaches, net profit or net loss by every production activity get enlisted as
well. For performing all things in right direction, various planning tools can be used by a firm
and their advantages and disadvantages also get determine which have to take in account by
managers of a company. Although proper steps have to be carried down for responding to
various financial problems of a business.
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REFERENCES
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capacity in strategic use of business intelligence to support integrated management
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Flamholtz, E. G., 2012. Human resource accounting: Advances in concepts, methods and
applications. Springer Science & Business Media.
Granlund, M., 2011. Extending AIS research to management accounting and control issues: A
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What is A Management Accounting System?. 2017. [Online]. Available through
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[Accessed on 28th August 2017].
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