Management Accounting Techniques and Systems

The report provides a comprehensive overview of management accounting techniques and systems, highlighting their significance in managing liquidity and achieving profits. It covers different types of management accounting reporting, cost analysis techniques, and budgetary control. The report also discusses the use of management accounting systems such as benchmarking and key performance indicators, providing examples from various research studies. Overall, the report emphasizes the importance of management accounting in solving financial problems.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 Requirement of management accounting system...................................................................1
P2 Various types of methods used in management accounting reporting...................................2
LO 2.................................................................................................................................................2
P3 Calculations............................................................................................................................2
LO 3.................................................................................................................................................3
P4 Advantages and disadvantages of planning tools used for budgetary control........................3
LO 4.................................................................................................................................................4
P5 Comparing the management accounting systems in responding to the financial problems...4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Management accounting is a process that use by management of organization. Financial
reports and books are evaluated by managers and make decision for improve and develop
strategies that helps in increase profit and sales of organization for achieve target and meet
objective (Rababa'h, 2014). Mangers prepare statement according to financial accounts because
it includes price, cost and profit so that helps in make strategies and making decision. This report
will be cover requirement of management accounting systems, methods of reporting, techniques
of cost analysis, advantage and disadvantage of planing tools.
LO 1
P1 Requirement of management accounting system.
Management accounting is play vital role in organization that helps in making decision
because through this it evaluates and analyze all records and data than set goals according to
performance of organization. It uses by managers for make plan as well.
Cost accounting system :- it is a type of accounting that includes all cost because through this it
compares actual cost and required cost of organization. So management make budget and
analyze all records of cost accounting of past and present year and make plan and budget for
future. It includes budget, standard cost and actual cost and it also evaluates costs of all
departments for evaluate gap in cost and revenue. After analyze it invests money and expand
business.
Benefits:
 It improves the cost control system of the company.
 Adoption of this system results in reduction of wast6age of financial resources within the
business.
Inventory management system :- this system keep all records about inventory of organization
that means includes all record and quantity of inventory from production to warehouse and from
warehouse to customers. It also includes inventory that keep in work in progress. This system is
useful and important for manufacturing organization for evaluate and analyze about all
information of order, sales and deliveries of goods.
Benefits:
 It helps in improving the ability of managers in monitoring the overall movement of
inventory.
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 With the help of effective inventory system, the managers can improve the efficiency of
business in utilization of stock.
Job costing system :- this system use by manufacturing organization that produce products
according to demand and order from customers so that thing helps calculate cost of products
individually (Ismail, Ramli and Darus, 2014). This system helpful in organization that it produce
more products according to take different types of order so that consume more cost in different
way and system keep all record that management evaluate and calculate all cost and revenue.
Benefits:
 Adoption of job costing system helps in determining the effective price of the company's
product.
 It is useful for those businesses that produces the customised products.
Benefits of management accounting :-
This accounting is very beneficial for organization because it measures actual
performance of all departments (Oboh and Ajibolade, 2017). It helps in compare actual budget
with required budget. So manager of organization easily take decision after evaluation and
analyze of data and reports. This accounting is very important and beneficial for organization.
Management accounting system and reporting integrate with organization:-
Management accounting system is a process that control all activities and manage
through evaluate of data and profit for make decision. Through this system it makes strategy for
earn profit and met objective very effectively. All records are compare for make decision and
make plan for short and long term. Management accounting reports helps in measure actual
performance of organization and compare require budget and available budget. It consumes more
cost and time. It evaluates and calculate profit on per product according to labor and material and
other expenses.
Difference between management and financial accounting:-
Management accounting Financial accounting
Legal requirement This account is not important and
requirement of organization as legal.
This account is mandatory for all
organization.
Area of coverage Internal part only includes in this
account of organization.
All external parts are includes in
this account.
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Types of data use Both types of data use in this account
like qualitative and quantitative
It only use qualitative data.
Objects It helps in decision making and
policy formation
It includes all records and profit and
loss condition of organization.
Critical evaluation of management accounting system and management accounting
reporting
By analysing the management accounting system and management accounting reporting,
it can be evaluated that if a business adopts management accounting system and management
accounting reporting within the business, it would help in improving the monitoring and
controlling system of the business. As it helps in providing each information of the company in
detail through which the managers can develop more effective strategies and plans for the
business.
although, adoption of these systems increases the cost of business, but through the
effective plans, managers can improve help in recover the cost and improve the overall
profitability of Easy Seat Ltd
P2 Various types of methods used in management accounting reporting
The management accounting reports are the crucial documents which shows the complete
picture that how the company is performing. These reports are very critical in measuring and
assessing the performance of the company. There are many types of management accounting
reports made and used by the management accountants. Some of these reports are discussed
below -
Budget reports - these reports are very crucial and fundamental in management accounting and
also a critical part in measuring the performance of the company. This report helps the owner in
understanding the cost and controlling the cost so that the cost can be minimized and profits can
be increased.
Performance report - these reports are created in order to review the performance of the
company and all the employees for a particular point of time. These performance reports are used
by the managers in taking the key strategic decisions and it also helps the management in
keeping an eye over the performance of the employees and to improve their performance to
increase the overall productivity of the company (Bedford and Speklé, 2018).
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LO 2
P 3 Calculations
Under marginal costing
Cost per unit
Direct Material ($7*4) 28
Direct Labor ($6*3) 18
Variable O/H 3
Marginal cost per unit 49
Selling price 140
-Marginal cost per unit -49
-variable selling price -28
Contribution per unit 63
6 months ending
31st December
2018
Sales (7000*140) 980000
Cost of sales:
Opening inventory 0
Material (8500*28) 238000
Labor (8500*18) 153000
Variable O /h (8500*3) 25500
416500
-Closing inventory (1500*49) -73500
-343000
637000
-Variable selling cost -196000
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Contribution 441000
-Fixed costs -90000
Actual Net profit/(Net Loss) 351000
6 months ending
30th June 2019
Sales (8000*140) 1120000
Cost of sales:
Opening inventory (1500*49) 73500
Material (7000*28) 196000
Labor (7000*18) 126000
Variable O /h (7000*3) 21000
416500
-Closing inventory (500*49) -24500
-392000
728000
-Variable selling cost -224000
Contribution 504000
-Fixed costs -90000
Actual Net profit/(Net Loss) 414000
Under Absorption Costing
Cost per unit
Direct Material ($7*4) 28
Direct Labor ($6*3) 18
Variable O/H 3
Fixed O/h 11.25
Absorption cost per unit 60.25
6 months ending
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31st December
2018
sales (7000*140) 980000
Cost of sales:
Opening inventory 0
Material (8500*28) 238000
Labor (8500*18) 153000
Fixed O /h 90000
Variable O/H (8500*3) 25500
506500
-Closing inventory (1500*60.25) -90375
-416125
Gross Profit/Loss 563875
-Variable selling cost -196000
Actual Net profit/(Net Loss) 367875
6 months ending
30th June 2019
Sales (8000*140) 1120000
Cost of sales:
Opening inventory (1500*60.25) 90375
Material (7000*28) 196000
Labor (7000*18) 126000
Fixed O /h 90000
Variable O/H (7000*3) 21000
523375
-Closing inventory (500*60.25) -30125
-493250
Gross Profit/Loss 626750
-Variable selling cost -224000
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Actual Net profit/(Net Loss) 402750
Difference between marginal and absorption costing
6 months ending
31st December
2018
6 months ending
30th June 2019
Profit as per marginal costing 351000 414000
+Over absorption of fixed cost 16875
-Under absorption of fixed cost -11250
367875 402750
LO 3
P 4 Advantages and disadvantages of planning tools used for budgetary control
The budgetary control is defined as the way or the process of determining and comparing
the actual results with the standard results of the company set by the accountant and taking
corrective actions and measures if the deviation is more between the actual and the standards.
The budgetary control is a continuous process which helps the business enterprises in doing
proper planning and controlling and coordinating (Armitage, Webb and Glynn, 2016). It uses
many planning tools like zero based budgeting, fixed budgeting, flexible budgeting and many
more.
Zero based budgeting
The zero bases budgeting is budgeting method which includes all expenses should be
justifies in a new period. This process is begins from zero base and during the application of this
method of budgeting every function in an organisation like Easy Ltd. is analyzed for their cost as
well as need. After that budget built for need for future period in regardless of each budget is
higher or lower than previous.
Application of Zero based budgeting
it helps Easy ltd in proper planning as it helps the company in staring from a scratch and then do
the work.
Fixed budgeting
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Flexible budgeting is a budget which adjusts with change in activity or volume. The
flexible budget is useful and sophisticated than fixed budgeting. The flexible budget only
includes per unit variable rate. Therefore, for companies like Easy Ltd. , fixed budgeting is more
useful tool in order to measure efficiency of managers.
Advantages
The major advantages of the budgetary control and the various planning tools are as follows -
 The major advantage of budgetary control and its planning tools is that it aims at
maximization of the profits of the company such as Easy Ltd. By doing proper planning
of the cost and the expenses the Easy Ltd can aim at increasing the profits.
 The use of budgets and other planning tools helps in increasing the coordination between
the different departments of the Easy Ltd. and tries to achieve the budgeted targets.
 Also, these planning tools helps the management in deciding and making the policies,
plans and goals and objectives for the business. The efforts of all the employees are
directed towards the attainment of the goals of the Easy Ltd.
Disadvantages
The disadvantages or the drawbacks of the budgetary control and the planning tools are
discussed in the following points -
 The major disadvantage of using the budgetary control and the planning tools is that the
budgets are prepared for the future period and the future is not fixed or certain in all the
company including Easy Ltd. So due to future uncertainties the budgeted profits and
performance may change.
 Another drawback is that the budgets requires time to time review of all the projections
or assumptions made. The frequent revisions made in the revision of the budgets involves
huge expenditure of Easy Ltd.
 The budgetary control and the application of the various planning tools may also develop
some problem of coordination among the different departments of the company Easy Ltd.
This is so because the performance of one department is affected by the performance of
the other department (McLaren, Appleyard and Mitchell, 2016).
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LO 4
P5 Comparing the management accounting systems in responding to the financial problems
The management accounting system is an internal system within the organization through
which the company uses the financial and the accounting information and develops the plans and
policies and helps in the process of the decision making by the managers. Financial problems
may be defined as the problems or situation where the money within an organization creates
problem for the company (Nørreklit, 2014). The examples of financial problems are increasing
debt, late bill payments, no loan repayments and many more. There are many types of the
management accounting system which are used by the managers in solving the financial
problems within the organization. Some of these managements' system are discussed below -
Bench marking - it refers to a way or practice through which a company compares its business
performance and the way of working with that of its competitors in the same industry. It is used
as a measuring tool to measure the performance by comparing the company using some common
indicators like production, cost, level of profit and many more. The main aim behind the use of
bench marking is that it helps the company in knowing the internal opportunities and also the
weaknesses because the performance is compared with its competitors. This method helps the
management accounts assistant of the Easy Seat Ltd in solving the financial problems like low
profits, low sales volume and many more. This is possible because by comparing it with
competitors the company comes to know about its sales, profits and cost.
Key performance Indicators - the KPI are a type of performance measurement which aims at
evaluating the success of the company or a particular activity within the organization. The use of
KPI enhances and improves the performance of company and also helps the company in
achieving its objective which in turn helps the company in resolving its financial problem. The
company for solving the financial problems uses cash flow analysis and return on investment
techniques. Cash flow helps in managing liquidity in firm and return on investment benefits the
company in achieving its profits. This becomes possible with adoption of management
accounting system.
CONCLUSION
The management accounting is a special branch of accounting which deals and helps
management in taking decisions with the help of accounting information as its base. It the
management of company in making of different types of policies and procedures to achieve and
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accomplish the objectives of business. The report concluded that use of management accounting
is very helpful and crucial. It described some different types of management accounting
reporting. Also discussed some of the different techniques of cost analysis. Also it outlined some
of the disadvantages and advantages of budgetary control. In the end the report discussed about
some systems of management accounting like bench marking, key performance indicators and
the use of them as how they help in solving financial problems.
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