Management Accounting: Systems, Benefits, and Reporting

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
Explaining management accounting systems along with its benefits of different systems.........3
Presenting methods used for managerial reporting aspects.........................................................4
Critically evaluating how management accounting systems and reporting is integrated within
organizational process.................................................................................................................5
LO2..................................................................................................................................................6
Computation of net profit by employing absorption and marginal costing.................................6
LO3..................................................................................................................................................9
Explaining the advantages and disadvantages of different planning tools used in budgetary
control..........................................................................................................................................9
Analyzing the usage and application of different planning tools used in budgetary control....11
Exhibits the manner in which financial problems can be responded.........................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting emphasizes on analysing business cost and operations with the
motive to prepare appropriate financial reports. In the recent times, business unit lays high level
of emphasis on undertaking management accounting tools with the motive to manage internal
financial operations effectually. By undertaking MA tools firm can develop competent strategic
and policy framework for the upcoming time period. This report is based on the case scenario of
KEF Ltd which is involved in UK manufacturing sector. In this, report will provide deeper
insight about management accounting tools and techniques that can be undertaken by KEF Ltd.
Further, it also presents how managerial reporting can be used for the purpose of decision
making. Report will develop understanding about how absorption and marginal costing system
can be used for analysing profitability aspects. It also entails how MA tools can be employed for
the purpose of planning and budgetary control. Besides this, it will shed light on the manner in
which monetary problems can be responded using management accounting tools.
LO1
Explaining management accounting systems along with its benefits of different systems
Management accounting (MA) can be defined as a technique or a process which is used
by organisations in order to facilitate their business in the aspect of recording the transactions
that are taking place and the other activities that facilitate the operational activities in an
organisation (Agrawal and Cooper, 2017). Management accounting helps the accountants,
mangers and other financiers working in a business in ascertaining the costs that are incurred or
will be incurred in the business by using various tools and techniques and further, management
accounting also assists in controlling or minimising such costs that are pre-determined so that
unnecessary expenditure can be avoided.
Purpose of MA
 It helps in doing planning about future with regards to setting budget that contributes in
cost reduction and profit maximization.
 MA also provides high level of assistance in identifying gaps that take place in existing
performance and thereby helps in taking appropriate actions for improvement.

 In addition to this, the main motive of MA is to ensure liaison between personnel and
higher management team. Moreover, MA focuses on providing employees with optimal
solution regarding problems assessed.
Difference between financial and management accounting
Basis of difference Management accounting Financial accounting
Meaning It assists management team in
making effectual decision
about business.
This field of accounting
emphasizes on classifying,
analysing, recording and
summarizing monetary affairs
of the company.
Scope Wide Narrow in comparison to
management accounting
Measures Focuses on analysing both
qualitative and quantitative
data set.
Presents aspects pertaining to
quantitative facts and figures.
Basis of decision making MA takes input from financial
accounting with the motive to
take appropriate decisions.
Historic information is
considered as basis for the
purpose of decision making.
There are different types of tools through which management accounting system can be
adopted in an organisation and in KEF, each management accounting system has its own benefits
that can be listed out in following manner:
Inventory Management System: The inventory management system is implemented in a
business so that the stock level i.e. the inventory of a company can be maintained. It keeps tracks
of the inventory that is purchased and consumed along with the inventory that is in stock i.e. the
consumed stock and the remaining stock (Eldenburg, Krishnan and Krishnan, 2017). All these
techniques helps in ensuring that there is no excess or shortage of the inventory and it is
maintained in the right quantity so that it does not block funds unnecessarily as well. There are a

variety of techniques that can be used such as FIFO (First In First Out), LIFO (Last In First Out),
EOQ (Economic Order quantity) etc. LIFO deals with the earliest of consumption of the latest
stock that is in the warehouse and FIFO uses the older stock first and then the latest one. EOQ on
the other hand deduces a reorder level or point at which a particular quantity of goods should be
reordered so that the production of the company can keep running. For KEF, the best strategy
would be EOQ method since it ensures that the funds i.e. the working capital of the company
does not gets blocked unnecessarily and the stock is made available at all times.
Advantages Disadvantages
 Ensures uninterrupted production
activities
 It also helps in reducing storage as well
as ordering cost and thereby increases
profitability
 For dealing with inventory
management systems business unit
needs to conduct training session. This
in turn imposes cost in front of the
company.
 Time consuming process
Cost Accounting System: This technique of cost management helps the management in
ascertaining the cost that will be incurred on order to manufacture a particular product and also
determines whether it will be profitable or not to manufacture this product (Lopez-Valeiras,
Gomez-Conde and Naranjo-Gil, 2015).
Advantages Disadvantages
 Helps in avoiding wastage, losses and
inefficiencies
 Assists in identifying reason related to
profit or loss generated
 Ensures cost reduction and profit
maximization
 This accounting system leads problem
related to under or over absorption
 Time consuming exercise as it requires
maintenance of many costing records

Job costing: There are many techniques under cost accounting system such as job costing
or process costing or standard costing. Job Costing helps in determining the cost that will be
incurred in the manufacturing or completion of a particular task or job rather than of the entire
company. Similarly, standard costing is used to set up a benchmark or standard of the estimated
cost and process costing helps in determining the cost of the entire process and activities
involved in the manufacturing process. For KEF, the best strategy would be adopt all costing
systems so that they can be used effectively in different areas.
Advantages Disadvantages
 Assists in ascertaining profitability
associated with each job
 Offers basis for estimating cost of
similar jobs
 Expensive because more clerical work
required
 Due to having more clerical changes
pertaining to error occurrence is also
high.
Price optimisation system: This MA system is highly significant which in turn provides
high level assistance in identifying the extent to which demand varies at different price level.
Hence, by using such system firm can assess prices which helps in improving profit to a great
extent.
Advantages Disadvantages
 Facilitates setting of appropriate
pricing framework
 Enables firm to enhance customer base
by providing products or services to the
customers at a suitable prices.
 Expensive software
 In the absence of having skilled
personnel firm would not become able
to take appropriate decision using price
optimization system.