Management Accounting Systems and Planning Tools for Budgetary Control

This document provides an explanation of management accounting systems and different types of planning tools used for budgetary control. It discusses the benefits and drawbacks of each tool and explores their application in the case of Creams Limited. The document also includes income statements using marginal and absorption costing, as well as the application of management accounting techniques and the production of financial reporting documents.

Management Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
P1 Explanation of management accounting systems...................................................................1
P2 Explanation of different types of management accounting reporting system........................1
M1 Evaluation of the benefits of management accounting systems...........................................1
D1 Integration of managed accounting system and....................................................................1
TASK2.............................................................................................................................................1
P3Income statement using marginal and absorption costing.......................................................1
M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents.....................................................................................................1
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities.......................................................................................................................................1
TASK 3............................................................................................................................................1
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control..........................................................................................................................................1
M3 Use of different planning tools and their application............................................................1
TASK 4............................................................................................................................................1
P5 Uses of management accounting system to solve financial problem.....................................1
M4 Analyses how, in responding to financial problems, management accounting can lead
organisations to sustainable success............................................................................................1
D3Evaluate how planning tools use for solve financial problem................................................1
CONCLUSION................................................................................................................................1

REFRENCES...................................................................................................................................3

INTRODUCTION
Management accounting is a technique use by managers to present accounting
information in a systematic way to run day to day operation of an undertaking. It included
various systems, techniques, tools through which business organization maximise their profits
and minimize losses. Management accounting also known as management oriented accounting
and accounting for management in order to understand this concept briefly Creams Limited has
been taken which provides various flavours of ice cream, and food products to the customers. In
this report uses of various managerial accounting system for recording of information related to
manufacturing process has been determine. This report also included uses of planning and
managerial reports for identifying problems and issues suffer by organization and how these
tools are help in overcome problems and help in maintain strong position of an organization
within the economy has been clearly described.
TASK1
P1 Explanation of management accounting systems
Management accounting: It is a process of collecting accounting information in a way
which helps in taking decision and formulating plans for future business operations. In
other words management accounting is a technique in which financial information present
by manager for taking necessary decision. Managers of Creams Limited various
accounting managerial systems for their organization which are mention below:
Job Coasting System: This system is used to determine cost of each process of manufacturing,
this type of system mainly used for manufacturing organization where organization produced
product according to the special demand of to customers, for example supports car company etc.
Managers of Creams Limited used to determine each order cost, is started with received inquiry
from customer and run a systematic process which include estimation of job cost, receiving the
order production order, record cost and provide goods to customer when job are finished. This
system is used for identification of cost and manage the risk of uncertainty (Maas, Schaltegger
and Crutzen, 2016).
Price optimising System: It is a tool used by Managers of Creams Limited to determine price of
the products through which company can earn maximum profits. For these purpose managers
select different pricing strategies at various level f product life cycle which help in maintain
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customers in the competitive market. Managers of Creams Limited can adopt, price penetration,
discount pricing, skimming, cost plus pricing strategies, they chooses the price after calculation
of all the cost and indentifying market price of the product they decide the price which satisfies
customers and company also gain benefits by selling tier products in market economy. Price
optimization system is used for maintain position if company in market.
Cost accounting system: This system includes various types of cost calculation mechanism
through which managers can calculate cost incurred during the manufacturing process. Job
costing, process costing standard costing and marginal costing are part of this system. By using
these tools Managers of Creams Limited can recognize cost incurred during each stage of
product life cycle from purchasing raw material to converting it into fished goods to expenses
incurred in distributing and promotion of product, it will help in calculating profits. Every
organization impairment cost managerial accounting system within their organization to
maximize profits and minimize cost.
Inventory Management System: Managers of Creams Limited uses stock, raw materials for
converting and producing their product in order to manage each item of stock, inventory system
has been developed. In management accounting different kinds of techniques , tools and methods
are used through which manager can recognize their inventory’s maximum level, minimum level
danger level, they have idea when they need to give order to purchase raw martial and when they
supply their products, all these things are consider inventory management system. EOQ, VED
and ABC analysis techniques are uses for calculating inventory level and help in minimizing cost
incurred in maintain the stocks and wastage activites and items which incurred extra expenses to
the business organization (Chenhall and Moers,2015).
P2 Explanation of different types of management accounting reporting system
Reports are used for summarising all the details of activities during the meeting session.
Following are the reports can manager of Creams limited use for their organization:
Budgeting report: This report is prepared for determining future activities of the organization.
Budget reports are formulated by using information of various budgets, production, financial,
purchasing, expense and master budget. This budget is uses for manager to determine
profitability percentage from various activites and formulates strategies regarding future.
Manager of Creams limited use it for analysing income and expenses of their business activites.
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Account receivable report: This report is formulated by business organization to determine
performance of their account receivable. Main reason of preparation of account receivable report
is to analysis number of default debtor present for a fix time period. It will help in identifying
reason of slow collection rate of the company and causes company’s debtor unable to pay their
debt liability towards the company. By identifying all the causes the manager used to formulate
rigid strategies towards their debtor so that they can easily pay due amount to the organization,
they also used it to identify their potential debtor so that they can provides special discount,
offers and provides special scheme benefits to their customers. This report is prepared to control
and manage turnover of debtors,
Cost management accounting report: Managers used to formulate this report to determine and
evaluate cost incurred of products This report is made by collecting information from all the cost
technique, by using data from this report managers can reduce cost incurred during
manufacturing process and it will help in proper utilization of each resources of the organization.
Manager of Creams limited will be used this report for team as proof of document which help in
providing reliable information and managing costing of each departments (Rikhardsson, 2017).
Performance report: This is one of the most essential report prepared by manager. It will help in
recognizing overall performance of the business organization for a particular time period. It will
consider all the department performance manager identify performance by recognizing
difference between standard target and achieved target. It will help in analysing the core area
which needed to changes and it will also help in analysing performance and skills of workforce
of the organization by using this report manager of Creams limited can identified their skilled
labours and employers and provides them incentive and bonus on the basis of their work
performance. This report is used for providing necessary information regarding business.
M1 Evaluation of the benefits of management accounting systems
Management accounting system are implement for run efficiently all the managerial
functions within the organization. Cost, inventory, job management accounting system can
be used to recognize cost of each items and process and by using theses technique and
tools manager can formulate polices to reduce the cost incurred during theses procedure.
Manager of Creams limited will be implement theses system in order to effectively utilized
their resource and improve efficient and performance of their business organization.
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D1 Integration of managed accounting system and
Management accounting system and managerial reports both play essential part for
marinating position of the organization in the competitive environment. For this purpose
integration of system and report are necessary, as management report are formulated on the
basis of information collected from the managerial accounting system, and by suing report
data manager of creams limited formulates plans and strategies through which they can
made effective strategies to run day to day activites.
TASK2
P3Income statement using marginal and absorption costing
Marginal costing: It is the process of identifying cost of marginal or extra unite used by
business organization. This costing system also used for identifying total variable cost
incurred during the production process thus it also known’s variable costing method as it
does not consider fixed cost (Rikhardsson, 2017).
Income Statement of Creams Limited (Marginal costing)
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Interpretation: From the above calculation it has been observed that if manager can used
variable costing system that they can generate 4700 net profit in January and 16100 profit
in te month of February.
Absorption costing: It is a method of sharing overheads between a number of different or
services on fair basis. It follow a systematic procedure which includes, allocation,
apportionment, absorption.
Income Statement of Creams Limited (Absorption costing)
: From the above calculation it has been analysis that if the manager uses absorption costing
method then they can generate 50000 profits in the month of January and February.
Standard costing: It is a system of accounting based on to cost and revenue per unit
which used as a benchmark to assess actual performance and therefore provide useful to
predetermine feedback inform management (Pavlatos, and Kostakis, 2015).
Material Variance:
 Formula of Material cost variance: Standard material cost – Actual material cost
 Standard quantity * Standard Price – Actual quantity – Actual Price
 Material Price Variance: Actual Quantity (Standard Price – Actual Price)
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 Material Price Variance: 1100 (F)
 Material Usage Variance: Standard Price (Standard quantity – Actual quantity)
 Material Usage Variance: 2000 (A)
 Material cost variance: 2000 – 1100 = 900(A)
Labour Variance:
 Labour Efficiency Variance: (Standard hours – Actual hours) *Standard rate (Carlsson-
Wall, Kraus and Lind, 2015).
 Labour Efficiency Variance: 500 (A)
 Labour rate variance: Actual time (Standard rate – Actual rate)
 Labour rate variance: 680 (A)
 Labour cost variance: Standard cost – Actual cost
 Labour cost variance: -500-680: 1180 (A)

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
M2 Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents
Management accounting techniques are used for provides benefits to the business
organization. Marginal costing, absorption costing, and standard costing are used by
managers for determining cost and identifying gape between actual and target cost.
Manager of Creams limited use these technique to identify profit of various time period.
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities
Financial reports are used to interpret data through which manager can recognized financial
performance of their organization within a fixed time period it will also use for determine
relationship of profit with various factors of income statement. Manager of Creams limited
will be used this technique to represent their data for internal as well as external use
TASK 3
P4 Advantages and disadvantages of different types of planning tools used for budgetary control
Zero Base Budgets: This method is used by manager when they established new venture, as in
this method of budgeting budgets prepare from initial level.
Advantage:
It help in provides accurate information.
This method is useful in risk management process
Disadvantage
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It takes time for researching from ground level.
It does not apply for every business organization.
Rolling Budget: In this type of budgeting method small budgets prepared for fixed duration of
time on continuous basis ( Bobryshev and en.at. 2015).
Advantage
It will useful for managers of Creams Limited r providing reliable data regarding future.
Chance of errors and difference of standard and achieved target is low as compare to other
methods
Disadvantage
It is very complex process.
Employers get de motivate to apply this method
Activity Base Budget: It is most useful method, in this method budgets are formulated on the
basis of allocation of each cost to the activites
Advantage
It will help Managers of Creams Limited in minimizing cost of activites.
By using this method companies utilize their resource in a proper way.
Disadvantage
It is expensive method.
It tae accounting skills to understand allocation process of budget.
Price strategy: This method is used o identify price of product to control the business activites.
Various pricing strategies are used for this process
Advantage
It will help Managers of Creams Limited in determination of price
This tool help in maximizing profitability ratio
Disadvantage
Price cannot be stable it is fluctuate with changes of customers demand
It requires deep market research for determination of pricing strategy which suit on organization.
Cost system: Various managerial tools used for identification of cost by using costing system, it
included, management, standard, job, process, inventory costing.
Advantage
It will help in identifying actual cost incurred in production process.
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This system is help Managers of Creams Limited control wastage activites of cost by recognizing
them.
Disadvantage
It is not necessary that this tool provides accurate information
It require skilled employers to use cost accounting tools
M3 Use of different planning tools and their application
Various budgetary control tools are utilize by business organizations in order to run their
business activites on continuous basis. Pricing strategies are use to determine price and
control the cost incurred during various transaction also, various budgetary method
evaluate performance as well as these method are implemented to help in decision making
process used by manager of Cream limited (Quinn and Jackson, 2014).
TASK 4
P5 Uses of management accounting system to solve financial problem
In today’s dynamic world, organizations faces high competition in every sector of market,
due to these issues organizations suffers from many problems in order to maintain sustainability
within the market area. It will lead budgetary insufficiency due to these enterprises face issues, at
present time Creams limited is suffer from financial problem because of following reasons:
Errors in accounting records: It is the main reason of Creams limited suffering from problem of
finance. They did not accurate record accounting data, sales, purchase and other information of
day to day transaction. Due to lack of accounting skills they cannot recognize which transaction
entry recorded on the basis of accounting standard.
Inadequate protection of financial assets: Manager of Creams limited unable to protect their
assets and they did not invest their money in portfolio due to lack of this skills they suffers from
high risk of interest and they did not get back within amount of money thus they faced financial
problem.
Benchmarking: This technique is used for compare performance of an organization with
standard benchmark standard. Manager of Cream limited can overcome their problem of errors
of accounting information if they set target to their employers so in order to get incentive they
fulfil their target and doing their work and record each and every transaction in an effective way
which help in reduces errors arises in recording problem
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Key performance indicator- This indicator is used also used for performance evaluation
method it will used to increase performance of the company. Manager of Cream limited use this
technique in order to increase their target of sales, revenue and profit to overcome financial
problem and increase cash inflow activity
Financial governance: This is a strategy which used by manager in tracking all the
functions and activites of business organization. Financial governance is used for running
business activites in a ethical way and proper systematic way through which company can
follow accounting standard rules it will help in managing all the way and reduced chances
of errors and unethical activity run within the organization place (Malmmose, 2015).
Basis of
difference
Creams Ltd Royal Cafe
Monetary issue Manager of Creams limited can
identify the problems and main causes
of their firm suffer from monetary
issue. They use financial governance
policy.
The organization cannot found out the
way effectively utilized their financial
assets to seen more profits thus they
faces monetary issue. they use
benchmarking.
Techniques to
solve issues
Business organization will uses
benchmarking method to increase the
performance of their workforce and it
will also useful for solving all the
technique issues.
Manager of Royal Cafe can used
various managerial accounting
technique to solve their issue for this
they will use methods of capital
budgeting it will help in managing
and investing in correct assets to
maximize profit return
M4 Analyses how, in responding to financial problems, management accounting can lead
organisations to sustainable success.
Management accounting is used for managing all the business activites in a systematic
manner ,by applying in venture, costing, pricing system, and marginal as well as their
costing technique and budgetary control mechanism manager of Creams limited can easily
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solve their problem and enhance capabilities of their works as well as they can formulate
strategies to gain competitive advantage within the market (McLaren, Appleyard and
Mitchell, 2016).
D3Evaluate how planning tools use for solve financial problem
Manager of Creams limited can be used managerial planning tools to recognize reason of
firm suffers from financial problems, after identification of causes with the uses of various
costing techniques and performance evaluation they can overcome the problem.
CONCLUSION
From the above analysis it has been concluded that management accounting has been played
an essential part in this multifaceted world regarding management filed. Various systems of
this accounting technique used to guide and advice the decision makers of business
organization. With the uses of budgetary, cost, performance managerial report, organization
not only increases efficiency of their departments although it will increase human resource
efficiency and skills of works. With costing and marginal technique, managers can evaluate
cost and it will help in risk management of the company. This system is adopted by
organization which have passion to run their business successfully for generation, with the
use of tools of management accounting, manager can easily identified the causes of
problems arise within the workplace and they formulated polices through which they can
resolve financial problems by using benchmarking, financial governance policies in order
to continue their business operations
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From books and journal
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