Management Accounting: Systems, Reports, and Techniques

Management Accounting

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explaining the term management accounting and analysing requirements of selected
management accounting systems.................................................................................................1
P2 Explaining different methods for management accounting reporting....................................3
M1 Advantages of management accounting systems along with their application in IKEA......5
D1 Critical evaluation on the way using which management accounting systems and reporting
are integrated within IKEA’s processes......................................................................................5
TASK 2............................................................................................................................................6
P3 Calculating costs in order to prepare income statements.......................................................6
M2 Range of management accounting techniques......................................................................6
D2 Interpreting data of financial reports.....................................................................................7
TASK 3............................................................................................................................................7
P4 Explaining the advantages and disadvantages of different types of planning tools used for
budgetary control.........................................................................................................................7
M3................................................................................................................................................8
D3................................................................................................................................................9
TASK 4............................................................................................................................................9
P5.................................................................................................................................................9
M4..............................................................................................................................................10
D3..............................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
APPENDIX....................................................................................................................................15

INTRODUCTION
Management accounting is more of a concept than it is a procedure. This concept of MA
states that every organisation must account their operations by using techniques of management
accounting so that operational efficiency can be gained along with financial efficiency (Azudin
and Mansor, 2018). The concept and process of management accounting is different from
financial accounting as MA involves both monetary and non monetary matters into account. The
main aim of developing this report is to successfully pass the second selection stage for interview
in IKEA. Considering this, the report will be developed as aligned with the operations of IKEA.
This company is a private retail manufacturers and sellers of ready to assemble furniture, home
products and more. IKEA has its headquarters in Delft, Netherlands and has its operational stores
in multiple nations including United Kingdom (Overview of IKEA. 2020).
This present report will include critical evaluation of systems under management accounting
along with its benefits. Reports prepared under management accounting will also be analysed
along with its integration in IKEA’s operations. This report will have evaluation of different
planning tools that can be used by organisations like IKEA to prepare their reports and lastly,
this report will have analysis showcasing how MAS and planning tools can be used to respond to
financial problems. For the third stage of IKEA interview, a test will be conducted and the
answers to that test will be attached in APPENDIX.
TASK 1
P1 Explaining the term management accounting and analysing requirements of selected
management accounting systems
The term of management accounting is used for a concept of recording and analysing the
operational and financial information of an organisation which can assist the manager of that
company in decision making (Banerjee, 2012). This concept is a base of developing effective
strategies of future. This concept of management accounting involves a process in which first
reliable and appropriate information is collected and then analysed using management
accounting systems. The concept of management accounting is different from financial
accounting as it is not mandatory for management accounting to develop reports at a certain
period following a specific format. In case of IKEA, this company effectively practices both
management and financial accounting. This company uses various management accounting
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systems as well to ensure operational efficiency and each of such system has an essential
requirement in IKEA. Few management accounting systems along with their requirements are
analysed below:
Inventory management system – This system is a technology which allows an
organisation to maintain effective inventory level in their organisation so that they can use
inventory whenever it is required and also they do not have to face issue of excess stock or in
sufficient stock. The inventory management system is maintained by an organisation using
various algorithms, few of the most common algorithms include FIFO, in which stock which is
admitted first is used first, LIFO, in which stock which has admitted in warehouse last is used
first and more (Botes and Sharma, 2017).
Essential requirement - In case of IKEA, inventory management system plays a major
role in maintaining the holding cost and price levels of the organisation. IKEA use a streamlining
inventory management system in which they build a warehouse holding and storing inventories
in each of the stores of IKEA. The products offer by IKEA are usually the furniture goods that
are bulky to carry to showcase due to which they are showcased by a catalogue in IKEA stores
and when purchased, these goods are delivered from warehouse. This inventory management
system of IKEA is essentially required by this company as this system helps in maintaining the
holding cost and assist in providing speedy and effective delivery of products to the customers
(IKEA supply chain: How does IKEA manage its inventory? 2020).
Job costing system – This management accounting system is a system concerned with the
cost associated in each job performed by an organisation (Drury, 2013). This system of job
costing is performed in a series of steps; first cost of each and every job whether minor or major
is recorded and then at the end of the assessing period, all the costs are divided into various cost
pools which can be depreciation, production, packaging delivery and more. Each cost pool is
then analysed to identify level of cost associated with them in order to control and maintain the
spending of the organisation.
Essential requirement - This management accounting system is required in IKEA as it
helps management of this company to control over the expenses associated with jobs such as
packaging and delivery. IKEA uses technique of cost per touch aligned with this system to
control their expenses.
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Cost accounting system – This management accounting system is a framework that is
used by organisations to estimate the cost involved in their manufactured and sold products. This
valuation cost involves all the cost pools including inventory cost, packaging cost and more. This
system helps in identifying cost incurred in each product of the organisation.
Essential requirement - This accounting system is important for the management of IKEA
as it helps in identifying which products involved most cost and then they can analyse whether
they are worthy to spend a high amount or whether they are capable to earn high profit margin.
IKEA uses this system to calculate the prices of their products and prioritising their product
portfolio of ready to assemble furniture goods.
Price optimisation system – This management system is based on mathematical approach
rather than technical and hardware approach. Using this system, an organisation can fix the price
for each of their products in such way that it can result into high profitability and satisfaction of
their customers (Hiebl and Richter, 2018).
Essential requirement - This system is highly essentially required by IKEA as by using
this, the management of this company set the prices for each of their products in a such a way
that it can result in high profit for IKEA and can also be a product with best value for its price so
that they can even acquire customer satisfaction.
All the above management accounting system are essentially required in IKEA and helps
this company to maintain and control their operational as well as financial efficiency.
P2 Explaining different methods for management accounting reporting
Management accounting reports are the documents which are developed by involving
financial and operational information in such reports so that managers so the organisation can
support their strategies and actions by such reports as an evidence of policy formulation. There
are different reports developed under management accounting and some of them are prepared by
IKEA. These reports acts as methods for management accounting reporting as these reports are
the resources to effectively conduct of reporting process. Some of such methods or reports are
explained below:
Cost accounting report – This method of cost accounting report helps an organisation to
effectively conduct their reporting procedure as this report is developed under cost accounting
system in which all the costs of all the products of an organisation are recorded (Jermias, Gani
and Juliana, 2018). This report includes costs of all the manufactured goods of the company and
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