Management Accounting Systems: A Comprehensive Analysis

This assignment is a comprehensive analysis of management accounting systems, covering their definition, importance, and key components. It includes an overview of relevant research papers and studies on the topic, providing insights into the management accounting system's role in organizational performance, risk management, and sustainability development.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and the essential requirement of various type of management
accounting system..................................................................................................................1
P2 Explain different methods used for management accounting reporting...........................3
M1 benefits of management accounting system and their application in organisation..........4
D1 Evaluation of management accounting system and management accounting reporting.. 5
P3 Cost calculation with the help of absorption and marginal costing techniques................5
D2 Produce financial reports which accurately applied and interpret data for complex business
situation..................................................................................................................................6
TASK 2............................................................................................................................................6
P4 Explain the advantages and disadvantages of various type of planning tools used for
budgetary control....................................................................................................................6
M3 Evaluate the use of various planning tools and their application for making and
forecasting budgets.................................................................................................................9
P5 Evaluate how organisations are adapting management accounting system to respond
financial problems..................................................................................................................9
M4 Analyse how management accounting system helps in responding financial problems for
sustainable success...............................................................................................................10
D3 how planing tools for accounting respond appropriately to solve financial problems to lead
organisation..........................................................................................................................10
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

FROM: MANAGEMENT ACCOUNTANT OFFICER
TO,
GENERAL MANAGER
ZYLLA COMPANY
SUB: INFORMATION ABOUT MANAGEMENT ACCOUNTING SYSTEM
INTRODUCTION
Management accounting is becoming a new aspect which is being used in organisation
now a days in organisational context (Messner, 2016). There are various type of methods and
concepts are considered in management accounting which helps managers and accountants to
control and monitor the actions of organisation. The overall concept of management accounting
system is elaborated in respect of medium size business organisation. ZYLLA company is opted
medium size organisation to demonstrate the dynamics of management accounting system. This
report is prepared to demonstrate an understanding of management accounting system. Wide
range of management accounting techniques used in management accounting system. Use of
planning tools used in management accounting subject to preparing budgets are explained in this
report. Ways are compared that how organisations are adapting management accounting system
to respond financial problems.
TASK 1
P1 Management accounting and the essential requirement of various type of management
accounting system
Managerial accounting is an another form of management accounting which is rapidly
used by managers and accountants for effective management and operation of business.
Management accounting helps to align the organisation's functions in single format in order to
control and monitor the actions and operations of departments (Melnyk and et. al., 2014). This is
the system used at top level management and senior level authorities in order to effective
management and operations. Management accounting rules and concepts helps the managers to
make effective strategies and plans for sustainable success and growth. Being a part of decision
making process it is considered as managerial accounting.
Different definition and explanations are given by IMA which is known as Institute of
Management accountants. As per IMA management accounting is a professional tool which is
used by managers in decision making and strategic planning process. Developing plans,
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performance management, management reporting, financial reporting are some essential tasks
which are used by accountants and finance managers. Managers and accountants become eligible
to prepare and sort out the issues and conflicts remain associated with effective management and
operation (Bennett and James, 2017). With the changing environment of business organisations
enhanced the required of management accounting. Various type of management accounting
systems are used in organisations as per organisational type.
Management Information System (MIS): this is one of the management information
system which is rapidly used by the organisation in responding operation and management
problems. This is one of the computer based and system based accounting system which
produced computer based information which helps managers and accountants to manage and
operate the function and operations of business (Bebbington, Unerman and O'Dwyer, 2014 ). A
summarised information issued by the departmental managers in order to align the process
details in single format. This information basically assist decision making process. It requires
vast knowledge about the basic knowledge of information management and system. Accountants
who operate MIS system retain vast knowledge about the accounting concepts and rules.
Cost accounting system: this accounting system helps the managers to ascertain the cost
of production and managing the organisations departments. It provides a system to record the
transactions and helps accountants to prepare cost reports. In cost reports there is a brief
explanation given by the managers subject to cost incurred at particular department and section.
Cost accounting system contains various cost principles and cost rules such as historical cost,
present value of inventories. Information and reports which are produced under cost accounting
system helps to consolidate all the departmental cost in single format. This system helps to
ascertain the cost of individual product and determine the profit margin.
Inventory management system: this is one of the management information system
which helps the manager to manage the flow of inventory (Lavia, López and Hiebl, 2014). This
system basically used by manufacturing and retail industries. This accounting system helps to
manage the order quantity and analyse the lag in period of finished good. Information and
reports which are produced by inventory management system remain helpful for store managers
and storekeepers. There are various type of raw material stock used by the organisations which
deals in multiple products. This accounting system helps to bifurcate the raw stock as per their
priority and order of use. EOQ, inventory management, Stock valuation are some important
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methods which are used in this management system. It is required to maintain an optimum level
of raw material and raw stocks in stores so that organisation would not face extra carrying cost.
This cost is responsible for increasing the amount of production. Reducing the carrying cost is
one of the prime objective of inventory management system.
Finance management and risk management: this management accounting system
basically used in decision-making process (Klychova, Faskhutdinova and Sadrieva, 2014).
Preparing plans, forecasting future circumstances, determine the opportunities and identify the
risk factors are the main functional areas considered in financial management and risk
management. Financial management and risk management system helps to consolidate the
information and produce summarised reports which remain essential for finance managers and
accountants. With the helps of this management system forecasting and planning process become
more fluent and easy. More over these information helps to find out effective and optimum
investment option.
P2 Explain different methods used for management accounting reporting
Reporting is essential part of management accounting. Accounting reports keep the
management up to date with the operation and function of an organisation. Reports helps to
monitor and record the financial information in summarised way and helps to consolidate all the
relevant information. There are various type of information provided by the managers subject to
organise an effective management structure. There is a individual reports are prepared by the
managers of separate departments. These reports assist the process of decision making. Various
type of reporting tools and methods are used in management accounting reporting.
Budgetary reports: analysing the future aspect in order to grab growth and development
strategies budgets are prepared. Various type of relevant information are required to make
budgets. Budgetary reports are used as a primary tool to form the structure of budgets
(EBRAHIMI and MOGHADASPOUR, 2015). Last year financial statements, income
statements, profit and loss statements are some essential records which are used while preparing
budgetary reports. It is essential to complete the budgetary reports with the helps of changing
trends. Controlling the cost and maximizing the profitability of organisation is main objective of
budgetary reports. Budgetary reports helps to make following budgets such as cash budget,
purchase budget and sales budget etc.
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Cost reports: these are the reports which helps to analyse the cost of each departments
and sections of organisation (Chiwamit,Modell and Yang, 2014). Various type of departments
and sections are found in organisational structure such as administration department, sales
department, stores and purchase department. Cost reports contains the information related to
expenses incurred and income generated from individual department and section.
Performance reports: there is an individual track record maintained by the manager of
the departments. Track record helps to monitor the performance and the action of staff members
and employees. Performance reports consolidate all the performance records at one place and
helps to analyse average performance of organisation. This report is basically assist the manager
to detect and determine the performance affecting factors which become barrier to achieve the
competence of work. It is required to get accurate information to prepare performance reports.
Inventory management reports: these are the reports which helps to analyse that how
much amount of raw material is required for production and manufacturing goods. This reports
helps to summarised the information in single format and consolidate all the information to
produce one single information (Zaleha Abdul Rasid, Ruhana Isa and Khairuzzaman Wan Ismail,
2014). More over inventory management reports helps to identify the order level management.
With the help of inventory management reports managers become eligible to detect the lag in
period of producing goods. Inventory management reports contains the information such as
required order of raw stock, average lag in period of work in progress and retaining period of
inventories in stores.
Account receivable and ageing reports: Management of debtors and collection form
customers is one of the major task for managers. An optimum structure of collecting the payment
is responsible for better and fluent debtor management. Account receivable reports provides all
the relevant information which remain associated with the collection of payments form debtors
and customers. These reports remain essential to analyse the lag in period of getting the
payments form debtors and the managers. It is required to make effective account receivable
information to align all the information in single format.
M1 benefits of management accounting system and their application in organisation
Management accounting information helps to reduce the uncertainties and the
complexities which remain associated with forecasting and strategic planning process (Brewer,
Sorensen and Stout, 2014). Application of management accounting system depends upon nature,
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culture, business type, operations and transactions of an organisation. Effectiveness of
management accounting system is evaluated parallel to operational management. are This system
is used to analyse the performance of organisation and execute the growth and development
plans with in the organisation. Implication of management accounting system is based upon the
type of organisations and their nature of operation and functions.
D1 Evaluation of management accounting system and management accounting reporting.
Management accounting system and management accounting reporting both are
integrated with each other (Bovens, Goodin and Schillemans, 2014). Accounting systems
provides a structure to record and track the transactions and records for better operation and
management reporting. Both helps the managers and the accountants to concise the information
and details for better forecast and prediction. There are some standards and rule made regarding
management accounting reporting. Reporting standards are made on the basis of management
accounting systems which are used by the organisation.
P3 Cost calculation with the help of absorption and marginal costing techniques
Cost is one of the essential aspect which is considered in management accounting system.
Controlling cost and maximising the profitability is one of the major objective of management
accounting system. Cost accounting and management is one of the branch of management
accounting. Various type of cost accounting system and cost structures are used to analyse the
cost of organisation and minimise the cost of operations. Job costing, batch costing, process
costing are the part of cost management which are used by the management.
Marginal costing: these is one of the variable costing method of evaluating cost of
production and profitability (Nørreklit, 2014). All the variable cost such as material, labour cost
and direct expenses are considered in calculation. Combination of these three elements are
known as prime cost. Marginal cost basically defines the variable cost of the product. It helps to
determine the cost of per product while considering all the variable cost incurred in production.
There is a change calculated in respect of change in quantity. This costing technique is known as
period costing.
Absorption costing: this is one of the method which is respect of evaluating the cost of
full period of production. This is also known as overall costing method which helps to analyse
the profitability of organisation (Williams, 2014). Managers become eligible to calculate the
profitability of organisation in respect of evaluating the performance of organisation subject to
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production and manufacturing process. This is one of the essential aspect which remain essential
to record both the variable and fixed cost which remain associated with the production process
considered in this process.
NOTE: CALCULATION PART IS COVERED IN PPT
D2 Produce financial reports which accurately applied and interpret data for complex business
situation
Analysing the performance affecting and management conflicts are the major complex
situations which are found in organisational context (Mistry, Sharma and Low, 2014). Accurate
financial information and reports helps to sort out the complex business situation and conflicts
which occur during operating and managing the departments. Effectiveness and core competence
are two major aspects which are considered while preparing the financial reports.
TASK 2
P4 Explain the advantages and disadvantages of various type of planning tools used for
budgetary control
Incremental Budgeting: It is considered as an essential part of management accounting
based on the assumption of making small change in the existing budget so as to arrive at the new
budget. Only incremental amounts are added to the existing budget in order to get new budgeted
number. Budget of current year serve as a ground for working on the upcoming year's budgetary
allocation (Van der Stede, 2015). Here the management anticipate that all organisational
department will continue tom operate at their existing expenditure level and in cases, where
additional amount of money is needed will be added further in next year so as to get next year
estimate of Budgeting. On the other hand, situation where expenditure is less will tend to cause
deduction from current year budget. The allocation of resources depend upon the previous year
allocation. This approach is not suitable when organisation keeps on changing as per the
circumstances.
Advantages of Incremental Budgeting:
 The Implementation of this budgeting method is very easy and does not include any
complex calculation.
 It ensures continuity of funding for all department without any detailed investigation of
funding requirement. Thus, managers can operate department on consistent basis.
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 Chances of conflict can be avoided if similar treatment has been given to all department
 Easier to achieve better co-ordination between budgets
 In case of incremental budgeting, impact of change can be observe or seen immediately.
Disadvantages of Incremental Changes:
 This method is based on the assumption that method of working shall remain same when
budget is calculated for upcoming year, which is not possible. Thus, any change in
working method may posses adverse impact on overall business operation.
 There might be chances that budget may become outdated and does not related with the
current level of activity.
 Encourages additional spending so as to effectively maintain next year budget.
 No incentives to reduce cost as well as for developing new ideas.
Zero-based Budgeting: It refer to the process of fund allocation on the basis of program
necessity or efficiency instead of budget history (Quinn, 2014). Under this budgeting, budgeters
critically review each expenditure and program at the initial level of budget cycle and must
confirm each line item in order to get appropriate funding for the entire program. . Budgeters can
apply this budgeting to any kind of cost such as operating expenses, sales, capital expenditure,
administrative cost, marketing cost , cost of good sold or variable cost. Under this method, all
expenses particularly for new period are calculated on the basis of actual expenses rather than on
incremental basis which include increasing the expenses obtain in last year at some fixed rate.
Advantages of Zero-based Budgeting:
 This method help in allocation of resources in an efficient manner i.e. department-wise as
it focuses on looking into actual numbers.
 It help in determining various opportunities and cost-effective methods of doing things by
eliminating all redundant and unproductive activities.
 Since each line item is justified in an appropriate manner, it aid in overcoming the
weakness of incremental budgeting of budget inflation.
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 It also leads to enhance communication and co-ordination within the different department
of the organisation and also motivates employees by valuing their input in decision-
making process.
Disadvantages of Zero-based Budgeting:
 This budgeting method is very time-consuming that waste lots of time and energy of
budgeters that can be utilize in any other effective activities.
 It involve high manpower requirement as it make entire budget starting from the scratch.
 Lack of expertise who critically examine every line item in an effectual manner.
 Higher chances of disrupting the operation and function of organisation.
Activity Based Budgeting: this is one of the method which is used to analyse the
activities which contains the cost of incurred in individual functional areas. There are various
type of financial aspects are considered in activity based budgets which helps to summarise the
information in single form (Renz and Herman, 2016). It is considered as non-adjustable before
the final budgeting process. These budgets helps to identify the and develop efficiency in
business and organisation.
First, This process is basically divided in three steps such as relevant find out relevant
activities which remain responsible for incurring expenses and incomes. second the number of
units which are produced at base line and for the calculation and the third stage which signify the
process of calculating the cost of per unit to determine multiple cost against the activity level.
Advantages of activity based budget
 this allows the managers to adopt the degree of control over the budgeting process.
 This helps to retain the proper record of revenues and expenditures at finer level
 it provides more control regarding projection and estimation.
 It also helps to align the budget in respect of organisational goals.
Disadvantages of activity based budget
 High implementation cost and activity based budget is one of the draw back of this
budgetary tool.
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 This technique requires in depth knowledge about managing the information related to
revenues and expenditures.
 This technique basically depends upon assumptions and estimations which do not provide
surety of success.
 This planning tool requires proper maintenance time to time to monitor variances and the
resources other than budgeting techniques.
M3 Evaluate the use of various planning tools and their application for making and forecasting
budgets
Different type of planing tools are used by the organisation subject to analyse and
forecasting future scenarios. Zero based budget, activity based budgets and incremental
budgetary tools are major tools which are used to frame budgets and forecasting (Suomala, Lyly-
Yrjänäinenand Lukka, 2014). Budgetary control helps in decision making process and strategic
planning.
P5 Evaluate how organisations are adapting management accounting system to respond financial
problems
Organisations are adapting management accounting tools in respect of organising the
departments and managing the operations for better control. It requires effective control and
management to avoid all the challenging aspects and scenarios. Various type of financial
problems and challenges are faced by the organisations such as evaluating the financial problems
and conflicts of organisation. Budgetary control, cost of capital, investment decision making and
forecasting financial plans are some essential elements which are used in organisational context
(What is management accounting system, 2018). It is important to resolve the issues and the
conflicts in order to determine make an ethical structure of organisation.
Management accounting system have taken place now a days to deal with financial
problems and issues for better operation and management. Cost accounting system and
management information systems are rapidly used in organisation reading resolve the financial
issues and problems. It helps to analyse the future requirement of financial resources and find out
the required areas of utilising the financial resources. It is essential for the manager to identify
the required areas of utilising the financial resources. Financial plans provides a path to
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determine the requirement of financial requirement to be incurred in operational and functional
departments of organisation.
As the financial issues and conflicts get detected and identified there managers take help
of finance and risk management for risk assessment. Management accounting system helps to
analyse the best and effective capital investment to be incurred in management and operations. It
remain essential for managers to analyse the effectiveness of optimum financial resources. All
the major aspects are considered while calculating the cost of investment and cost investment
plans. Various type of investment appraisal techniques are found in respect of analysing the cost
of investment plan. Internal rate of return, Average Rate of Return, payback period method, net
present value method are some essential techniques which assist managers and accountants to
find out better capital and investment plans.
Effective and better forecast depends upon accurate and relevant information subject to
investment plans. It also helps to analyse the effectiveness of various type of budgeting and
planing tools. Changing business and organisational trends are one of the major financial
problems which are faced by the departments and the organisations. This is one of the main
reason which enhanced the importance of management accounting system with in the
organisation.
It is seen that there were changes seen in respect of adapting management accounting
system with in the organisation. At present various accounting tools are being used by
organisations. This can be bifurcated in four stages such as Pre 1950, accounting system and
procedure in 1950-1970, accounting system in 1970-1990 and 1990 onwards. There are type of
systems which are adapted by IKEA to respond financial problems
Below are some essential aspects are
Inventory control system: IKEA adapted management accounting system in order to
develop products and services and managing inventories. It helps to manage inventory levels
such as controlling order levels, economic order quantity. It not only assist the production
process but also helps to manage stores and warehouse functions.
Price optimisation system: This accounting system is used by organisations to analyse
customer perspective in respect of variation of prices of products and services. Starbucks adapted
price optimization system subject to introduced categorised food products with different pricing.
It helped to get more customer attraction and interest towards organisation.
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M4 Analyse how management accounting system helps in responding financial problems for
sustainable success
Making the plans and strategies in order to solve the financial problems are the main
objective of organisation (Schaltegger and Burritt, 2017). Managers and accountants analyse the
financial statements, income statements and cash flow statements to evaluate the financial
performance of company. All these statements are prepared with the help of management
accounting. This helps to organise the financial information in respect of controlling and
managing the information.
D3 how planing tools for accounting respond appropriately to solve financial problems to lead
organisation
Proper implementation and use of planning tools helps to identify the key factors and
main conflicts which affect the financial performance of organisation. Planning tools provides a
path to resolve the issues and aspects of organisation subject to interpret the future growth and
development opportunities (Robalo, 2014). It is important to understand the dimension of use of
financial resources in order to maintain discipline and effectiveness of function.
CONCLUSION
This report produced to demonstrate the dynamics of management accounting system.
Role of management accounting system subject to achieving the core competence in work and
attain sustainable success is defined in this context. Type of management accounting systems are
and reporting tools are defined which are used in decision making process. Use of management
accounting system to control the cost of operations and functions. Advantages and disadvantages
of planning tools which are used in budgetary control also defined in this context. Ways are
analysed that how organisations are adapting management accounting system to respond
financial problems.
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REFERENCES
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Zaleha Abdul Rasid, S., Ruhana Isa, C. and Khairuzzaman Wan Ismail, W., 2014. Management
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Online
What is management accounting system. 2018. [Online]. Available
through:<http://www.ehow.com/facts_5460765_management-accounting-system.html>.
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