Management Accounting Systems and Techniques: Assignment (Doc)

Management
Accounting
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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
1. Understanding of management accounting system................................................................1
2. Methods of management counting reporting..........................................................................2
3.Benefits of management accounting system and theirs application in Jupiter plc...................3
4. Integration of Managing accounting system and management accounting of reporting........5
TASK 2 ...........................................................................................................................................5
a) Marginal costing.....................................................................................................................5
b)Absorption costing...................................................................................................................5
TASK 3............................................................................................................................................6
1. Advantages and disadvantages of planning tools used in budgetary control..........................6
2. Use of different planning tools and their application in for preparation and forecasting
budget..........................................................................................................................................7
TASK 4............................................................................................................................................8
1.Adoption of management accounting system to respond to financial problems.....................8
2. Use of planning tools to respond and solve financial problems..............................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12
REFERENCES................................................................................................................................2

INTRODUCTION
Management accounting can be defined as tat branch of account in an organisation
which deal with presenting information to aid managers in the decision making processes. It
takes into consideration both financial information as well data related with other activities
occurred in business. With taking into consideration all these information reports are prepared
by which assist the decision making process of the organisation. In the present report an
application of different management accounting system techniques and reports are applied along
with their advantages and disadvantages for Jupiter Plc.
TASK 1
1. Understanding of management accounting system
Accounting: this can be defined as language of the business through which the
organisation speaks about its growth and profitability. This is a process of summarizing,
analysing and reporting of transactions to determine profits and to evaluate taxation liability of
the business.
Financials accounting: Under this a comprehensive record of financial transaction
pertaining to a financial year are kept which include both monitory and accrual transaction to
determined actual profits earned by the organisation.
Management accounting: This can be defined as preparation and providing on time
financial and statistical information to the management of Jupiter PLC to assize them in decision
making process. The decision are generally short term in nature. This is different from
financial accounting as in it financial reports are presented to internal stakeholders of the Jupiter
Plc as opposed to external stakeholder. The result of this system can be undertaken as
formulation of reports of the company, its different departments, mangers and CEO.
Essential requirements of different types of management accounting system:
Job costing: this is a method under which manufacturing cost related to a particular job
carried out in Jupiter Plc is recorded. With job costing system a project manager keeps track of
the cost related with every job. This aids them in evaluation of working capital requirement as
well as the amount that is spent on a particular job. Eg:
Inventory management system: this is a mathematical analytical tool which is used by
the management of the organisation for determination of how consumer will respond to different
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price of their products and services which are distributed through different channels. Under this
a price band is selected so that a price can be offered to consumer which is acceptable to them.
Inventory management: this can be defined as supervision of non capitalized assets and
stoke items that are used in production of articles in Jupiter Plc under this then the flow of raw
material from warehouse to production unit is supervised along with determination of future
requirement to produce estimate budgets units. Inventory method used in business are LIFO-
last in first out this method is banned by HMRC. Another method used id FIFO first in first out,
this means inventory winch came first shall be issues first in production line over the
inventories which comers at later dates.
Cost accounting: this can be defined as a frame work which is used by Jupiter plc to
estimate the cost of production of its article. This estimation aids the management in analysing
the profitability, inventory valuation and cost control of the organisation. Accurate estimation of
the cost related with production of a unit is a sign of profitable organisations.
Actual costing: This can be defined as recording the cost of product which is actually incurred
on its production. Such as actual cost of labour, material and overhead incurred in production.
Standard costing: Standard costing is an accounting technique that some manufacturers used to
identify the differences or variances between 1) the actual costs of the goods that were produced,
and 2) the costs that should have occurred for those goods
Normal costing: this is used for valuation of manufactured products with the actual material,
labour and overhead cost which is based on a predetermined rate.
2. Methods of management counting reporting
Management accounting reports are based on the information need of the management
and these are prepared by taking in to financial as well as statistical data from all the departments
of the Jupiter Plc. The reports prepared are very useful for the management of the organisation as
this helps them in deciding future action plan for the business (Van Helden and Uddin, 2016).
Different types of reports prepared under this system is:
Cost reporting: under this, profits margins are estimated and with this it is evaluated that
what is the actual cost that has been incurred on production and procurement of a unit of article.
Under this material expenses, labour cost, overhead cost and expenses related with each activity
undertaken in the organisation.
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Budgets: these are prepared for a particular period and under these sales, purchase,
expenses etc are forecasted for future period. These are set as targets for the organisation which
it must have to accomplish with given budget and in stipulated time. Budgets are prepared for
almost every activity performed in organisation and is considered as important tool for
managerial control.
Performance report: this can be referred as performance evaluation of all the activities
as well as human resource of the Jupiter Plc. Under this actual performances is compared with
budgets or forecasted and the degree of deviation is determined and sections are taken to correct
the deviation to reach the actual results which were estimated before time.
Inventory management report:
3. Benefits of management accounting system and theirs application in Jupiter plc
Cost accounting system:
Advantages:
 Elimination of waste, losses and inefficiency from the production and management.
 Reduction in cost of production.
 Identification of reason for profit and loss in the organisation,
Significant advice on make and buy decision as what will be more beneficial for the company
with to make the article or to buy the same from outside.
Disadvantages:
 Consideration of past performance for making report on the basis of which future
decision are taken.
 Previous year cost ado not remain dame in subsequent years so coat data are not so
useful.
 Cost estimation is done on full utilization capacity and data for partiality used capacity
cannot be used in its true sense.
Job costing methodologies:
Advantages:
 Calculation of the profits earned on each job performed in the organisation.
 Provide manager detailed information on production statistics of individual departments.
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 Individual and team performance can be tracked and evaluated in terms of cost control
and efficiency.
Disadvantages:
 Detailed records related with labour and material used must be kept on order to assist in
calculations and determination of statistical data and actual output.
 A close watch on records must be kept in order to determine actual cost and expenses
incurred on specific job and activity related with production.
Inventory management system:
Advantages:
 Keeps a record of the available inventory in the stock.
 Estimation of the future need of raw material require which is based on budgeted
production.
 Evaluation of the stock which s used by each department separately which is determined
as the items issued to particular department.
Disadvantages:
 Records cannot be kept for same inventories units such as nut, bolt etc.
 using different method gives different results, and a change in the method of inventory
keeping in between an accounting periods can not give correct results.
Price optimisation:
Advantages:
 this helps in determination of rate of return as with optimization of price cost is
controlled hence profits are enhanced.
 Helps in controlling the cost.
This help in forecasting the cash flows and fund flows.
Disadvantages:
 Difficult to determine the reaction that will be given by consumers on the prices of
products of the organisation.
 Selectivity of consumers to price fluctuation can not betaken as a major factor to
determine the price.
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4. Integration of Managing accounting system and management accounting of reporting
Both management accounting system and management accounting reports are interrelated
with each other and it can be stated that both care non separable as with the use of different
methods of accounting system and assistance in reporting is taken. In preparation of the budgets
present and past data from the job and costing is taken and a future forecast and estimation is
prepared (Otley, 2016). With the accounting tools price of the product is estimated along with
analysing of data and information of production and related activities.
With the techniques of management accounting cost and expenses related with a
particular job and specific activities aid determine and this helps in preparation of costing report
as this taken into consideration expenses allocated and done by each department in Jupiter plc.
The organisation cab use both accounting system and report techniques to produces data and
information that can help the management in development of accurate plans and assist them in
taking short as well as long term decision.
TASK 2
Application of manageable accounting techniques
a) Marginal costing
This is a method of accounting in which variable cost are charged to cost of production and all
fixed whether administrative or other overhead in period cost. Fixed cost is written off in ful
against contribution.
Marginal costing:
b)Absorption costing
Absorption costing: this can be defined as that method of costing which takes into
consideration all coast associated with manufacturing and production of a product. Under this
fixed overhead charges are take as part of production cots.
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Absorption costing
Per Unit Total
Cost of production 50 800000
Direct material 20 360000
Direct labour 10 980000
Variable overheads 5 90000
Fixed cost 5 90000
40 72000
Opening Inventory 0
Closing inventory 80000
Cost of sales 40 640000
Standard profit 10 160000
Profit under absorption
costing
(100000-90000) 10000
Budgeted profit 10 150000
TASK 3
1. Advantages and disadvantages of planning tools used in budgetary control
Budgeting: This can be defined as a process that express the need and requirement of resources
(material, human resources) for future activities related with business operation (production) of
an organisation in this a budget is designed, implemented and operated which are related with
course of action with in firm (Marginal and absorption costing, 2018).
Planning Tool Advantages Disadvantages
Cash Budget  Bad Debts can be
avoided.
 Better focus on the
budgets.
 Availability of the
resources.
 Limits spending power of
organisation.
 Elimination of the rewards
to employees.
 Not actual reflation of
profits.

 Quickly identification
of potential deficits.
Operating budget  Short term allocation
of the budgets.
 Prediction of costs
and management of
spending in the short
term to meet long-
term financial
obligations
 Timer consuming.
 Not rigidity in expenses
can lead to more spending
the budgeted.
 With a time to preparation
makes it prone to errors.
Capital budget  Planned outlay on
acquisition of assets
and improvement of
the assets.
 Most of its tools
considers time value
of Money in present
time.
 No fixed cafeteria to
decide whether the
investment increase the
value of the firm or not.
 Not every method can be
used individually reach at
a decision only NPV is the
one which gives a precise
answer.
Master budget  Accurate
determination of
assets and liabilities
of business.
 Evaluation of actual
expenses and income
with realisation of net
profits for a financial
year.
 Based on accrual basis so
no determination of actual
cash expenses and revenue
earned (Senftlechner and
Hiebl, 2015).
 In income statement non-
cash expenses and
provision are also taken
into consideration so
profits determined are not
actual.

2. Use of different planning tools and their application in for preparation and forecasting budget
Particulars S
e
p
t
Oct Nov Dec Jan
Receipts £ £ £ £ £
Cash sales 1 120000 140000 170000 200000
Credit sale receipts from debtors 100000 120000 130000 140000
Other income received 30000 40000 50000 60000
Total receipts (a) 250000 300`000 350000 400000
Payments
Purchases 70000 80000 90000 100000
Wages- Labour and overheads 15000 17000 20000 23000
Fixed costs 10000 10000 10000 10000
Capital expenditure - Plant 54500
Advertising 500 700 800 1000
Total Payments (b) 140000 150000 160000 170000
Profits (a) – (b) 110000 150000 190000 230000
TASK 4
1.Adoption of management accounting system to respond to financial problems
 Balance score card: this can be defined as a strategic and management tool used by an
organisation to communicate with what they are trying to achieve. Alignment of day to
daywork of every person with strategy and setting up priorities for projects products and

services, this includes evaluation on a regular basis with which contingencies are
determined before their occurrence and measures can be taken to avoid them.
 Financial governance: this can be defined as tools used for managing the risk. In this ,
methods certain tools and techniques are used to determine the risk and then evaluation is
done on how to address those risks (Granlund and Lukka, 2017). The techniques used
under this tool are CIMA strategic scorecard, Enterprisers risk management and CGMA
Ethical Management reflection checklist.
 Management accounting skill set: it is a model that enables management of an
organisation to improve its performance, assist in decision making, aids strategic goals
and objectives and add value to the business. With all this an organisation ascertain the
future tasks to be accomplished and planing in advance on how to deal with a situation
that may arise in between attainment of task.
With using all these or any one of the planning tool in the organisation financial
problems can be avoided as this assist in early determination of any issue that can be faced by
firm in near future, it also aids and assist in preparation of plans and measurement techniques
thorough which these upcoming threats can be addressed and avoided (Essential-tools-for-
management-accountants, 2018).
2. Use of planning tools to respond and solve financial problems
 Key performance indicator: this can be defined as a value measurement tool which
demonstrate How effectively an organisation is attaining its main business goal. With
this the management evaluate the performances at each level with measurement
indicators as success in reaching the targets. This helps in addressing financial
problems with each level of performance evaluation a lag can be find easily and a
corrective measures can be taken immediately so problem is detected at early stage and
resolved effectively at the same time, hence future uncertainties are avoided.
 Ratio analysis: this can be defined as a tool which is used by an organisation to evaluate
its financial performance with calculation of financial ratios. This includes profitability,
liquidity, efficiency and investment ratio which indicates its performances at different
financial level a business with high liquidity and optimal capital structures survive in
long run (Tappura and et.al., 2015). With comparison of the past and present ratio along
with comparing with business of same industry a firm can easily determine its actual

financial performance in a year or over a period. In any drawbacks in performance is
seen the immediate action are taken to rectify those lags.
 Benchmarking: Benchmarking is a process of measuring the performance of a
company’s products, services, or processes against those of another business considered
to be the best in the industry. Internal opportunities for improvement are identified
through benchmarking. In this, companies with superior performance is done along with
breaking down the criteria as what makes the superior performance the best and then
planning is done to meet that benchmark. With this planning tool every organisation in
the industry try to match the benchmark and with reaching that level it is ascertained that
they have touched the peak of the growth with that benchmark as they are set at very
high level.
 Swot analysis: this is the best method through which present and future decision are
taken in an organisation. With this tool strengthen, weakness, opportunities and threats
of business are determined. Internal strengths are used to maximum in order to give the
best performance and use it is to gain competitive advantages. Planning and decision are
taken to overcome the weakness prevailing in the organisation. Along with this, plans
are made to grab any opportunity prevailing in external market. To avoid future threat
planning and forecasting is done.
A comparison of Jupiter Plc and Healthcare Pvt Ltd is done regarding the use of planning
tool used be respective organisation to deal with financial problem and ensuring sustainable
growth. Jupiter Plc uses SWOT analysis to address and determine the future financial problems
and with this tool only it gets its answer on how to address such problem. The solution is found
under SWOT as strength and new opportunities are determined and this help in addressing those
future uncertainties.
As far a Healthcare Pvt Ltd this organisation uses benchmarking planning tool to
determine and address any future financial problems as with a set target it set plans on how to
reach Upton that mark and for those forecast and budget are made. With preparation of these
reports upcoming financial problem are determined and immediately actions are taken to rectify
them.

CONCLUSION
From the above report it can be concluded that accounting is an important part of a
Jupiter Plc and both branches of it i.e. financial and management accounts are unessential for
Jupiter Plc. Management accounting system techniques and tools helps its organisation in
determination of a cost and preparation of budgets. With this organisation knows the actual cost
incurred and profits that is expected to earn at the end of budgeted period. Further it can be
articulate that with Jupiter Plc uses SWOT analysis as planning tool to react to the future
financial problem as compared to Healthcare Pvt Ltd.
Lastly it can be concluded that an organisation use of planning tool is very essential as it
help in determination of solution for forthcoming financial problem and to address them. In the
above report a budget plans is also prepared for future sales, purchase and profits earned by
Jupiter Plc.

REFERENCES
Books and Journals
Andersén, J. and Samuelsson, J., 2016. Resource organization and firm performance: How
entrepreneurial orientation and management accounting influence the profitability of growing
and non-growing SMEs. International Journal of Entrepreneurial Behavior & Research. 22(4).
pp.466-484.
Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to
climate change risk exposure and regulatory uncertainty. The British Accounting Review. 49(1).
pp.4-24.
Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research.34(2). pp.991-1025.
Fullerton, R .R., Kennedy, F .A. and Widener, S .K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices. Journal of
Operations Management. 32(7-8). pp.414-428.
Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting research. Critical
Perspectives on Accounting. 45. pp.63-80.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in
family businesses: Past accomplishments and future opportunities. Journal of Accounting &
Organizational Change. 11(4). pp.573-606.
Tappura, S and et.al., 2015. A management accounting perspective on safety. Safety science. 71.
pp.151-159.
van Helden, J. and Uddin, S., 2016. Public sector management accounting in emerging
economies: A literature review. Critical Perspectives on Accounting, 41, pp.34-62.
Online
Marginal and absorption costing. 2018. [Online]. Available through
:<http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Marginal%20and%20absorption
%20costing.aspx>.

Essential-tools-for-management-accountants. 2018. [Pdf]. Available through
:<https://www.cgma.org/content/dam/cgma/resources/tools/essential-tools/
downloadabledocuments/essential-tools-for-management-accountants.pdf>.

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REFERENCES
Books and journals
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