Management Accounting: Systems, Methods, and Benefits

This document provides an overview of management accounting systems, including cost accounting, price optimization, job costing, and inventory management. It also discusses different methods used in management accounting reports, such as budget reports, performance reports, inventory management reports, and accounts receivable reports. Additionally, it explores the benefits of accounting systems and provides examples of income statements prepared using marginal or absorption costing methods.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting together with systems....................................................................1
P2 Different method that can be used in management accounting reports..................................3
M1. Benefits of accounting systems............................................................................................4
D1. Evaluating integration between accounting systems as well as reports with organisational
processes......................................................................................................................................5
TASK 2............................................................................................................................................6
P3. Income statements prepared by using marginal or absorption costing methods...................6
M2. Usage of appropriate techniques in order to produce financial reporting documents........12
D2. Financial reports to interpret business operational activities..............................................12
TASK 3..........................................................................................................................................13
P4. Planning tools to control budget..........................................................................................13
M3. Planning tools with application in order to prepare as well as forecasting budgets...........14
TASK 4..........................................................................................................................................15
P5. Comparison showing the ways organisations solve financial problems with the use of
accounting systems....................................................................................................................15
M4. Responding of management accounting towards financial problems for sustainable
success........................................................................................................................................17
D3. Planning tools usage to respond towards solving financial problems so to lead the
organisation towards sustainable success. ................................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management accounting is characterised to accounting branch associated with
identifying, recording, measuring, analysis together with interpretation of important information
to managers to frame decisions addition to managing business operations (Bagautdinova,
Kundakchyan and Malakhov, 2013). Using such accounting, accountants analyses events along
with operational metrics to translate statistical data into multi-purpose information. Some of the
management accounting techniques involves margin analysis, inventory valuation, trend analysis
together with forecasting, constraint analysis and capital budgeting. To better understand
accounting systems addition to techniques, Alpha Limited is selected which is a manufacturing
company. The report discusses about management systems along with essential requirements,
management accounting reports together with techniques to prepare financial statements. It
further includes usage of planning tools for budgetary control addition to the ways firm could use
accounting systems to respond towards financial problems to lead sustainable success.
TASK 1
P1. Management accounting together with systems.
Management accounting: Such accounting concept is defined to the practical
application of professional knowledge addition to tactics while preparing accounting information
in such manner that it helps management team to formulate procedures, plans together with
policies associated to manage organisational operations by developing decisions. It comprises
procedures of accounting in which decisions concerned with preparing final accounts along with
evaluating performances of workforce are taken within business structure. It provides accurate,
effective and timely financial statistical data or information that are required by managers to
frame short term decisions and managing daily operations (Ball, Grubnic and Birchall, 2014).
Management accounting is required at Alpha Limited to optimise prices, keeping records,
calculating receivable days together with inventory valuation within an financial year.
Management accounting systems: Systems that helps in measuring price levels together
with evaluating business procedures and are confidential to internal reporting mechanisms are
termed to management accounting systems. Such systems aids towards providing essential
guidelines along with supporting decision making procedures in order to improve overall
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efficiency and profitability of the company. Some of the accounting systems used by
management authorities of Alpha limited are discussed below:
Cost accounting system: In any enterprise, financial mangers maintains authentic
records related with critically estimating costs of distinct products so to control cost, analyse
profits together with inventory valuation. It is a accumulation of variable , sunk, fixed as well as
production costs. Production managers of Alpha Limited uses such system to measure values of
its products and accordingly set accurate costs to attain profits with huge margins. It is required
at selected company to record production transactions, reduce costs, maintaining profitable status
(Bryer, 2013).
Price optimisation system: Using mathematical analysis, companies determines
perceptions of targetted audiences towards distinct prices associated with products or services. In
Alpha Limited, such type of system is adopted to assign prices after understanding customer
perceptions and setting appropriate prices so to generate higher profits. Managers of the
company carefully analyse cost or resources utilised to manufacture specific product so to fix
suitable prices of particular product. Such system is essential required at chosen firm as to
determine valuable prices to distinct products addition to maximise operating profits.
Job costing system: The system to assign together with accumulating manufacturing
costs of particular output or individual job. Production managers of Alpha Limited uses it at the
time when homogeneous items are manufactured and have significant differences in which
different costs are associated with all items. It is also used to record information related with
distinct jobs which were performed at work place. Essential requirement of such system is to
ascertain that reliable estimates about monetary values of overheads, labour addition to material
that were spent on production of products or job.
Inventory management system: A system that is a combination of procedures,
technological devices and processes that helps in monitoring together with maintaining stocked
products. It ensures to the management by maintaining appropriate stock levels to to deal with
overstock addition to under stock conditions. Such system helps in recording inventory through
unique software such as barcode reader to track down inventory. Some of the inventory
management techniques are LIFO, FIFO addition to weighted average method. The managers of
Alpha Limited used LIFO technique to manage the inventory level (Cleary, 2015). The
requirement of such system at chosen business is to track all records by separating new and old
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inventory materials that enters or leaves warehouses addition to workplace at particular time
scale.
P2 Different method that can be used in management accounting reports
Management accounting reporting refers the report which is used to get information
about transaction and make profits. It is important for organisation is prepare reports by
analysing income and expenses of organization and maintain productivity and profitability of
company. This is continuous process which is used to prepare different reports to check the
position of business entity and make profitable decision. In Alpha Limited, manager prepare
different types of accounting reports for the purpose of keep track record of all operational
activity and manage all functions of business industry. Herein, various method which are used by
manager of Alpha Limited to generate several reports such as:
Budget reports - As the name given, budget reports are related with budget which is set
by manager to perform their business activities and maintain productivity. Manager use this
report to compare actual and standard results of business enterprises. This is also known as
internal report which is used by manager of Alpha Limited to assess the financial performance of
company and make improvement if performance is not good. This organization prepare new
budget reports every year and compare with past information in order to make right budget and
complete targets in stipulated time (Endenich, 2014).
Performance report – This report is essential within business industry because it helps
to keep records employee as well as company's performance. It helps to define which employee
is performing well and which one not. Companies analysis the performance of employees and
give them incentives and bonus. Such as Alpha Limited is juice manufacturing company in
which manager records employee's performance and appraise them for their good work. Hence,
this report is helpful for organisation as well employees that helps to attain goals by motivating
staff.
Inventory management report – Stock keeping is essential for company that helps to
make further business decision by tracking the record of inventory. All company are dealing
different types of products and services which is needed to manage and make profits. Inventory
management reports are generated by managers of Alpha Limited to keep records of fresh fruits
and other raw material which is used to manufacture juice. It is used by managers to track the
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inventory and place order accordingly. It is beneficial for all organisation as it helps to maintain
records of all stock and manage order according to customers.
Accounting receivable report - These types of report are build by management to keep
records of all credit sale which has been happened in particular period and payment is due are
consider as accounting receivable report. This report is used to keep record of credit sales and get
payment on maturity period. Company who sales their products and allows credit to purchaser
are recorded in such reports. In Alpha Limited, manager prepare this type of reports that is used
to record of those person who has purchased goods and not able to pay amount at that time and
promise to pay after some time. Therefore, it is beneficial for Alpha Limited to keep information
safe of outstanding amount and unpaid customers (Fleischman and Parker, 2017).
All of the management accounting reports are prepared by managers to know the
performance, budgets, manage inventory and also keep records of unpaid customers. It helps to
make right business decision and maintain profitability within organization. Alpha Limited need
to prepare these types of reports for the purpose of make future business decision and create
opportunities. These reports also need to show to stakeholders so they can make further
investment decision by analysing actual performance of company.
M1. Benefits of accounting systems.
Following are the benefits of management accounting systems:
Systems Benefits
Cost accounting system  Such system helps managers to measure together with
maintaining and improving efficiency by estimating and
controlling costs.
 Cost accounting system benefits managers of Alpha
Limited to reduce irrelevant costs while fixing
appropriate price of the product (Grabner and Moers,
2013).
Price optimising system  It helps in managing elements as well as setting
appropriate prices of distinct products.
 The production managers of Alpha Limited are benefited
with such system as it helps in understanding perceptions
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together with determining reactions of customers on
prices that are set by managers and accordingly framing
further strategies.
Job costing system  Such system allows managers to compute income that are
earned from certain job as well as ascertaining that
specific jobs are enviable to continue in future.
 Job costing system provides managers of Alpha Limited
to track performances in context to cost control,
productivity addition to efficiency.
Inventory management
system
 Such type of system benefits organisations to maintain
inventory levels.
 Using such system, managers of Alpha Limited collects
information at any time related with inventory in order to
take further purchase decisions (Harrison and Lock,
2017).
D1. Evaluating integration between accounting systems as well as reports with organisational
processes.
Management accounting systems together with reports are crucially important in
organisational processes as they provides assistance addition to guidances to perform operations
in smooth manner. Accounting system comprises of numerous types such as cost accounting
system, inventory management system, price optimising system addition to job costing system
through which all the activities are carried out to attain business targets as well as objectives as
per the set procedures. Other than this, accounting reports cater information associated with
departmental functions in order to present them in front of higher authorities so that decisions ate
framed to facilitate processes of organisational towards goals (Havranek, 2017). As per the
reports, performance of Alpha Limited are analysed by managers and accordingly decisions are
taken so to execute operations. Hence, accounting systems addition to reports are closely
integrated with processes of Alpha Limited.
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TASK 2
P3. Income statements prepared by using marginal or absorption costing methods.
Cost: it is defined to the monetary amount that are spent by organisational managers for
the purpose of manufacturing some item. Production management team together with marketing
team spent huge amount of funds to produce products.
Marginal costing: It is characterised to additional cost that are entangled towards
manufacturing additional product unit. Such costing technique is used at Galway Plc in order to
analyse situations at which break even point is equal to fixed costs. Herein, costs are depended
on units costs where as fixed costs are not applied (Holsapple, 2013).
Problem 1 (1)
Cost card
Cost card (Marginal costing)
£/unit
Unit Variable Price 3
Marginal Cost 3
Selling price 8
Less- Marginal cost 3
Contribution 5
Profit and loss account:
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Working note 1
Problem 1 (2)
Absorption costing: It is a costing technique which is used by entities for the purpose of
determining that all the costs which are associated with different units. With the help of it it is
analysed that all the costs are absorbed from the revenues of same units or not.
(a) Cost card
Cost card (Absorption costing)
£/unit
Unit Variable Price 8
COGS Per Unit 8
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Absorption cost of product
150000/
75000= 2
Selling price 8
Less- Total cost 8
Gross Profit 0
Working note 1
Working note 2
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2.
Problem 2/ 1 (a)
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Problem 2/ 1 (b)
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Problem 2/ 2 (a)
The above calculations are showing that if machine will not be installed then the
organisation may have to face a loss of 18000 pounds.
Problem 2/ 2 (b)
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From the above calculations it has been analysed that when machine will be installed then
company can generate profits of 104000 pounds. Therefore it has been suggested to the
management to install the machine.
M2. Usage of appropriate techniques in order to produce financial reporting documents.
Management accounting techniques plays key roles in analysing, recording, classifying
addition to controlling business transactions. Wide management accounting techniques are
adopted by management of Galway Plc that includes marginal costing techniques together with
absorption costing technique in order to compose financial reporting documents. These reporting
documents are further analysed by external parties like investors, suppliers and shareholders to
formulate better decisions (Kumarasiri and Jubb, 2016). Production managers together with
departmental heads records all transactions in proper format in reports and submits the same to
finance department. Such department analyse information in order to further prepare financial
statements like income statement, cash flow statement together with balance sheet as to analyse
financial status of business in competitive market.
D2. Financial reports to interpret business operational activities.
Financial reports of any organisation are used by stakeholders in order to make analyses
of business performances in context to financial terms within the accounting period so that future
investments decisions can be framed in advance. As per the above mentioned statements it has
been interpreted that Galway is earning huge profits in the month of May as well as June. Using
absorption costing technique, observed net profits for May is 1050 £ and 9792.4 £ is for June. In
contrary, using marginal technique, the company has faced loss of 550 £ in May addition to
profit of 5750 £ for June (Maskell, Baggaley and Grasso, 2017). Hence, marginal together with
absorption costing techniques are used to prepare income statement and further all operational
activities are interpreted by considering such statements.
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TASK 3
P4. Planning tools to control budget.
Budget: these are the list of estimated addition to forecasted revenues, costs together with
resources for specified period. Budgets are considered as important administrative tool that are
served as action plans to attain quantified objectives together with setting standards to measure
performances. It is a device that helps in dealing with adverse situations. In the advance scenario,
these are prepared through spreadsheets and budget specific software which are less liable to
computational errors. With the help of budgets, comparisons are made among standard sets with
actual outcomes attained so to evaluate performances addition to handling operations
accordingly.
Budgetary control: It involves procedures to determine actual results in context to
budgeted figures in order to calculate variances and accordingly framing policies for future
period. Such concept is defined to the system top control costs by preparing budgets, establishing
responsibilities, coordinating departments along with comparing actual results with budgeted
ones addition to acting on results so that maximum profitability can be achieved (Morden,
2016). Using such concept, financial managers of Alpha Limited, sets standards with operations
and makes comparison between actual results and estimated standards in order to find variances
addition to takes actions accordingly. Some of the budgetary controls that are used by such
organisational managers are the followings:
Flexible budget: Such budget that flexes to changes as per the actual revenue levels. It is
based on some primal fluctuation in fixed, variable addition to semi variable costs. By using
flexible budget, managers of Alpha Limited can predict levels of performances together with
incomes. It is considered as more sophisticated budget as numerous changes are made within
such budget as per business needs.
Advantages: Flexible budgets helps top authorities of Alpha Limited to enable accurate
assessments associated with managerial together with organisational performances. The
procedures to prepare such budget are straight forward.
Disadvantages: Rules related with preparation of such budget are straight forward which
many a time complicates recording transactions. Such budget consumes lot to time of managers
of selected organisations while classifying activities into different areas such as in variable cost
or fixed costs (Nørreklit, 2014).
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Master budget: As per the name, master budget is superior then other budget as it
involves other types of budgets within it. It combines numerous factors such as operating
expenses, assets, sales together with income streams that allows organisation to carefully
establish objectives and accordingly evaluate overall performances by considering individual
cost centres. It is used at Alpha Limited so to align all the budgets that are prepared by functional
departments.
Advantages: Master budget helps in controlling cash together with meeting financial
obligations in the current scenario. It benefits Alpha Limited managers to carefully forecast cash
receipts together with outlays so that situations related with shortage of cash can be handled in
advance (Schaltegger, Burritt and Petersen, 2017).
Disadvantages: Master budget requires professional experts in forecasting as well as
preparing it in appropriate manner that adds various costs to the Alpha Limited managers and
reduces profit margins also. Other than this, it is dependent on particular assumptions that may
be inaccurate in certain circumstances.
Cash Budget: The budget that helps in estimating inflows together with outflows of cash
in an accounting period. It is used by financial managers of Alpha Limited to avoid situations
related with cash shortages along with liquidity problems. It is prepared after preparing other
budgets such as sales, capital along with purchase. It is helpful in planning, forecasting future
needs, controlling cash expenditures, performance evaluation, coordinating with departments and
maintaining cash balances.
Advantages: It benefits financial managers of Alpha Limited to track cash arrivals
together with disbursements in order maintain cash management. It helps in avoiding debts,
better budgeting, staying in reality addition to identifying potential deficits.
Disadvantages: Cash budget limits spending power in various operational activities which
results in limited productivity. To prepare such budget, approaches are used by chosen
organisational managers that are susceptible to manipulate cash transactions that hampers
calculation of profits (Siverbo, 2014).
M3. Planning tools with application in order to prepare as well as forecasting budgets.
Planning tools are used to understand current scenario and predict future circumstances in
advance. Some of the planning tools that financial management team of Alpha Limited applies
are cash budget, master budget together with flexible budget for forecasting purposes. Such tools
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are applied to forecast activities or techniques in order to clear issues or deviations by
implementing techniques accordingly (Takeda and Boyns, 2014). For instance, flexible budget is
used to predict uncertain situation related with future operations where as cash budgets is applied
to estimate cash inflows addition outflows to eliminate cash related problems.
TASK 4
P5. Comparison showing the ways organisations solve financial problems with the use of
accounting systems.
Financial problems: In the dynamic scenario, managers faces enormous problems while
running and managing an enterprise. These are characterised as financial pressures which causes
stress due to unavailability of funds to manage daily operations. All the organisations faces some
or another financial problem that influences business profitability. Alpha Limited also faces
financial problems and its management team along with top level authorities implements
effective strategies to overcome such issues. The financial problems faced by selected
organisation are as elaborated:
More spendings than incomes: Marketers of Alpha Limited spends more money in
promotional activities and in return achieve less revenues which causes financial problems.
Other than this, monetary resources are also spent on machines, structure and other facilities
which are not able the generate revenues as expected (Weetman, 2019). Management authorities
have to implement strategies in order to reduce spendings and work in such manner that can
increase sales together with incomes.
Late payments by customers: Numerous products are sole in bulk quantities to creditors
and they pays in small instalment than in such conditions business has to face issues pertaining
with finance. Alpha Limited performs operations in manufacturing industry in which more credit
transactions occurs and minimum together with late payments are made by customers and
creditors that impacts of profit margin.
Management accounting approaches: such approaches are linked with accounting
techniques and are used for resolving problems associated with finance. Financial management
of Alpha Limited follows the below mentioned approaches to resolve financial problems:
Benchmarking approach: Using such approach, managers compares procedures
together with performance metrics with the best practices of another companies in the same
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industry or other industry by using particular indicator (Welford, 2016). Managers identify best
practices that are used by other companies addition to apply them to solve numerous financial
problems. Marketers keenly understand the ways of working of distinct businesses and
accordingly prepares benchmarking reports and submits the same to organisational members so
that strategies are implied to attain beneficiary results.
KPI approach: By using such type of approach, management of Alpha Limited can
measure performances of different operations and activities. Such approach helps in tracking
together with measuring action factors with the aim to attain business goals. It is used at
respective entity in order to compare together with setting standard that will lead the organisation
towards resolving financial issues. Effective KPI emphasis on procedures, functions and plans
that plays key role in measuring progress for meeting performance targets.
Comparison between Alpha Limited and Galway plc
Basis Alpha Limited Airdri
Problem Accountants of Alpha Limited are
facing financial issue related with
late payments from creditors due
to which they are unable to handle
daily operations.
Financial department of Galway plc
is facing problem of more
spendings than earnings. The
marketers to attract more
audiences, organises promotional
campaigns that requires huge
monetary resources and are unable
to generate revenues.
Accounting system The defined problem can be
resolved by using price optimising
system through which they can set
effective pricing policies and
implement them on creditors that
can force them to make payments
on accurate time.
Managers can resolve the above
mentioned issue by implementing
cost accounting system through
which they will be able to allocate
costs for distinct activities and
accordingly perform actions that
can result in resolving such
problem (Windolph and Moeller,
2012).
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Accounting approach Financial department should focus
on implementing accounting
approach of KPI so that they can
analyse the financial position of
each creditor and can measure
their performances in the dynamic
market.
Marketers of Galway Plc should
opt the benchmarking approach so
to analyse the strategies used by
other firms within same industry as
to attract audiences and prepare
benchmarking reports accordingly.
By evaluating the reports,
accountants can implement
strategies along with budgeted
estimations to to control the
spendings and resolving such
problem.
M4. Responding of management accounting towards financial problems for sustainable success.
Management accounting consider as integral part of organization that helps to gather,
classify, monitor and control the performance or financial issues of business. It comprises of
accounting techniques together with approaches to deal with financial hurdles. Alpha Limited
uses KPI approach to measure performances and accordingly implementing plans to solve
problems of finance (Endenich, 2014). In contrary, other firms uses such techniques for distinct
purposes such as planning and comparing actions. It also has been analysed that without
management accounting an organization cannot respond towards financial problems because it
helps to give true and fair transactions. moreover, it helps to maintain the production and profit
margin with the help of business decision. Resulting organization can lead to sustainable success
by making decision and managing accounts.
D3. Planning tools usage to respond towards solving financial problems so to lead the
organisation towards sustainable success.
Planning tools are effectively applied by management authorities to prepare budgets
together with decision making. It has been analysed that without planning tools an organization
cannot respond towards financial problems because such tools helps to getting true and fair
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picture of distinct transactions. Using such tools, Alpha Limited managers can properly monitor
situations and can overcome from financial troubles (Havranek, 2017). Some of the tools used by
such company are master budget, flexible budget addition to cash budget that helps in enhancing
efficiency through making comparisons among standard budgetary targets with actual
performances that will result in increasing profits by solving financial problems together with
leading the business towards sustainable success directions.
CONCLUSION
As per the presented report it has been concluded that management accounting plays
significant role in bridging gaps among finance and business departments. Management
accounting systems comprises of inventory management, cost accounting, price optimising
addition to job costing system. Some of the accounting reporting consist of budget, inventory
management, accounting receivable as well as performance reports. To prepare income
statements, marginal in addition with absorption costing techniques are used by the accountants
of company. Planning tools to control budgets are cash budget, flexible budget together with
master budget. Entities opt for KPI and benchmarking accounting approaches in order to resolve
financial hurdles addition to attain sustainable success.
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REFERENCES
Books and Journal:
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