Management Accounting and Control Systems

This assignment provides an overview of management accounting and control systems in different contexts. It includes research papers on topics such as budget efficiency, cost control, carbon emission risks, and safety management. The assignment also covers the use of management accounting in public health-care organizations and its impact on financial performance.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Explaining management accounting with different types of management accounting system
................................................................................................................................................1
B. Explaining different types of management accounting reports and its importance ..........2
C. Evaluation of benefits of management accounting system in Barry house hotels.............3
D. Evaluating the integration of management accounting system and reporting in Barry house
hotels.......................................................................................................................................1
TASK 2............................................................................................................................................2
A. 1) Explaining Absorption costing and marginal costing methods of costing....................2
A. 2) & C. Income statements of income statements of Barry house hotels as per marginal and
absorption costing method......................................................................................................1
B. Calculation of Break-even analysis..................................................................................2
C & D. Financial reporting documents that apply and interpret data for Barry house...........3
TASK 3............................................................................................................................................4
A. Advantages and disadvantages of different types of planning tools for budgetary control.. .4
B. Application of planning tools for preparing, forecasting and analysing budgets..............1
C. Requirement of adapting different management accounting system in respond to financial
problems.................................................................................................................................1
D. Role of management accounting techniques for Barry house's sustainable success.........2
E. Role of planning tools to solve financial problem and sustainable success of Barry house
hotels.......................................................................................................................................3
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

INTRODUCTION
Management accounting is a concept of analysing and recording business activities for
internal management use in an effect to increase efficiency and productivity. Present report
highlights issues of Barry House Hotel's management accounting(MA) system. The study
includes a critical discussion on the MA which helps in understanding significance of different
MA system. Further, the report shows an value of accounting system reports for Barry House in
making effective decisions.
The study also includes crucial advantages of management accounting system for Barry
house. Further, absorption and marginal costing is explained. Calculation of net income of Barry
house by applying both the costing method is present in report. Critical evaluation on different
planning tools for budgetary control is included. The requirement of adapting various
management accounting system for Barry house to deal with its financial problem is included in
study.
TASK 1
A. Explaining management accounting with different types of management accounting system
Management accounting is also known as cost accounting, as it a process to analyse
business costs and operations to prepare internal financial report which is used in decision
making process by managers for better improvement and increase efficiency and productivity of
Barry house hotel (Alawattage, Wickramasinghe and Uddin, 2017).
Management accounting (MA) is an act of making financial and costing data to translate
in useful information for the management of Barry House and is considered as important for
various functions including planning, organising, staffing and controlling.
There are different types of management accounting system which is required by Barry
house for effective operations:
 Cost accounting system: This system helps the organization to estimate cost of product
and service for profitability analysis, inventory valuation and cost control. Barry house
should know the profitability of its product and services, as it can be evaluated only when
it has estimated current cost of the product. Job costing system: It is an expenses observing system that allocate manufacturing cost
to each product which helps manager to keep track of each expenditure. It divides the
cost in overhead, direct material and direct labour costs and estimate it at their actual
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value. Barry house should use job costing system to control the use of raw material,
labour hours and equipment by assigning each customer cost separately.
 Price-optimization system: It is a system which helps in calculating the difference in
demands at different price levels, on the basis of this data and the information of cost and
inventory level. Price of the product will be estimated to improve the profit of
organization.
B. Explaining different types of management accounting reports and its importance
Management accounting reports are important tools for company to determine the
complete picture about performance of company over a period of time. It is used by internal
board for making decisions regarding growth and development plans for business.
(Makrygiannakis and Jack, 2016) Managerial accounting report can be an effective tool for Barry
hotels which will help it to eliminate unnecessary costs, rewards high-performing employees,
and invest to improve its services in hotels to get the best returns for the company. The
managers can use these reports for effective decision making process.
The different types of management accounting reports are:
Budgetary reports: It is the most fundamental report in managerial accounting. It is
important for manager of Barry house to understand and control costs across the organization
(What Is a Cost Budget? ,2018). By analysing the expenses of prior year, it becomes possible to
estimate budgets for following year and essential plan will be made to cut expenses in next year.
The budget reports made for unforeseen circumstances that might arise. It is important to guide
the manager for better employees’ incentives plans.
Job cost reports: This details shows expenses for a specific project or that has been
assigned by Barry house. It helps in comparing total expenses of that job and with the expected
revenue earned by that job (Chiwamit, Modell and Yang, 2014). The reports is important for
managers to decide profitability level of that particular job and make the most efficient use of
their operation by focusing on the most profitable job.
Performance reports: This reports are made to review the performance of overall
company as a whole. It is an important outline for the managers to make key strategic decisions
about future operations of Barry house. Performance review offer some deep insights about their
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working. This report is helpful in pointing out areas where improvement is necessary. Operation
reports are important for Barry hotels to keep an accurate measure of their strategy towards their
mission.
Order information report: This report will help managers to see the trends in their
business, what the customer will prefers in hotel and what their requirement are(What is a
Budgeted Cost?, 2018). This report is important to increase efficiency of a business and
integrating management operations to achieve low cost on placing order and maintain efficiency
of their management.
C. Evaluation of benefits of management accounting system in Barry house hotels
There are various benefits of applying management accounting system in Barry house
and hotels to improve the operational functions of this business entity.
Cost accounting
Benefits Drawbacks
Cost accounting system helps Barry house in
eliminating wastes, loses and inefficiency by
fixing standards for each operation.
It would be a costly system for Barry house
hotels as this system requires maintaining all
the past data and information.
It provides necessary cost information to the
management of Barry house for planning,
implementing and controlling process(Conde
and Valeiras, 2018). It helps in estimating
accurate cost of the product and services
offered.
For accurate decision making process, it is
important to get the correct cost information at
right time.
It improves decision making process and
improves a total quality of management of
Barry house.
Cost accounting system requires participation
of each department of hotel which may not be
possible and will be time consuming.
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Job costing system
Benefits Drawbacks
Job costing system helps Barry house to
estimate the pricing of each job.
The price of job will be fixed only considering
market conditions and not on the basis of past
records.
It will be easy for management of Barry house
in estimating cost of each job on basis of past
records in job costing.
It would be an expensive system for Barry
house.
It helps in taking actions to control
uncontrollable overhead by comparing actual
costs incurred with predetermined costs.
Job costing system required more labour work
for maintaining detailed information for job
costing process.
Price-optimization system
Benefits Drawbacks
Barry house can determine the preferences of
customers based on different prices.
At the time of inflation or economic changes in
country, this system doesn't work at that time.
Price optimization system helps in maximising
operating profits with best prices (Alawattage,
Wickramasinghe and Uddin, 2017).
Fixing up of prices of products and services
offered by Barry house can be decided on the
basis of customers as there are various other
factors to be considered.
It helps Barry house to become more active on
customer's reviews and responses.
Price optimization system is an expensive and
time consuming process.
D. Evaluating the integration of management accounting system and reporting in Barry house
hotels
Management accounting reports and their integration with Barry house hotels are as
follows:
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Budgeting reports help to make a path for Barry House hotel's operational activities to
concentrate on targeted results and objectives in much better way. It measures the company's
actual performance with budgeted presentation.
Job cost reports helps in identifies the cost and profitability of each particular job. The
activities of Barry house hotels should be directed towards the achievement of cost objectives
and reports which can make easier to decide pricing strategies of Barry house and reducing the
overall expenses of services offered.
This report helps in estimating the overall performance of every department with the
budgeted performance (Warren Jr, Moffitt and Byrnes, 2015). The integration between
performance reports and Barry house activities will help managers to plan for future production
and cost increment leading to cost reduction and high profitability.
TASK 2
A. 1) Explaining Absorption costing and marginal costing methods of costing.
Absorption Costing: It is a method of finding cost of production but incurring all fixed
and variable cost in manufacturing process. This method assumes both fixed and variable costs
as product cost of inventory (absorption costing ,2018). It helps in calculating the net profit per
unit of production. That is why, it is considered as full costing or brimful absorption method. It
gives accurate picture of cost required to produce an inventory. Absorption costing is also useful
in decision making process by providing specific cost information.
Marginal Costing: In this costing method only variable cost is considered as product cost
of an inventory (Lasyoud, Haslam and Roslender, 2018). Under this method, variable cost is
considered as product cost like direct labour, direct material and irregular overheads are
considered as product cost and fixed cost is considered as a period expenses and will stay
constant in marginal costing method. It is also refereed as variable costing as it is based on
behaviour of irregular cost that vary with volume of output.
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A. 2) & C. Income statements of income statements of Barry house hotels as per marginal and
absorption costing method.
Income statements as per absorption costing:
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Income statement as per marginal costing:
Interpretation
It can be observed from the above figure that, calculating the net income of Barry house
hotel with marginal costing method is 17500 pounds which is less as compared to the absorption
costing method, that is 17700 pounds. Hence, it can be interpreted from the calculation that
Barry house hotel should adopt absorption costing method to evaluate the cost of inventory
production, as it takes both fixed and variable cost in account (barrondo-Dávila, López-Alonso
and Rubio-Gámez, 2015). As financial statements are very important for external users to
evaluate overall performance of Barry House, it is required that financial statements of Barry
House give accurate picture of all activities. Thus, Barry house hotels should use absorption
costing method to determine the net income in financial statements.
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B. Calculation of Break-even analysis
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Break-even analysis helps in determining the volume of sales to cover the cost of
production. The break-even point is said to achieve where the total sales and revenue is equal to
the total expenditure; after reaching break-even point, the company starts generating profit.
From the above figure, it can be observed that to meet the break-even point in number of
products to be sold should be 222. In terms of sales revenue, it can be evaluated that BEP is
888889pounds. The number of products that required to sell is approximately 592. The
marginal safety required to sell 800 products is .72.
C & D. Financial reporting documents that apply and interpret data for Barry house.
To,
General Manager,
Barry House Hotels
London, United Kingdom.
Date: 06/09/2018
Sir,
This is to report the General Manager of Barry House Hotels about management accounting
techniques which are required to apply in Barry House. It can be interpret that both the
absorption and marginal costing method is fruitful for the business entity, which help the
system to evaluate the sufficient profit for Barry House. It can be contemplate by the income
statement that both absorption and marginal costing is useful to calculate the unit cost of
production (Kumarasiri and Jubb, 2016). On the basis of cited case situation, the approach of
absorption costing is more précised to apply as it would provide an accurate performance
picture. Absorption method includes both fixed and variable cost to determine cost of
production of an inventory.
On the perceptive of both the method, it can be observed that by applying absorption costing
method the net income is 17700 pounds which is quit more as compared to marginal costing
which is 17500 pounds. Hence, it can be said that absorption method is more accurate and
should apply in Barry house.
Thank you
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TASK 3
A. Advantages and disadvantages of different types of planning tools for budgetary control.
Budgetary control is a process which is used to control the finances of business operations.
It is an operation in which budgeted operations is compared with the actual performance to see
the variations. Financial forecasting helps the management of Barry House to find differences
and take corrective measures which will help in making future budgets also. Budget planning
tools are used to manage, plan and forecast Barry house's budget to be implemented and
managed to achieve targeted objectives and results.
The planning tools which Barry house can use for budget control are as follows:
Zero based budgeting: It is a process of creating budget without considering the past
year budget or expenditure. In zero based budgeting, each and every activity of business is
determine organization's activities and capability of spending (Zero based budgeting Stages
Advantages and Disadvantages, 2018). Manager of Barry house will identify all expected
expenditure and rank all of the activities according to their cost and importance. On the basis of
this, budget of the following year will be made and allocation of cost will be done.
Advantages of Zero Based Budgeting
 It helps in identifying insufficient operations in Barry house which can be eliminated.
 ZBB accommodates the involvement of staffs at all level of operations in Barry house
since information is required to complete budget (Maheshwari, 2015).
 It assists in understanding and grasp the cost behaviour design of Barry house that could
be strengthen. Resources and funds will be allocated to each department efficiently and economically.
Disadvantages of Zero Based Budgeting
 It gives attention to short term benefits to disadvantage of long term goals in
organization.
 The budgeting process of ZBB may become too inelastic and Barry house may not be
able to react on unforeseen opportunities or threats.
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 Zero based budgeting required highly qualified manager and staff, which can increase the
expenditure of Barry house. It is time consuming to prepare budgets from starting and require more efforts from
manager and staff.
Responsibility Centre: Responsibility centre is a part in an organization where manager has
assigned job for all activities of that unit. It is a significant concept, as task of operations,
budgeting, costing, controlling and planning in Barry house can be examined by one department.
Manager will be accountable for accomplishment of activities and tasks in unit (Zvezdov and
Schaltegger, 2015). They make plans to minimize the expenses of Barry House and makes
budgets to increase profit and meet the ultimate business goals. If responsibility centre fails in
their tasks, the manager will be responsible to answer the top level management of Barry house.
Advantages of Responsibility centre
 It helps in sound implementation for control.
 Responsibility centre assists in increasing interest and awareness of the managers as they
are accountable to explain about variation for their responsibilities. It encourages budgeting with which actual achievements can be compared.
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Disadvantages of Responsibility centre
 It is practically difficult to outline an organizational chart that figure the responsibility
and grant authority required for assigning function.
 There must exist a good reporting system, without which the planning tool become
useless and meaningless.
Cash Budget: It is planning tool which helps the company to forecast about the company's
financial position. It is the process of estimating the company's future cash receipts and payments
through which the actual cash is measured in a specific time period. It includes the cash inflow
and cash outflow that also includes the revenue collected, expenses paid etc.
B. Application of planning tools for preparing, forecasting and analysing budgets
Zero based budgeting: It is a method of budgeting in which all activities are analysed for
its need and costs, budgets are then made without considering past years’ budgets. It is a
significant tool for controlling expenses and allocation of funds. This method helps in planning
Barry house in preparing the current year's financial expectations but evaluating the current
year’s requirement and on the basis of this, the budget is being prepared (Klychova,
Faskhutdinova and Sadrieva, 2014)
Zero based budgeting will help Barry house to forecast financial needs of operations for
current year and funds will be allocated to all the departments on the basis of their requirements.
This method assist the manager of Barry house to analyse and identify insufficient operations
and assists in minimizing expenditure by reviewing current year’s budgets.
Responsibility Centre: It is an organisational unit which is responsible to track and report costs,
expenditures, revenue and operational statistics. Managers of each department are assigned with
their lines of responsibilities on which there are responsible to answers.
Cash Budgets: It will help the Berry house in evaluating the management of cash flow.
Management uses the cash budgets to manage the cash flow of the company and to be ensure
that there would be enough cash available in the company to meet any unseen requirement. It
will help the company to control over the management of the cash received and expenses paid.
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C. Requirement of adapting different management accounting system in respond to financial
problems.
Barry house hotels is facing financial problems for which the company wants to apply
management accounting system to resolve issues. Organisation has adopted bench marking
system as some techniques for to improve the financial performance. Bench marking is used to
determine various operational performances by focusing on different factors like cost of
production, revenue generated etc.
Benchmarking helps in comparing actual performance with the standardized
performance goals. It can also done by comparing actual performance with the performance of
competitors in same industry, it helps in setting a bench mark to improve the company's
performances (Macinati and Anessi-Pessina, 2014). However, it is critically evaluated that bench
marking helps Barry house to develop and implement new strategies to improve financial
performance. Bench mark helps in eliminating inefficient activities and helps in attaining
business goals.
Where, another firm OakMan.Inns & restaurants is adopting financial governance as a
management accounting techniques. It assist in managing and controlling financial data which
helps Oakman Inn's management to make accurate decisions. But financial governance requires
security of data and the economic information which is lacking in OakMan Inns. There is no
centralised, unified corporate software that can help in improving financial performance.
D. Role of management accounting techniques for Barry house's sustainable success
Following are some management accounting techniques which will help in success of
Barry House:
Standard Costing: It is a process in which standard cost for manufacturing will be
predetermined. It can be described as an estimated future cost or budgeted unit cost. It is related
to direct material, direct labour and manufacturing overhead. Standard costing helps in
determining any variances between standard cost as an actual cost. It helps in improving the area
for production.
Financial governance: It is a process of managing and controlling financial information
of an organisation. Having financial governance in Barry house will enable them to manage
business data and ensures that entire information is correct (Armstrong, 2014). Financial
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governance helps Barry house to make economic policies, in external and internal auditing of
financial statements. Managed and secured data helps in quick decision making regarding future
development of organization.
Benchmarking: It is an application of comparing actual performance results to
standardised performance goals which company sets as a benchmark. It can be used in Barry
house to set a budgetary and financial performance goals. A benchmark is used to compare
actual results and to evaluate the improvement of Barry House. Bench-marking can also be use s
in external form, where organization can compares themselves to other company of the same
industry. Barry house can compare its performance with other lodging companies as it will
provide a bench mark on which business will operate to improve its performance.
Balanced Scorecards: It is a model which evaluates measures of financial performance,
learning, innovations and internal operations (Kumarasiri and Jubb, 2016). It is an improved
financial reporting system as it emphasis on customer’s satisfaction, operational efficiency and
future growth opportunities. It is a basis to make strategic decisions for management and helps in
improving various business functions. Through balanced scorecards, Barry house can identify
activities which can hinder performance level of operations. Balanced scorecard is important for
Barry house to achieve profitable growth.
By taking into account all the depicted aspects it can be presented that management
accounting techniques provide high level of assistance in solving monetary problems effectually.
Moreover, all such tools help the manager of Barry House in identifying areas which need more
improvement within the suitable time frame. For instance: standard costing and benchmarking
method helps in assessing areas where company fails to meet targets. Thus, all the concerned
MA techniques help in developing competent strategic as well as policy framework and thereby
leads or contributes in sustainable success. The management accounting techniques is very
essential in taking business to the the sustainable success. With the help of financial governance,
Berry house can maker the effective strategies for improving financial decisions. It will help in
improving the financial performance and will help in attracting shareholder and investors which
help in making business successful. Balance scorecard will help n achieving organisational goal
by turning the goals in a measurable value, which will help in achieving the business goals of
long-term success.
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E. Role of planning tools to solve financial problem and sustainable success of Barry house
hotels
Barry house can evaluate the following aspects to select planning tools to attain
sustainable success.
Standard Costing
Advantages Disadvantages
 Standard costing is powerful cost
control system. It helps in controlling
and reducing expenditure.
 It helps in identified inadequate
operational functions.
 It provides useful information for
managerial planning and decision
making.
 Standard costing consumes time in
developing and installing reliable
costing systems.
 Setting up a goals is a difficult task, as
it requires technical skills.
 With the change in business conditions,
quality are equally changing so
standards are need to be reviewed time
to time.
Bench marking
Advantages Disadvantages
 Bench-marking enables Barry house to
outperform competitors.
 It also uses benchmarking to improve
product quality also.
 Barry house can increase its
profitability with the help of
benchmarking.
 It increases diversity of information
which must be monitored by
management (Armstrong, 2014).
 It can decrease motivation of
employees if the companies
performance is being compared with
some better competitors.
 There is a risk of customer's
information to get liked easily.
Balanced scorecard
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 Advantages Disadvantages
 Balanced scorecards facilitate
communication and understanding of
business goals and strategies in Barry
house.
 It helps employees to evaluate their
individual goals so that they can
connect to Barry house's strategy.
 It helps in monitoring of goals and
objectives.
 In order to apply tools correctly, it is
very important to give time and
investment. It can bring burden on the
Barry house's revenue.
 It required strong leadership support
from manager to bring successful
balance scorecard in Barry house.
 It requires obtaining information from
managers and efforts to monitor that
information with actual performance.
Management accounting techniques as well as planning tools for budgetary control helps
Barry house to identifies and eliminates financial problems in organization. Activity based
budgeting as a planning tool for budgetary control provides management with better performance
measurement which influence the financial performance of Barry house. ABB helps managers of
Barry house to understand profitability better (Ibarrondo-Dávila, López-Alonso and Rubio-
Gámez, 2015). Financial governance results in getting more accurate information which is used
by the top management to make strategies which reflects strong business's financial reality.
CONCLUSION
By summing up the above report, it can be concluded that management accounting
principles and techniques are very important to attain financial stability and sustainable success
for any organization. These techniques provided an appropriate and accurate information to the
top management which helped in taking proper decisions.
The present study concluded the importance of management accounting techniques that
Barry house hotels applied for the growth of business in lodging industry. The report includes the
use of absorption and marginal costing methods which assisted Barry house to prepare financial
statements. Present study included calculations on absorption, marginal costing and break even
analysis.
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Further, the application of planning tools have been discussed. A report to General
Manager on management accounting techniques and a financial reporting which interpret the
data for business activities are included in study. Discussion on management accounting
techniques and planning tools that are important to eliminate financial problem and leads Barry
house to sustainable success is concluded in present.
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REFERENCES
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166.
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accounting innovations: economic value added and institutional work in the fields of
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Ibarrondo-Dávila, M. P., López-Alonso, M. and Rubio-Gámez, M. C., 2015. Managerial
accounting for safety management. The case of a Spanish construction company. Safety
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Kumarasiri, J. and Jubb, C., 2016. Carbon emission risks and management accounting:
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developing countries: evidence from Libya. Asian Review of Accounting .26(3). pp.278-
313.
Macinati, M .S. and Anessi-Pessina, E.U.G.E.N.I.O., 2014. Management accounting use and
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Maheshwari, S., 2015. Management Accounting. Vikas Publishing House Pvt Ltd..
Makrygiannakis, G. and Jack, L., 2016. Understanding management accounting change using
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Warren Jr, J. D., Moffitt, K. C. and Byrnes, P., 2015. How Big Data will change
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Zvezdov, D. and Schaltegger, S., 2015. Decision support through carbon management
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