Management accounting

I`ve attached the module handbook to this order.\nIf possible formulate the statement as a table

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management accounting and its system............................................................................3
P2 Management accounting report and its methods...............................................................5
TASK 2............................................................................................................................................6
P3 Cost calculation by utilising several costing techniques...................................................6
TASK 3............................................................................................................................................9
P4 Dis-advantages and advantages for different planning tool which is used for budgetary
control.....................................................................................................................................9
TASK 4..........................................................................................................................................12
P5 Comparison the way by which organisation are adopting management accounting system
..............................................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting works as a process or procedure that stores the financial
information of the organisation in order to make effective decisions which leads organisation to
get top position in the market. With the implement of management accounting, it is easy for
organisation as well as stakeholders such as manager, employee’s etc. to analyse and monitor the
performance of financial strength of organisation. This report is based on ABC Ltd. which is
engaged in manufacturing sector. To promote better understanding of different departments, the
present assignment report is prepared to identify the role of management accounting and its other
functions. This report highlights on types of management accounting and reporting. To make an
effective income statement by using marginal and absorption costing method will also be
focused in this report. In the last, management accounting system in order to respond financial
problems must be included in upcoming report to deal with financial problem of organisation.
TASK 1
P1 Management accounting and its system
Management accounting works as a process of analysing, recording and communicating
all the financial data in effective manner (Laing and Perrin, 2014). So it is easy for organisation
to develop effective strategies which leads management to formulate strategies that increases
performance of organisation by making accurate decision making.
Evolution of management accounting- Management accounting introduced in the period
of industrial rebellion. It was first introduced to trace the financial information through which
management introduces stewardship to understand financial impact of industries. Therefore,
textile and railroad are first industries in which management accounting is first introduced.
Management accounting system- It is a type of system which is used by financial
department of organisation with the purpose of recording and tracking financial data of different
functional and operational department of organisation. Some management accounting systems
which are used by ABC Ltd. are mention as follow:
 Cost accounting system- By utilising cost accounting system it is easy for organisation to
analyse and undertake actual cost of its products. In the context of ABC Ltd., it is easy
for management to keep all information in detail manner. So all expenses related with
financial aspects and services are considers by the organisation in effective manner.

Along with this it helps organisation to add value in all operations and expenses for
organisation.
 Benefit- With cost accounting system it is easy for management to track and
record all cost that is related with operations of business.
 Inventory management system- As the name inventory suggests that it is used by
organisation to manage inventory for the organisation (Joubert, Garvie and Parle, 2017).
Due to which the cost related with inventory is low by analysing the essential
requirement of raw-materials and other resources that are required for inventory.
 Benefit- This is beneficial to implement and analyse all requirements that
improves the quality of inventory. It also enhance the sale and profits for
organisation.
 Price optimisation system- This method is used by organisation to decide or set the right
price of all products as per the quality and manufacturing cost of ABC Ltd. ABC Ltd.
implement price optimisation system to set the price of all products and services which
are offered by management in the market.
 Benefit- With the accurate prices of services and products it is easy for
management to decide their prices as per customer’s expectation.
 Job order costing system- It is a system that is used to analyse and accumulate the cost
for each unit of organisation. By implementing these system, finance department of ABC
Ltd. helps other department to decide the cost for each unit that is manufactured inside
the organisation (Newberry, 2015). Moreover, it is also important for organisation to
perform their work in effective manner. So the value in products are added on specific
base.
 Benefit- With these systems in the organisation, it is easy for the management of
ABC Ltd. to decide right prices for all products.
Difference between financial accounting and management accounting
Purpose Financial accounting Management accounting
Definition Financial accounting is used
by organisation to analyse the
actual position of organisation
in market. It also represents
Management accounting
works as an internal part for
organisation. Due to which it
is easy for management to

the goodwill of company to
stakeholders.
improve the financial strength
of organisation.
Rules and Regulation In order to implement
financial accounting
effectively. Organisation must
follow all rules that are
decided by ICAI, as it is
beyond the control of
management.
Under management
accounting there are less rules
and regulations exists for the
organisation. Due to which it
is easy for management to
control this effectively.
P2 Management accounting report and its methods
Management accounting reporting- All the information regarding organisational
performance which is recorded by management accounting is considered under management
reporting (Iqbal and Iqbal, 2015). Due to which it is easy for ABC Ltd. to formulate exact reports
of the organisation functions and operations.
Characteristic of good information system
Reliable- With the reliable information it is easy for management to analyse the actual
status of organisation.
Accurate- This is more important for a company to record the correct and accurate data
to make accurate and perfect reports.
Reason to make effective reports
For an organisation it is essential for management to keep records about all information
because the main motive of management accounting and reporting is to make effective decision
which leads organisation to achieve huge success in market. Further, this is also useful for
stakeholders and top authorities of ABC Ltd. to understand the existing position of company in
the market.
Methods of management accounting reporting is as follow:
Performance report- These report is generated with the purpose of recording all
operations and employee’s performance in the organisation (Tahtamouni, 2014). It is used by
ABC Ltd. to formulate and record all the information about their functions and operations. So it
is analysed by authorities that their strategies are working effectively or not.

Budget report- Budget report works as an internal part for organisation that is beneficial
to assign right budget for all departments (He, Evans and He, 2016). The main motive to make
these budgets is to perform the organisational work in minimum budget. Further, there are
various operations are performed by management of ABC Ltd. So it is important for them to
perform there all work under the budget due to which all functions are performed together by
organisation.
Account receivable report- An organisation offers and sale their products to customers
on cash as well as credit basis. So most of the companies makes account receivable report due to
which it is easy for financial department to track the actual amount of sale. Similarly, it also
helps organisation to recover their amount from creditors. This increases the cash reserve and
amounts for ABC Ltd.
Inventory management report- The main purpose of inventory management report is to
track the actual amount of semi-finished and finished goods that is present in the storage house
of organisation. Therefore, the upcoming order of inventory is not waste and useful to make
actual requirement of inventory.
Combination between management accounting system and reporting in organisation
process
All types of management accounting and reporting system are integrated in
organisational process. Like price optimisation system is utilised by ABC Ltd. to decide the
actual and right price for their products and services. On the other side, with account receivable
reports assist and formulate effective credit policies for organisation. Due to which all credit
amount is recover by organisation. In the last, with inventory management system organisation
produces effective results to manage the inventory aspects and requirement for the company.
TASK 2
P3 Cost calculation by utilising several costing techniques
Cost- The amount at which there is exchange between the purchaser and seller of product
or service take place is known as cost (Haider, 2015). ABC Ltd. decide accurate cost for their
products. Due to which more number of customers are attracted towards them. Some of them are
mention as follow:

 Indirect cost- All types of expenses which are not related with products but they are
linked with organisational aspects are consider under indirect cost. These are office rent,
electricity and water expenses etc.
 Direct cost- Cost that is directly linked with products and services are included in the
direct cost. It includes tax, production cost, wages, raw-material cost and many more.
 Cost analysis- This is defined as a process that is used to evaluate different action related
with organisation and its profits. The main aim to analyse the cost of organisation is to
formulate long term decision for the organisation.
Marginal costing- In the marginal cost, the amount related with each unit is always
equal and further it is divided into two different parts that is fixed and variable. It is also useful
for calculating the profits for organisation. This result it is easy for organisation to take right and
important decision for its functions.
Absorption costing- Absorption cost is beneficial to prepare financial accounts of
organisation. The main motive to implement absorption method for costing is to analyse the net
profit and gross profit of organisation.
Calculation of profit & loss using Absorption costing:
Statement of Profit or Loss for Jan 2019
Absorption Costing
Per
Unit Budget Actual
£ £ £ £ £ £
Sales Revenue 50 800,000 800,000
COST OF SALES:
Cost of Production:
Direct Material 10 180,000 190,000
Direct Labour 20 360,000 380,000
Variable Overhead 5 90,000 95,000
Fixed Overhead* 5 90,000 95,000
40 720,000 760,000
+ Opening Inventory 0 0
- Closing Inventory 80,000 120,000
Standard Cost of Sales 40 640,000 640,000
Standard Profit 10 160,000 160,000

Adjustment for
underabsorption -10,000 -5,000
*
Profit
Budgeted
Profit 150,000
Actual
Profit 155,000
Interpretation: From the above calculation of absorption costing it shows that ABC limited have
budgeted profit in 2019 is 150000 and actual profit is 155000.
Statement of Profit or Loss for Jan 2019
Variable Costing
Per
Unit Budget Actual
£ £ £ £ £ £
Sales Revenue 50 800,000 800,000
COST OF SALES:
Cost of Production:

Direct Material 10 180,000 190,000
Direct Labour 20 360,000 380,000
Variable Overhead 5 90,000 95,000
35 630,000 665,000
+ Opening Inventory 0 0
- Closing Inventory 70,000 105,000
560,000 560,000
Standard Cost of Sales
Variable 35 240,000 240,000
Contribution 15 100,000 100,000
Fixed Overhead Profit
Budgeted
Profit 140,000
Actual
Profit 140,000
Interpretation: It has been considered from the above calculation of variable costing that
ABC limited has equal profit of actual and budgeted in 2019 that is 140000.
TASK 3
P4 Dis-advantages and advantages for different planning tool which is used for budgetary control
Budget- This is defining as a tool which is used to forecast and estimate the income and
expenses for the upcoming period or year. ABC Ltd. makes budget that satisfies actual needs and
fulfil them under the estimated price for the organisation. It is also used under the budgetary
control due to which long term objectives of management are achieved by management. On the
other side, with an effective budget it is easy for organisation to complete their work in actual
figures (Davis, 2019).
Preparing a budget- There are different steps are included in an organisation to make an
effective budget. In the present scenario, the first status of organisation is determining by
manager such as available resources and its requirement in the future. On the other side, different
plans are also formulated that is used to make several budgets as per the needs and future period.
This results ABC Ltd. select the appropriate budget for organisation.

Types of budget:
Capital budget- It is an effective budget that is used to record all information related with
large capital investment. This also helps the individual to track all financial performance and as a
financial service provider, it is mandatory for ABC Ltd. to prepare master budget that is
beneficial to make long terms financial plan for organisation. Some of its advantages and dis-
advantages is as follow:
Advantages:
 In large organisation capital budget is used to record large number of monetary resources
that is invested by management.
 Financial performance of the organisation is improved by developing capital budget as it
undertakes the overall view of business operations.
Dis-advantages
 Under capital budget it is complex for organisation to make specific results as these
budgets are developed on collective basis.
 Capital budget are difficult to develop because it requires large information.
Operating budget- This budgets are generated to estimate all cost and its income or
expenses which are based on sales and revenue for the organisation (Chand, Patel and White,
2015). In context of ABC Ltd. this is used by management to identify the top level executive
which enhances the productivity of operations which are performed by management. Some
advantages and dis-advantages of operating budget are as follow:
Advantages
 This help business manager and owner to ensure that the monetary value for organisation
is utilised properly by organisation.
 Operating budget helps a company to analyse their current as well as past expenses.
Dis-advantages
 They are used by management to identify revenue and other figures and represent it to the
public due to which financial information is leaked in the market.
 Operating budget undertakes information from past as well as present information. So it
is complex to collect the right figures for organisation.

Zero-based budgeting- This budgets start from the zero base. Moreover, in zero-based
budgets it is essential for organisation to justify all expenses. Further, for ABC Ltd. it is
beneficial to reduce cost of its operations. Due to which business houses are able to increase their
profits.
Advantages
 For each accounting year new budgets are developed by organisation that is used to
enhance performance of its operations.
Dis-advantage
 This budgets are not appropriate for short term planning as it is always required zero
number.
Pricing- Price or cost is one of the most important factor for organisation due to which
the sale for their products and services is impacted (Bardil and Garrison, 2015). ABC Ltd. utilise
two types of strategies which are mention as follow:
Penetration- In this strategy organisation decided the low prices to enter in market and
then increase it after covering large market share.
Premium- The premium price strategy selects the prices at high level. So it is easy for
management to sale it high rates and to increase their profit share.
Method through which competitor determine prices for their products
Competitors are those firms which impacts on the price factors of organisation through
different ways. This is mandatory for business houses to analyse the market situation and then
decide price for its products. PEST is used by management for this task which is mention as
follow:
PEST analysis
Political Economical
The unstable political ground impact on ABC
Ltd. So it is essential to analyse the
governmental policy and make strategies
according to them.
Fluctuation in the economic condition of UK is
seen. Due to Brexit it is complex for
management in deciding the prices of its
products.
Social Technological
Customer behaviour, buying values, culture With the updated technology it is easy for

etc. which are followed by the country are
included under social factor. If organisation
not follow this factors then it is complex for
management to sale their products.
management to perform their work in short
intervals. As it helps organisation to complete
their work and attain growth for longer period
in all organisation.
TASK 4
P5 Comparison the way by which organisation are adopting management accounting system
Financial problem is defined as a situation which impact on the organisation and face issue
such as lack of money, insufficient cash flow. This is important for business entities in
identifying various problems that is related with strategies of organisation. Some financial
challenges that is impacting on the ABC Ltd. are mention as follow:
Sudden expenses- The financial problem that takes place in ABC Ltd. related with
management due to un-ineffective planning such as lack of expense. This is used to make
managers in order to utilise funds and methods to deal with it. Moreover, the major problem for
expense is relates with lack of expenses.
No payment by customers- ABC Ltd. is performing their work at global level (ASB and et. al.,
2018). This results that there are various challenges are raised due to the credit facility by which
customers purchase products and paid price for them in future. In the context of ABC Ltd.,
management is developing strategies which boost their performance.
Key performance indicator- This method is used by organisation with the purpose of
measuring the performance of organisation operations and their functions. First tool relates with
the financial aspects and the second relates with non-financial tool by which organisation
manage their operations and supply chain in effective manner.
Benchmarking- Budgets are the measurement tool that is used by organisation to
compare its performance with the competitive firms. In the context of ABC Ltd. there are various
problems are faced by organisation. Like it is used by organisation to identify all problems which
is related with business clients and to adopt changes in management.
Budgetary targets- The budget targets are defined as estimation of money to analysis the
specific financial year (AASB, 2016). This is also used by manager of respective organisation to
find the difference between actual and standard figure which raised issue in market.

Financial governance- This is defined as a set of financial principle which is required by
organisation to follow. As it leads organisation to deal with financial problems in order to resolve
the issue that is impacting on business performance. This is also used by management to monitor
various strategies and follow them as the financial principle that is impacting on business profits.
Comparison and adoption of financial performance in organisation
ABC Ltd. Ryder architecture
Cost accounting system is adopted by
organisation that is used to analyse the cost as
per the requirement of organisation.
Inventory management system is also used by
organisation that is beneficial to track the stock
and availability of materials.
Price optimisation system are also utilise by
organisation in order to set the cost according
to the policies through which financial
problems are solved by customers.
On other side, with cost accounting system the
cost for products is managed by organisation
through making and keeping records in detail
that is require to tackle all financial issue.
CONCLUSION
In the last, by the above report it is concluded that, management accounting can be defined
as an effective process through which company analysis, control and monitor the financial
performance to make strategic decisions for the upcoming future. On the other side, there are
various planning tools such as zero based budget, operating budget and master budget are used
by budgetary control that is used to forecast and formulating budgets for longer period in
organisation. In the last, KPI and benchmarking are the tools which are used by management to
overcome financial issue and to deal with problems of management in appropriate manner.

REFERENCES
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154.
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