Management Accounting and Different Types of System

This document provides an introduction to management accounting and its different types of systems. It explains the benefits and disadvantages of various management accounting systems. It also discusses techniques for cost analysis and planning tools used for budgetary control. If you need help with your management accounting assignments, essays, or dissertations, Desklib is here to assist you.

Management
Accounting
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Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
P1 Management accounting and different types of system.........................................................3
P2 Explain different methods of management accounting report...............................................6
M1. Evaluation of benefits of various management accounting systems...................................7
TASK 2 ...........................................................................................................................................8
P3 Techniques to do the cost analysis for the formulation of income statement ......................8
M2 Management accounting techniques and financial reporting documents.............................9
TASK 3 ..........................................................................................................................................9
P4. Advantages and disadvantages of various planning tools used for budgetary control.........9
M3 Analyse the use of different planning tools and their application for preparing budgets and
forecasts.....................................................................................................................................10
TASK 4..........................................................................................................................................11
P5. Organisations adapt management accounting systems.......................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15
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INTRODUCTION
The accounting is referred as the recording, analysing and summarising of the data which
can evaluated in the present and which is wholly based on the past activities of the business.
The accounting thus can be considered as the most important term in managing the effectiveness
in the business as with the help of old recorded accounts and information the organisation
formulates its planning and futuristic operations of the company. Thus in managing a firm and
controlling, monitoring, recording the overall transaction in the management of the company is
termed as the management accounting. There are multiple kind of management accounting that
are devised as per the need of the organisation.. thus it can be ascertained that the management of
accounting certainly responsible for the planning, controlling, directing and recording of all the
financial as wells non financial transaction in the firm. In this project report the main elements
and types of different management accounting along with their reforms are discussed. The major
concept of relating the company with the certain type of accounting, the advantages and
disadvantages are also elaborated in the report. Further more the type of issues that a company
faces in the accounting and other procedure, their evaluation and proposing the right set of
solutions to overcome such problems are discussed .
.
TASK 1
P1 Management accounting and different types of system
Management Accounting:
The management accounting is itself a combination of two main factor and function. The
main terms in which they are devised can be ascertained as it is mainly a accounting system that
is an integral part in the business and its management which contains more operations and
activities other then the basic responsibilities of the accounting. The formulation and study of the
managerial report are also a part of the management accounting along with that it does it does
impacts on formulation of the certain planning and determining the right set of policies and
principles which can be used to attain the maximum number of profit for the firm. The
management accounting system are significantly holds dynamic kind of reforms in the company
that is used to evaluate and study of the elements in each and every department to make the
company more strong and enabling it to achieve the organisational objectives and goals in terms
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of high revenue earning. The most effective system of the management accounting is defined
here by as follows :-
Cost Accounting System: The cost accounting system majorly emphasis on the
monitoring and recording of all the transactions out flows that have been made out in respect to
complete the tasks and activities and all process to manufacture and delivering the product and
services to its consumers. Thus the cost of any product, procedure, task and operation is certainly
derived and planned with the help of cost accounting system. The cost accounting system is the
basic foundation in determining the cost and prising factor. Along with this it certainly plays a
major role in the business in evaluating the proper need of the finance for any activity. It helps
in creating, forecasting and comparing the estimate for any cost in curing task in the
organisation.
Direct Cost: The direct cost is understood as all the direct expense that has been made
on the completion of any task and . the product directly. This cost is measurable significantly
before and after the expenditures.
Standard Costing: The standard cost system is the measurable outcome which is derived
from the comparison of actual cost that has been incurred in the execution of plan and the
estimated budget of the cost. It helps in evaluating the los and profit margin from the
organisational objective and helps in setting up of standards regarding the expenses by
understanding the actual differentiation .
Price Optimisation System: This is the another form of management accounting system
in this system the major elements that effects the prising of any product or services are
considered. The discussion of pricing is thus supported by the accounting system particularly.
This accounting give a proper framework to decide the price and give all the rational to the
management in the confines of an organisation to determine the overall and maximum price for
any good or service.
Job Costing System: The job costing system defines all the step that will be incurred
while executing the task in the organisation to achieve the goals and objectives. Thus for an
instance to manufacture a product in the organisation there are various steps will be involved
from collecting the raw material to its marketing and distribution to the retailer. In the job
costing system all the elements that will be incurred to perform and execute each step in the
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formation and production of the product will be evaluated and the job costing will be measured .
this accounting systems helps in estimating the overall cost that will be expensed in different
kind of jobs.
Inventory Management System: The inventory manage system is refer to the
monitoring, calculating, organising and planning of all the stock in the ware house that will be
essential in the trading of the organisation in decent amount. The inventory management also
helps in analysing the financial status of the respective product and services of the company in
the market it help in understanding the demand and need of the products and maintaining the
effective flow of supply. The inventory management is also responsible for the reporting the
important information regarding the lack of any product or over stocking (high availability) of
any product. The concept of cost thus can be analysed with the term FIFO and LIFO which
basically states the principles of first in first out and last in first out both are different form each
other in the manner of delivering and collecting the offerings of the company. In the context of
inventory management system The LIFO is termed as the last articles are needed to be sold in the
first place. Thus FIFO is known as the selling of those goods in the first series which came in the
first time. The other significant method in the inventory can be used as the weighted average
method. In this method cost of goods that are available for sale are divided by total number of
units available.
Financial accounting system- The financial accounting is the basics form of accounting where
the accounting is associated as the recording, segregating, analysing and summarising of all the
financial transactions and other events and elements of finance in the organisation. the financial
accounting is based on preparing and presenting the financial statements comprising of all the
financial details of the company for a particular time of the business. The financial statements
thus helps the business to understand the position of the firm and analyse all the flows , earning
and losses of the firm in the market. It does act as the effective measure top monitor and plan the
financial activities of the company in the present as well as for the future (Edwards, 2013). kind
Comparison in between management accounting and financial accounting system:
Basis Management accounting system Financial accounting system
Legal requirement The management accounting is
prepared for increasing the efficiency
in the management it is the voluntary
The financial accounting type
is mandatory for any kind of
business organisation by the
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function and hence it is not enforced
by the government to implement in
the company.
law. Thus in an organisation it
is necessary to practice the
financial accounting legally.
.
Format of presentation This system is not limited with one
significant format of presentation as
there are different type of formats
which are used in the management
accounting for the presentation
In the financial accounting it
is essential to follow the right
and suitable format of
presentation.
Types of data used The data is used comes from both the
sector i. e. from financial as well as
from non financial elements
The accounting is wholly
based on the financial type of
data..
Area of coverage of
within the organisation
The management accounting has
covering of all the aspects within the
internal management of the
organisation.
While the financial accounting
does covers the internal as well
as external sections of the
organisation.
P2 Explain different methods of management accounting report
The management accounting report us a type of informative document which is prepared
with a view to share the relevant data and information. There are multiple methods of
management accounting system to present a report. The management accounting report are
comprised of various statement that help the manger in different department to formulate the
planning and respective working policies. These types of report cover monetary and non-
monetary aspects of information. Excite Entertainment Ltd prepares certain types of reports
encompassing of essential and effective information from various aspects of the business. These
reports are as follows :-
Performance report: The performance report is the proper statement that holds the
details of performance and its measures in the organisation, in respect to management accounting
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the performance report thus can be stated as the evaluation and assessment of the performance
and qualities of the work of employees and management in the company.
Budget report: The budget report is also a type of presentation in the management
accounting where this report is used to make a comparison form the planed and determined facts
from the actual expenses and performance standards of the organisation. The budget report states
the estimate for the organisational activities and their execution for the said period of the time. It
is particularly based on the internal factors of the company. The budgets that are presented in the
budget report are considered as the end limit of expensing the unit of monetary elemnt in the
completion of the project in the organisation
Cost managerial accounting report: The cost managerial accounting report can be said
as the most effective type of report framework that helps in evaluating the profit and loss gained
from various types of activities. In this accounting report the total expenses before sales are
calculated these types of report help the manager to examine the conditions associated with the
sales and marketing of the product. Thus it also clarifies the company regarding the losses and
profits regarding their significant product and services (Hartmann and Young, 2013).
M1. Evaluation of benefits of various management accounting systems.
Advantage of cost accounting system:
 It is multi-dimensional in the organisation as it covers the costing elements of
each and every element from beginning to the end of a products manufacturing.
 It act as a helpful tool in evaluating the cost of any product and services as with
that the company can add the significant rate of profit.
Advantage of inventory management system-
 it is most beneficial to effectively tracking the record of each and every unit
available and not available in the stock places of the company.
 It saves a lot of time, cost and various other resources
Advantages of price optimisation system-
 This system help in the decision making of the company regarding the price
distribution of the product. The standard price for any product is not too much and
not too less that can be achieved only thorough the price optimisation system in
the organisation.
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 It gives appropriate framework for the evaluation of market reaction regarding the
price.
Advantage of job costing system-
 The main benefit from the job costing system is its calculations and estimation regarding
the total expenses that will be incurred to accomplish a task.
 Another major advantage of job costing system is that it keeps tracking of the on going
task and the jobs in the organisation that helops the management to effectively monitor
the operations and process
TASK 2
P3 Techniques to do the cost analysis for the formulation of income statement
Absorption costing method- The absorption costing method which is widely used for the
cost analysis that is done by calculating both the fixed and variable cost and taking all the related
consideration as a unit itself (Fisher and Krumwiede, 2012).
Marginal costing method- The marginal cost method is an other type of cost analysis method
based on the principle in which the fixed cost is taken as the period cost while the variable cost is
cinsideered as the only unit cost. The other name of this method is the variable costing method
(Talley, 2017).
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M2 Management accounting techniques and financial reporting documents
The management accounting techniques are the most effective tools and can be said as the
tactics that are used by the managers in order to record and evaluate the financial and non
financial; elements of the organisation in its internal environment. There are certain documents
that are required by the organisation in order to complete its working. The main documents
among them are P&L, trading account and balance sheet and so on.
TASK 3
P4. Advantages and disadvantages of various planning tools used for budgetary control.
Budget:
The budget can be said as the preparatory document which is formulated for determining
the use of the monitory resources in the organisational activities either for the business
operations or for the essential expenses. There are various methods which can control the
budgetary elements in the firm
Sales budget:
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The sales budget is associated as the planning of sales of particular product or services
within the organisation for a specified period of time. In relation to Excite Entertainments Ltd.
the main profit and loss evaluation is based on its sales budget.
Advantage:
 The sales budget helps in formulating the plan and estimate of the sales to achieve the
profitability in firm..
Disadvantage:
 The major drawback is that it is a time taking process.
Production budget: The production budget is considered as the type of financial plan which
undertakes all kind of activity and related expenses that takes place during and before the
production in the firm.
Advantage:
 Within Excite Entertainment, the production budget helps in achieving the target of firm
by using the minimal resources and giving the optimum outcome form them.
Disadvantage:
 The process is quite complex, along with that the production budget is also very rigid as
the viable cost of different elements are changeable as per the market conditions
Cash Flow Budget: This type of budget is formed by considering all the types of inflow and
outflow of cash in the company.
Advantage:
 The cash is effectively monitored by the firm with the cash flow budget,
Disadvantage:
 The cash flow budget is less beneficial as it does not help in increasing the flexibility
with the cash in the firm.
M3 Analyse the use of different planning tools and their application for preparing budgets and
forecasts
The different course that are essential in the formation of planning and control of the budget are
called as the tools by which the management formulates the most effective plan and estimate the
budget for the various departments and organisational activities. These tools are described as
follows :-
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To determine the effectiveness of planning tools used in budgetary control various type of
planning tools with advantages and disadvantages are defined as follows :
Forecasting tool: The forecasting tools is associated with the anticipating of upcoming
activities and events of the business . The forecasting tool is used to determine the certain
possibilities of the futuristic outcome of the activities and operations of the business by
evaluating the past records and figures of the business. In context to Excite Entertainment Ltd.
The forecasting tool will be utilized by breaking up the fiscal elements in the organisational
aspects. The benefits and the drawbacks of the forecasting tool in relation to the Excite
Entertainment are as follows :-
Advantages:
• The forecasting tool will be beneficial for the company in formulating the strong
planning and budget estimation for the business and for its effective survival and
growth in the market.
Disadvantage:
• There is a risk with the forecasting as it does not give any surety with the continuous
changing environment of the market
.
Contingency tool: The contingency tool is associated with the contingency planning
which means in the contingency plan it constitutes the major courses of action that is based on
the solutions to the threats of various kind of adverse condition that can affect the business with
any kind. The contingency tool emphasises on the negative circumstances that might happen in
the time of executing the operation or even after that . Along with that it does contain the
methodologies, back up plans and timetables to dispose of the complexities. The advantage and
disadvantage of this tool s as follows
Advantages
 The contingency planning has its significant benefits mainly it is capable of handling the
certain issues that may be emerged as a problem for the organisation.
Disadvantages:
 The contingency planning is a time taking prices it does need a specialised manger and
planner to ensure the effectiveness of the plan. Thus it also becomes as most cost taking
process.
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TASK 4
P5. Organisations adapt management accounting systems
Financial problems: The financial problems are referred as the lack of proper financial
resources in the organisation. That restricts to practise of essential task and activities in the
company due to low availability of cash and monetary terms. The Excite Entertainment Ltd
makes an assortment of provisions by which financial problems can be dealt with.
Calculation of contribution per unit-
Selling price per unit
Less- Variable cost per unit
40
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Contribution 30
Interpretation: As per the above mentioned calculation, it has been evaluated that organisation
selling price is 40 Euro.
 Calculation of break even point- Fixed cost/ contribution per unit
120000/30= 4000 (in units)
 Calculation of cost volume profit analysis- Fixed cost+ desirable profit/ contribution
(120000+60000)/ 30= 6000 units.
 Profit at the sales of 4000 units-
Sales (4000*40)
Less- Variable cost (4000*10)
Contribution
Less- Fixed cost
Profit/ loss
160000
40000
120000
120000
0
 Profit at the sales of 6000 units-
Sales (6000*40) 240000
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Less- Variable cost (6000*10)
Contribution
Less- Fixed cost
Profit
60000
180000
120000
60000
Advice: Company is required to sell 6000 units in order to get desirable profit. In addition with
this, organisation sell estimated amount of 6000 units by doing this they can able to effectively
earn approximate amount of 60000 profit.
Financial governance: The financial governance is the way to manage, monitor, control and
collect all the information of the finance related operations in the firm. The financial governance
helps in assisting the management in order to make it more stable and effective that it can take
the necessary decisions in the way to attain the goals of the organisation.
Management accounting approach: The management accounting approach is considered as It
is defined as a use of accounting techniques which assists in resolution of problems which occurs
within organisation
Some of the approaches are given below:
 Key Performance Indicator (KPI):It is used to determine the performance of
organisation by making the comparison with other companies for the purpose to attain
short as well as long term goals.. KPI technique benefits Excite Entertainment Ltd to
formulate and make comparison in their standards to measure their goals, performance
and progress of organisation.
 Benchmarking: This approach is used to determine the opportunities for enhancement
and to eliminate the gap with respect to other competitors by monitoring their day to day
performance. This approach focus to define and interpret the individuals, group and
organisations performance towards their objectives.
CONCLUSION
According to the above findings in this report it can be concluded that, Management
Accounting is a most essential and effective element to be practiced in the organisational
boundaries and in the management of various department as each and every department of the
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company is linked and depended on the finance. The management accounting system is most
helpful in the determination of all the important policies in the organisation as well as in the
decision making of small to large factors in the company. The management accounting does
emphasis on the financial aspect within the organisation and all the non financial elements which
do have any meaning for the firm are recorded in the significantly separate books of the company
Price optimisation system, cost accounting system, inventory management system and job
costing system are the types of system of management accounting system. While there are
different types of planning tools like contingency planning, forecasting tool and flexible planning
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Talley, W. K., 2017. Transport carrier costing. Routledge.
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