Management Accounting: A Comprehensive Analysis of Systems, Techniques, and Applications

This report delves into the intricacies of management accounting, exploring its fundamental principles, essential requirements for different types of management accounting systems, and various methods used for reporting. It evaluates the benefits of management accounting systems within an organizational context, demonstrating their application in improving profitability, reducing costs, and enhancing decision-making processes. The report further examines cost analysis techniques, including marginal and absorption costing, and their application in preparing income statements. It analyzes the advantages and disadvantages of different planning tools used in budgetary control, highlighting their role in forecasting, monitoring, and decision-making. The report concludes by exploring how organizations adapt management accounting systems to respond to financial problems, emphasizing the role of financial governance, KPI's, benchmarking, and financial ratios in achieving sustainable success.

Management Accounting
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Contents
Introduction......................................................................................................................................3
P1 Explain management accounting and give the essential requirements for different types of
management accounting..................................................................................................................4
P2 Explain different methods used for management accounting reporting.....................................6
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context......................................................................................................................7
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costing............................................................................................8
M2 Apply a range of management accounting techniques and produce appropriate financial
reporting documents......................................................................................................................11
P4 Explain the advantages and disadvantages of different types of planning tools used in the
budgetary control...........................................................................................................................12
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets........................................................................................................................14
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.........................................................................................................................15
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success..............................................................................................16
Conclusion.....................................................................................................................................17
References......................................................................................................................................18
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3

Introduction:
Zyalla is an international organisation and is going through some organisational restructuring and
changes. This report is prepared to consider the changes in the management accounting systems
and management accounting tools and techniques and the process for resolving financial issues.
Every organisation need to make changes in costing and management systems with a view to
response the ever-changing organisational need. Management accountings systems are designed
formulated software programmes which require data and further interpret for user's requirement.
This report will throw light over the number of management accounting systems such as job
costing systems, pricing systems, costing systems, process costing etc. and the budgetary tools
and techniques for responding towards financial problems.
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P1 Explain management accounting and give the essential requirements for different types
of management accounting.
The concept of management accounting was developed in eighteen century and since, and then
the number of developers evaluated the concept of management devices. Management
accounting is a mechanism which involves the partnership with management accounting systems
and management accounting reporting. There are different types of management accounting
systems, namely cost accounting system, job accounting system, inventory management system,
pricing system (Guga, & Musa, 2015). Each system is formulated for fulfilling different
organisations intentions and is discussed as below:
 Cost accounting system: This system maintains costing of products manufactured.
Costing is necessary for estimating a price of per unit. It major essential is to examine the
expenditure made for each unit of product and for further analysing profitability,
inventory assessment and controlling costs (Guga, & Musa, 2015)
 Inventory management system: This system is installed for making inventory valuation.
In a manufacturing unit, inventory of raw materials, work in progress and finished goods
are required and it also involves the significant amount of investment. This system in
measuring terms like EOQ, inventory re-order level, a maximum level of inventory,
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Inventory
management
system
Pricing
system
Job
accountin
g system

minimum level and aids in eliminating any duplication or shortage of inventory (Guga, &
Musa, 2015)
 Job accounting system: This system is formulated for assessing the costs of specific or
particular job. Certain industries like servicing industry, construction units make a single
job and ascertain its costs. Its major essentials are that it controls cost, measures
profitability from the single project, inventory valuation etc. hence, it is an essential
system.
 Pricing system: pricing of products is essentially an important process for ascertaining
profitability from a single project. This system is useful for ascertaining customer’s
reactions at different prices and selects the most optimum pricing strategy for an
organisation. This is an essential system so as to select a pricing strategy which makes
revenues and profits as well for the company (Guga, & Musa, 2015).
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P2 Explain different methods used for management accounting reporting.
Management accounting reporting are formed in varied methods to resolve different queries of
an organisation. A manager might require information related to sales, production, estimation,
cash expenses and such like and need to formulate policies for future purpose. These measured
are reviewed through different reports. The reports are formulated at different period of time
considering manager’s requirement (Lessmann, et. al., 2015). The period can be monthly,
quarterly, half-yearly and yearly. Some of them are discussed below:
Sales report: Sales report is formulated with a view to measuring the number of units sold and
the fluctuations in the selling pricing. It makes the thorough analysis about the increase or
decrease in the sales number. This report is further used for forecasting sales for next specific
period through trend line and other operational tools.
Budget report: Budgets are the statements which forecast in numerical figures regarding costing
and sales, production units, liquidity etc. These forecasting factors act as the measure for
controlling figures. The major essential of a budget report is that it is used for variance analysis,
further aid in future planning, and act as a controller factor for current actual figures. In variance
analysis, the actual figures are measured against budgeted one and measures for variances are
implemented (Lessmann, et. al., 2015).
Inventory management report: For a manufacturing concern, making the considerable
investment in inventory is essential. Inventory requires considerable monitoring so as to
eliminate duplication of activities and wastage of money. This report makes analyses of
production capacity, inventory requirement.
Cost reports: Costs reports are formulated for measuring expenditures for products
manufactured. Since products costing are subject to fluctuations and require constant
monitoring. Since, costing has the effect over many another factor such as prices, administration
expenses etc. This report is formulated frequently (Lessmann, et. al., 2015).
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M1 Evaluate the benefits of management accounting systems and their application within
an organisational context.
The evolution of management accounting systems has been realised long back. The evolution has
been made for enhancing managerial decisions and effective management. These systems have
large benefits such as follows:
 Improves profitability: Management systems are implemented in order to improves
decision making and overall improves profits for the organisation. These systems are
made for orderly assessment and interpretation of data.
 Reduces costing: One of the major motives of organisation is to reduce costs of
manufacturing/ servicing. An organisation incurs direct and indirect costs and strives to
work in the efficient manner through which costing can be reduced.
 An effective decision-making mechanism for futuristic stabilisation: Systems are
implemented to aid managers in making decisions. In the competitive scenario, there are
many numbers of firms with large technological advancement and hence, decisions play
the key role in surviving into the intense scenario (Strelnik, et. al., 2015).
In the context of an organisation, Zyalla is going through financial restructuring and expansion
process and is striving towards increased production capacity and increased revenues. It must
implement systems such as job costing, process costing and inventory systems and takes up large
benefits. It will aid in reducing expenses, and management of organisational processes (Bodnar,
and Hopwood, 2012).
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P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing.
Costs refer to the expenditure made by an organisation for producing per unit. There are different
types of cost and are classified on the basis nature, behaviour etc. Following are few costs which
are used in cost:
 Direct and indirect cost: The costs which are directly linked to the manufacturing of a
product is known as direct costs such as direct material cost, direct labour costs, overhead
costs etc. Further, the cost which is indirectly linked and does not necessarily incurred for
manufacturing of a product is known as indirect costs such as administrative expense,
utility expense etc. (Hilton, and Platt, 2013).
 Product cost: These are the costs which are incurred for producing a product and include
direct costs only.
 Period costs: Period costs are those costs which are incurred in a specific period of time
of organisational productivity. These include all types of costs such as the cost of goods
sold, indirect costs incurred for total revenues earned in a specific period.
The above are different nature of costs which are incurred and organisation uses different
techniques for measuring cost and profitability (Hilton, and Platt, 2013). The two techniques are
marginal costing and absorption costing:
Marginal costing: Marginal costing is a technique whereby per unit cost of a product is
ascertained through variable costing and the fixed costs are deducted overall by contribution. The
inventory valuation is done through variable costs only and hence, the profits are higher but
subject to over or under absorption of fixed production overheads (Hilton, and Platt, 2013).
Absorption costing: In this costing technique, products costs are calculated by analysing both
variable and fixed costs elements. It analyses costs per unit till it has absorbed costs. In this
technique, inventory valuation is done through both fixed and variable costs and hence,
inventory valuation is higher which reduces profitability margin (Aruomoaghe, &Agbo, 2013).
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Assumptions:
 It is assumed that 1000 units are produced and 900 are sold and maintaining the closing
stock of 100 units and there is no opening stock.
 The selling price is 100 per unit and COGS is 20 per unit which includes 10 variable cost
per unit and 10 fixed costs per unit.
 The fixed overhead production is assumed at 8000 and the fixed selling costs are assumed
at 5000.
The income statement is as below:
Marginal costing
Sales (900*100) 90000
Less: variable cost
COGS (1000*10) 10000
Less: closing stock (100*10) 1000 9000
Contribution margin 81000
Less: fixed cost
Fixed production cost 8000
Fixed selling cost 5000 13000
Net profit margin 68000
Absorption costing
Sales (900*100) 90000
Less: COGS (1000*20) 20000
Less: closing stock (100*20) 2000 18000
Gross profits 72000
Less:
Selling costs
Fixed 5000
Net profit margin 67000
Reconciliation statement Amoun
t
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net profit as per absorption costing 67000
Add: over absorption of fixed overheads (100*10) 1000
Net profit as per marginal costing 68000
The difference in the stock valuation is due to the element of fixed cost. In marginal costing, 100
units were valued at £ 10 per unit (which is variable part of cogs) while in absorption costing,
the closing stock is valued at £ 20 per unit (both variable and fixed cost). The net profit margin in
absorption costing is lower as there is over absorption of fixed cost which is £ 10,000 (1000*10
per unit) while the actual fixed production cost is £ 8000 and hence the difference
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M2 Apply a range of management accounting techniques and produce appropriate
financial reporting documents.
The techniques applied over here are marginal costing and absorption costing. The income
statement is presented as above.
 The difference in the inventory valuation is due to the fixed cost element. The inventory
in marginal cost consists only of variable portion and hence, it is valued at £ 9000 only
while in the absorption costing, the inventory valued at 18000 which is due to fixed cost
overheads.
 The difference in the net profit margin is due to over-absorption of fixed costs. The actual
fixed costs amount to £ 8000 but in absorption costing £ 9000 (900 units*10 per unit
fixed overhead) was considered and hence, there arises a difference of £ 1000.
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P4 Explain the advantages and disadvantages of different types of planning tools used in
the budgetary control.
Budgetary control is a system whereby budgets are prepared with standard figures and are
compared with actual figures. It is mainly used as a controlling tool and makes variances
analysis. It is implemented with the purpose of defining organisational goals, setting
coordination among different departments and improving financial performance. Its major
advantage is that it brings efficiency and effectiveness in organisational processes (Amirya, et.
al., 2014). Different planning tools are operating budgets, financial budgets and non-monetary
budgets:
 Operating budget: These projects are formulated for assessment of operating expenses
and incomes from organisational processes. Various budgets are sales budgets, expenses
budgets. The sales budget is formulated for assessing the number of units and revenues
to be earned in a specific time period. Another instance is expense budget. This budget is
formulated for anticipating expenses that might occur in a future time period. This
budget is prepared for implementing measures for reducing expenses number through
increasing revenues as well (Amirya, et. al., 2014).
 Financial budget: Financial budgets are the budgets which are formulated for assessing
budgets relates to monetary. Different financial budgets are cash budget, capital project
budget. A cash budget is formulated for cash expenses and expenditures made in a
specific period of time. Liquidity is extremely important and must be maintained so as to
meet out all the obligations. It analyses with the excess or shortage of cash. Capital
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Financial
budget
Operating
budget
Non-
monetary
budgets

projects are formulated for assessment of expenditure and incomes through such big
projects (Amirya, et. al., 2014).
 Non-monetary budget: this budget is formulated through non-sales or profits numbers.
Whenever an organisation falls with short of profits or lesser revenues, it formulates
budgeted with measures for improving sales value and profitability as well.
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M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
Planning tools are the one which is used for setting up of organisational goal and setting standard
values to be achieved. In an organisation, budgetary planning is majorly done through different
kinds of the budget such as financial budgets, capital budgets, operational budgets etc. (Zoni, et.
al., 2012). the uses of these budgets are described as below:
Forecasting: Different planning tools are implemented with a view to forecasting facts and
figures. In the complex scenario, every organisation forecasts facts and strive their efforts to
achieve the same. Planning tools like budgets provide a standard benchmark to be achieved and
allow an organisation to excel itself (Amirya, et. al., 2014).
Monitoring and controlling: Planning is done so as to monitor the activities and it measures
any variances if occurs. Through budget reports, a manager keeps eyes over organisation
activities and also motivates sub-ordinates to achieve set targets. Thus, in another way, it keeps
control over activities.
Decision-making tools: Planning tools are vital for making decisions. These tools aid manager
in formulating decisions and allowing managers to make effective judgement and estimation.
In the organisational context, budgetary tools such as sales, production, cash, capital budget etc.
are prepared through a budget processing. In this process, an objective is set, targets are set and
the budgets are prepared through assumptions and through past data. Mostly budgets are
prepared through previous years budgets and consider different set of information (Amirya, et.
al., 2014).
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P5 Compare how organisations are adapting management accounting systems to respond
to financial problems.
With the improvisation and evolution in management accounting systems, there has been vast
development in accounting tools used for responding financial problems. Previously, there were
few financial tools such as financial ratios, benchmarking etc. But now, there are few other
accounting tools such as KPI‘s financial ratios, standard benchmarking, financial governance etc.
There are various types of management accounting tools such as KPI’s, benchmarking, financial
ratios, and financial governance etc which are used by organisations for appropriate decision
making and for responding financial issues. Electronic giants like Apple use this financial
governance for implementing tools and suggesting ways for improvement in financial issues. On
the other hand, Samsung uses techniques like KPI’s, benchmarking, ratios etc. Different
techniques are adapted for resolving different purpose:
Financial governance: This factor analyse the governance in a financial working environment
and ensuring compliances of all required legislations requirements. Legislations determine set of
compliances such as borrowings limits, disclosure compliances and such like so as to ensure
proper functioning of financial and rescuing shareholders from any fraudulent or inappropriate
activities (Mahal, & Hossain, 2015).
KPI’s plus financial ratios: Key performance indicators are specific standard points which
determine the most effective financial performance. Every specific industry has established their
KPI’s along with financial ratios, which set financial indicators in terms of liquidity,
profitability, operational efficiency, assets flexibility etc. Every organisation strives to achieve
these goals so as to be efficient organisation and enhance productivity (Mahal, & Hossain, 2015).
Benchmarking: Benchmark is a process of setting standard figures for an organisation.
Benchmarking can be done in any of the sectors like costing, sales, revenues, customer
efficiency, customisation, financial performance etc. For responding financial problems like
lower profitability, sales, costing are benchmarked and any variances have to be answered with.
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M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.
The organisation faces the number of financial issues such as non-compliances of rules,
regulations, legislations, acts, issues of downfall financial performance, inappropriate costing
technique, increase variances, high borrowing or debt obligations etc. Management accounting
describes number of accounting tools such as variances analysis, benchmarking tools, financial
budgets etc.
Variance analysis: The tools for variances analysis are formed for measuring any form of
variances against the standard figure. This tool aids in measuring wrong figures and
implementing measures for correcting. Thus, aid in controlling any wrongful activity.
Benchmarking tools: these are the standard tools which are formulated for measuring and
comparing organisation’s performances. These are motivating tools which encourage
organisation to modulate their policies, procedures and goals for achieving high standards. Thus,
aid organisations in achieving sustainable success (Drury, 2013).
Financial budgets: There is number of budgets such as cash budget, capital budgets etc. these
budgets are formulated with a view to estimating possible cash outflows for operational expenses
and for project expenses as well. Organisation’s control their expenses and cash flow through
these budgets. Cash controlling ensures that organisations meet up their organisations and also
does not face any financial crisis or is well aware of any future crisis well in advance. Hence,
allow organisations for achieving sustainable success.
Thus, through implementing financial tools or planning tools, variances and discrepancies are
avoided and eliminated and thus, aid managers to achieve sustainable success for the
organisation (Drury, 2013).
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Conclusion:
With this assignment, it can be concluded that a management accounting techniques plays the
crucial role in costing and accounting techniques and proper reporting. In the complex scenario,
there is urgent requirement for effective management systems that can help managers in relevant
decision making. The costing techniques like marginal and absorption costing are also highly
useful for the purpose of inventory and profitability valuation. There are also varied budgetary
and planning tools which aid in a systematic understanding of financial problems and finding
suitable solutions for the same. The varied useful planning tools that aid in sustainable success
are variance analysis, benchmarking tools, budgetary tools, operational and financial budgets etc.
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References:
 Amirya, M., Djamhuri, A., &Ludigdo, U., 2014. Development of Accounting and
Budget System of General Services Board in UniversitasBrawijaya: Study of
Interpretive. International Journal of Humanities and Social Science.
 Aruomoaghe, J., &Agbo, S., 2013. Application of Variance Analysis for Performance
Evaluation: A Cost/Benefit Approach. Research Journal of Finance and Accounting.
 Bodnar, G.H. and Hopwood, W.S., 2012. Accounting information systems. Pearson
Higher Ed.
 DRURY, C.M., 2013. Management and cost accounting. Springer.
 Guga, E., & Musa, O., 2015. Inventory management through EOQ model. International
Journal of Economics, Commerce, and Management.
 Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
 Lessmann, S., Baesens, B., Seow, H.V. and Thomas, L.C., 2015. Benchmarking state-of-
the-art classification algorithms for credit scoring: An update of research. European
Journal of Operational Research, 247(1), pp.124-136
 Mahal, I., &Hossain, A.M., 2015. Activity-Based Costing (ABC) – An Effective Tool
for Better Management. vol.6, no.4. Research Journal of Finance and Accounting.
 Strelnik, E.U., Usanova, D.S. and Khairullin, I.G., 2015. Key performance indicators in
corporate finance. Asian Social Science, 11(11), p.369.
 Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS)
change: field evidence. Asia-Pacific Journal of Accounting & Economics, 19(1), pp.119-
138.
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