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

This report delves into the crucial role of management accounting in decision-making, exploring various systems, tools, and techniques. It examines the importance of cost management, pricing optimization, and inventory management systems, critically evaluating their benefits and limitations. The report further analyzes the application of absorption and variable costing techniques through profit and loss income statements, highlighting their differences and reconciliation. Additionally, it investigates the use of planning tools like fund flow statements, inventory control systems, and budgetary control to address financial problems and achieve sustainable success. The report concludes by emphasizing the significance of management accounting in strategic decision-making, risk management, and achieving sustainable growth.

Management Accounting

Contents
Introduction:...............................................................................................................................3
Section 1: (includes LO1 & LO2)..............................................................................................4
1. Importance of management accounting in the decision-making process:.........................4
2. Three Types of management accounting and their integration:.........................................6
3. Critically evaluation of the benefit of management accounting systems and reporting:. 10
4. Presentation of two different profit and loss income statements based on absorption and
variable costing technique:...................................................................................................11
Section 2...................................................................................................................................16
Part A Report:..........................................................................................................................16
a) Compare and contrast of different management accounting systems:.............................16
b) Use of planning tools to help the organization in solving the financial problems and
achieving the sustainable success:.......................................................................................18
Part B)......................................................................................................................................19
Conclusion:..............................................................................................................................21
References:...............................................................................................................................22

Introduction:
The major aim of this study is to provide an effective acknowledgement of management and
financial accounting. This report will also dictate about various coasting and management
techniques and their application in the organisation for sustainable growth and achievements.
Readers will feel the acknowledged understanding importance of planning tools and
assessment of financial and management budgetary tools to evaluate business performance of
the company. It will also include major efforts, role and functions of management accounting
in order to regulate and operate large business activities as well as wide range of techniques
going to be utilised with the help of MIS. A proper examination and evaluation are to be done
with costing technique such as marginal and absorption technique in the financial decision-
making process. A proper recommendation and analysis will be done through budgetary
planning tools to resolve the financial problems and responding managerial issues.

Section 1: (includes LO1 & LO2)
Report:
Introduction:
Preparation of this report is essential in order to learn the essential use of management
accounting as a profession and define various tactics to operate business activities
successfully. This reading will describe also essential points regarding benefits, application
and impacts of costing techniques in order to make proper improvement in company’s
performance. To make proper analysis Zylla Company will be considered as the example to
understand the usage of management accounting.
1. Importance of management accounting in the decision-making process:
Management accounting: Management accounting is the concept of collecting, observing,
classifying and maintaining financial performance in an organisation. Management
accounting is a behaviour of observing decision-making process related to cost-based
analysis, cost-effectiveness and sales revenues relation. Management information systems
and planning tools are the major components of management and financial accounting. MIS
provides proper knowledge and information related to financial data and facts through
effective planning, organising and controlling organisation activities.

(Source: Author, 2018).
Planning: It is a primary component of using MIS. Management accounting systems help to
establish suitable strategies related to production, sales and so on to get long-term benefits.
Organising: Management accounting systems such as cost, inventory systems are used to
organise and managing relevancy in management works such as: organising inventory
process, cost revenue relation etc. (White, 2015).
Controlling: Proper use of MIS will allow the company to control over additional cost
wastages of non-value projects. Management accounting systems are used to control
additional consumption to make effective decisions.
Importance of management accounting:
1. Forecasting decision: MIS is the major planning tool that provides effective information
and statistical facts in order to make forecasting decision relate to sales volume, balance sheet
changes, debt-equity behaviour and so on (Monetary matters, 2017).
2. Cost measurement: MIS is medium of collecting effective and accurate data to measure
cost behaviour and changes in funds.
CONTROLLING
ORGANISNG
PLANNING

3. Pricing determination: MIS is one of the major elements of management accounting
profession that allows the whole department such as sales unit, production and promotion to
set pricing strategies.
4. Production and profitability: MIS is useful in managing and interpreting whole
strategies in order to monitor all aspects regarding business activities. It allows the enhance
business profitability through increasing productivity (CGMA, 2013).

2. Three Types of management accounting and their integration:
(Source: Author, 2018).
1. Costing management systems: cost management systems are also known as cost
accounting systems that are based on cost-based analysis to measure cost-effectiveness.
Costing management systems basically used in overall units to evaluate and examine
requirements of cash and additional funds in business activities.
Integration:
 Proper evaluation of requirements of cost-effectiveness in new projects of the
company.
 Measuring relationship between estimated variables and actual outcomes of costing.
2. Pricing optimisation systems: pricing optimisation is the basic concept that relies on
products pricing strategies and customers’ reactions. It allows the Zillah Company to
determine prices of their products according to market reviews and customers’ demands
(Matambele, 2014).
Types of Management
Accounting Systems
iNVENTORY
MANAGMENT
SYSTEMS
PRICING
OPTIMISATION
SYSTEMS
COST
MANAGMENT
SYSTEMS

Integration:
 Pricing optimisation systems are utilised to helps sales and production department to
determine prices and making effective strategies to attract more customers.
 It allows the Zillah Company to configure and monitor changing habits of customers
to assess pricing goals.
 These systems are basically integrated with enhancement of sales volume and
profitability.
3. Inventory management systems: these systems are utilised by the top management to
know the actual level of stock of products in order to make the perfect comparison between
estimated level and actual results related to Inventory process (Matambele, 2014). At the
time is a utilisation of FIFO and LIFO method, Inventory management systems allow
managers to keep their business activities traced.
Integration:
 Usage of EOQ, JIT and MRP inventory systems are good option to understand
productivity level.
 Inventory systems allow the managers to put their inventory level on perfect track by
reducing additional cost and over-storage problems.
Importance of management accounting while making management reporting:
Management accounting systems are used to make the perfect decision related to sales,
purchases, and production and handling business activities perfectly. Inventory systems are
utilised to managing, carrying, handling decision-making process related inventory while
preparation of production reports, therefore, each system has different characteristics and
nature at the time of making management reports (Monetary matters, 2017).
1. Cost management systems:
 While making cost and production report these management systems are used to
measure the perfect relation between cost and revenue and shows actual references
regarding cost behaviour.
 It allows the company to make proper adjustments and proposals of funds while
making purchasing and capital report by allocation all cost resources perfectly.

2. Pricing optimising systems:
 This is the major system that allows the company make the perfect decision while
making sales and purchase report.
 It helps the company and various units to know market reviews and customers’
preferences to understand actual responses.
3. Inventory systems:
 This system is utilised to evaluate actual needs and storage capacity of the company
while making production report (Holt, 2014).
 This will allows the company to understand future threats and hurdle to avoid them on
time by doing the proper allocation of resources at the time of making inventory
reporting.

3. Critically evaluation of the benefit of management accounting systems and reporting:
Serial
no.
Management accounting
systems
Pros Cons
1 Cost management systems  Costing management
systems are beneficial to
review and measure
managerial risk to determine
efficiency.
 Managers are able to
resolve the costing solutions
through different values,
prices and set resources.
Critical costing
management required
lots of computation
and time in the end.
It becomes difficult to
measuring accuracy
and verifying
uncertainty to remove
risk (CGMA, 2013).
2 Pricing optimising systems  It is a concept of
verifying different demands
at different pricing level.
 It is based on the
cost-effective manner to
evaluate and enabling
optimum pricing tools (Holt,
2014).
If the company is not
able to handle and
measure optimum
usage of pricing,
operating profitability
will not be measured.
3 Inventory management
systems
 It is beneficial for
companies to regulate and
measure actual inventory
capacity.
A company will not be
able to exercise and
handle business tasks
if storage of stocks
would not be
monitored
appropriately.

4. Presentation of two different profit and loss income statements based on absorption
and variable costing technique:
a) Calculation of two different accounting techniques:
1. Absorption costing techniques:
1st quarter
2nd quarter
2. Variable costing:
1st quarter

Quarter 2nd
Working notes 1:
Working notes 2:

b) Explain, why calculations of profit are different in each technique:
Usage of different techniques such as marginal and absorption costing methods to calculate
income statements:
Marginal costing:
Marginal costing is also known as variable costing technique. It is production cost
methodology in which all direct cost, labour cost and expenses are included and variable
production cost are taken as a sum of all variable overhead cost. In this method, variable cost
is taken to be charged to cost of production units and fixed overheads are written off from
aggregate contribution.
 At the time of valuation of a stock, opening & ending inventories are valued at variable cost
under (marginal costing).
 Total fixed costs are declined from the contribution that is actually incurred in order to value
profit and revenue at the time of specific profit period.
Absorption costing:
Absorption costing methods have no differences between fixed and marginal cost while
calculation of profit. Absorption costing estimates that all fixed costs are attached to those
products in order to make all production costs, fixed and variables become a part of
production overhead (Kalpan Financial, 2012).
 In the absorption costing, all production cost is valued by totalling variable and fixed cost
together.
 It causes different costing techniques in both techniques.
Points should be noticed:
 Profit differences will not be considered in the absence of opening and closing inventories.
 If quantities of opening and closing inventories would be similar then profit would be same.
 If the opening stock is higher than closing stock then the profit would be less because of
inclusion of the subjectively highest value of fixed cost under absorption methods (Kalpan
Financial, 2012).


c) Calculation of reconciliation statement based on above calculations:
Reconciliation statement for quarter 1:
Reconciliation statement for quarter 2:
Through above calculation, it is considered that profit in both marginal and absorption
technique will be the same if opening and closing inventories would be same or null. Such
situations are come due to different costing technique and valuation methods under marginal
and absorption technique.
Conclusion:
In the end, this report has been concluded about management accounting systems and their
significance in management department in order to make [perfect decisions. It also described
the use of various kinds of management accounting systems and proper recommendation is
made related to costing techniques such as marginal and absorption methods in order to
evaluate and monitor changes in business performance.

Section 2
Part A Report:
Introduction
This report deals with the different planning tools which are used for ensuring the better
performance and the stability in the accounting systems of Nero Ltd. and also depicts the
ways in which management accounting is helpful in preventing and solving financial
problems.
To ensure the level of effectiveness different planning tools and techniques are used in
management accounting. Some of which include Inventory control system, fund flow
statement and budgetary control. Fund flow statement analysis is done check that from where
the funds are coming and how these are being utilized so as to increase profitability. While
the analysis of the inventory control system is done to check the company's management of
managing all the inventories and shipping's. A budgetary control means analyzing the
financial statements to achieve the satisfactory return on investment (Nordmayer, 2018).
a) Compare and contrast of different management accounting systems:
Point of Distinction Fund Flow
Statement
Inventory Control
System
Budgetary Control
Basis of analysis It is analyzed on the
wider concept i.e.
through working
capital.
Inventory control
system is analyzed
through three
concepts i.e. ABC
analysis, economic
order quantity and lot
size methods.
It is analyzed by the
zero-based
budgeting.
Costing Less cost is involved
while analyzing the
fund flow statement.
More cost is involved
in all aspects of the
inventory is to be
analyzed (Nordmayer,
Minimal cost is
involved.

2018).
Time involved The time involved is
less as compared
with the other two
tools.
It involves the
maximum amount of
time.
Much time is
involved as the
analysis has to be
done according to the
plan.
Disadvantage It is based on the
historical cost so the
actual profit position
of the company is not
shown.
Reorder points does
not occur on the
equal basis as the
order cannot be
grouped at the same
time.
As the budget is
prepared for future
but the prediction of
the future is
uncertain so the plans
made can differ.

b) Use of planning tools to help the organization in solving the financial problems and
achieving the sustainable success:
Proper allocation of Resources: The duty of every organization is to properly allocate the
resources as the available resources are always limited. The decision of proper allocation of
the resources by the management is very helpful for attaining the future growth and
maximizing the profit of the Nero Ltd.
Lower Cost: Effective management of all the resources and the inventory in the organization
is necessary which will reduce the cost and increase the revenue. For this purpose, the more
focus of the organization should be in minimizing the cost rather than increasing the revenue
and earning profits. With the minimization of the cost, the company will be able to compete
with the external environment (Nikolakopulos, 2018).
Increase Employee Efficiency: With a proper allocation of all the resources, the efficiency
of the employees can also be increased which in turn will lead to the sustainable success and
in the achievement of the organizational goals. With increased efficiency of the employees,
the growth of the company can easily be increased.
Coordination of the activities of various departments: With the use of planning tools in
the organization the coordination between the different departments can be maintained easily.
And with these analyses, the financial problems can be solved and the sustainable success can
be achieved.
Increase Profitability by eliminating waste: The use of planning tools can help in the
elimination of the waste by analyzing the performance on the timely basis. This analysis
helps the organization to focus more on the profitability aspect rather than the revenue and
the cost. With the increase in the profitability the organization can easily achieve heights
(Nikolakopulos, 2018).

Part B)
Through effective application of the management accounting by Nero Ltd. the financial
problems in the organization can be easily solved or prevented. Strategic decision making is
the tool which helps to take the proper decision in the organization as it predicts the future.
With the implementation of these accounting systems, the effectiveness of the organization
can be achieved. Various benchmarks are set in the organization to compare the level of the
performance with the other competitive companies executing in the market. Variance analysis
is done to check the planned benchmarks with the actual benchmarks which depict the actual
performance of the company in the market. When these set standards are attained it means
that the current company is competitive in the market. It is the internal tool which analyzes
the external capability of the company (Carlsson, 2017). Benchmarks are set by the top level
managers but while implementing these various problems have to be faced such as finding
the best suitable benchmark and the ensuring that these are comparable. In making the
comparison with the other competitors KPI's is the tool to analyze the performance. It
indicates that whether the organization is working according to the plan or not. These KPI's
can be both financial as well as non-financial. The financial KPI's include the measures
related to the cost, profit and return on investment whereas non-financial include the
reliability, quality and speed of performance. Through the financial KPI's the budgeted sales
and the profit can be analyzed (Money matters, 2018). Financial governance can also be used
as an accounting management system as it covers the corporate governance. The purpose of
taking this in analyses as it determines the accountability in the organization. There are
various ways through which the financial governance helps in preventing from financial
problems some of which includes internal and external audit (Holt, 2014).
In response to these financial problems the management accounting also helps in achieving
the sustainable success. To achieve the success various business models and the strategies
have been adopted so as to face the challenges. Management accounting techniques are
developed to take the decisions related to the financial problems in the proper and the
organized manner. There are various environmental and the social problems also which needs
to be considered by Nero Ltd. while attaining the sustainable success as these influences the
environmental information and the organizational responsibility. These indicators include
poverty, atmosphere and the natural resources. This analyses of the social and the economic

factors are to be taken in the analysis as this predicts the performance of the employees and
the company which in turn helps in the achievement of the sustainable success and the
financial growth (Nordmayer, 2018). According to the survey sixty, seven percent believes
that decisions taken in the organization considering the social and the economic factors are of
more commercial benefits to the organization. Therefore, the companies which use
sustainable concerns agrees that the risk management decision making is less used as
compared to that of the support strategic decision making. The development of the
benchmark in the organization will help to achieve the sustainable growth which in turn will
be responsible for the long-term growth of the organization. To identify the opportunities of
the market and to analyze the risk factor involved it is necessary to compare the company
with the other companies in the market running of the same process. Hence it can be seen that
the management accounting is the important tool in the strategic decision-making process.
So, with the adoption of the new policies related to the sustainability of the organization will
lead to enhancing the overall performance and in turn, the effectiveness of the Nero Ltd. will
be enhanced.
Conclusion
It can be concluded that the management accounting is very much important for attaining the
sustainable success and the growth in the competitive market. Various planning tools are used
to evaluate and analyze the performance of the company so that the top level managers of the
companies can take the proper decisions related to the profitability of the organization. So,
the management accounting, as well as the tools of the accounting, is necessary to analyze the
cost, revenue and the profit of the organization.

Conclusion:
Management accounting systems are those systems that provide effective and accurate
knowledge of financial changes occurred in an environment. This report has been made to
provide relevant knowledge management accounting data, planning tools to respond
sustainable growth of business (White, 2015). This report also included an accurate usage of
marginal and Absorption method to examine the changes in financial performance of the
company. It also explained the importance of MIS in order to respond decision-making
process and making perfect forecasting decision.

References:
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Accountant Available at:
https://www.cgma.org/resources/tools/essential-tools/strategic-planning-tools.html
[Accessed on: 23 January 2018]. Holt, D. 2014. The role of management accounting within the development of
environmental management systems. London School of Economics.
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Ltd. Available at:
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Marginal%20and
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information for decision-making and its influence on financial performance. The
University of South-Africa.
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 Nordmayer, B., 2018. The uses of Budgetary control. Chron.[Online]. Available at:
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