Management Accounting: A Comprehensive Guide to Planning, Costing, and Reporting

This comprehensive guide explores the fundamentals of management accounting, covering essential topics such as cost analysis, budgeting, and financial reporting. Learn how to apply a range of management accounting techniques to optimize business operations, control costs, and make informed decisions. Discover the benefits of using planning tools for budgetary control and explore how management accounting can help organizations respond to financial problems and achieve sustainable success.

Management accounting
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Table of Contents
Introduction......................................................................................................................................4
LO1: Demonstrate an understanding of management accounting systems.....................................5
P1 Explain management accounting and give the essential requirements for different types of
management accounting..............................................................................................................5
P2 Explain different methods used for management accounting reporting.................................8
M1 evaluate the benefits of management accounting systems and their application within an
organizational context................................................................................................................10
D1 provides a critical evaluation of how management accounting systems and management
accounting reporting are integrated within organizational processes........................................11
LO2: Apply a range of management accounting techniques.........................................................12
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing......................................................................12
M2 Apply a range of management accounting techniques and produce appropriate financial
reporting documents..................................................................................................................15
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities.....................................................................................................................................16
LO3: Explain the use of planning tools used in management accounting.....................................17
P4 Explain the advantages and disadvantages of different types of planning tools used in the
budgetary control.......................................................................................................................17
M3 Analyze the use of different planning tools and their application for preparing and
forecasting budgets....................................................................................................................19
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LO4: Compare ways in which organizations could use management accounting to respond to
financial problems.........................................................................................................................20
P5 Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................20
M4: you should analyze how, in responding to financial problems, management accounting
can lead organizations to sustainable success............................................................................23
D3: how planning tools for accounting respond appropriately to solving financial problems to
lead organization to sustainable success:...................................................................................24
Conclusion.....................................................................................................................................25
References......................................................................................................................................26
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Introduction
Many types of problems and challenges are faced by business organizations in modern business
scenario and management accounting system is very useful to handle these problems. This
assignment report contains information about some management tools which are very supportive
of cost control and decision-making process. The assignment also defines management reporting
system which is very important in order to manage the coordination between different
departments. Cost determination is must in order to manage the cost at the appropriate level and
this report illustrates summery about two cost methods which can be used in effective cost
control. Budgets are also an important part of managerial work and appropriate budgeting helps
to manage the business operations in a profitable manner. After studying this assignment report
user will clearly understand the importance of management planning tools for a business
organization and also, how can a business use management tools to ensure the sustainable
success in future.
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LO1: Demonstrate an understanding of management accounting systems
P1 Explain management accounting and give the essential requirements for different types
of management accounting.
In the carrying out of the operations in an effective manner it is required that proper information
shall be used and for that management accounting systems shall be used. They will be providing
the company will all the relevant information. There are several such tasks which are to be
undertaken in the business and will be including the use of this data. Some of them are planning,
controlling and directing and motivating. By them, all the set objectives of Zylla will be fulfilled.
In order to attain the best results, it is required that proper functioning shall be made and for that
plan will be prepared in which it will be specified that what all activities are to be carried out and
in what manner. This will be prepared with the help of the information that is collected in the
process of management accounting (Bukenya, 2014). The plan shall be communicated to all the
relevant parties so that they can have the directions in respect of it. They will then be used to
perform all the operations. On the basis of that Zylla will also be able to set the control system by
which control will be made on all the activities. In this company will also be using certain
principles which are of causality and analogy.
In addition to management accounting, financial and cost accounting are also carried out and
with the help of them, remaining processes are undertaken. There will be need of them as all the
departments can use them in the manner by which they can attain their targets. There are certain
differences which exist between them which are as follows:
Management accounting Financial accounting
This is used in the process such planning and
controlling which are used in the business.
The main decisions which are taken with the
help of this are related to investments and this
will be used by the outside parties.
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There will be functioning which will be
performed in relation to a particular
department.
There will be processes which will be
performed for the whole company.
This is at the option of the company to
undertake this process or not.
There are several such requirements which are
to be mandatorily complied with under this
process.
There are no policies and standards which are
to be followed and so is the format.
The company will be required to prepare all the
reports in the format which is fixed under
standards.
There are several such systems which help in collection process which is undertaken in respect
of the information and they are explained below in detail.
Cost accounting systems: By the help of this system all the cost which are incurred in the
business are determined. For these various methods are there which will be used and they include
standard costing in which budgeted amounts will be used (Zaleha Abdul Rasid, et. al., 2014).
Then the actual costing is used in which all the actual expenses will be undertaken. Another one
is normal costing which is also used by the company.
Price optimizing systems: The profits of the company depend on the price which is charged by
the company. For this, there is the need to determine the cost as the then only price will be
determined. There will be various strategies which will be used in this. All of them are divided in
cost based and market-based. In the base of the cost-based method will be taken as cost and then
there will be certain profit which will be added to it (De Toni, et. al., 2017). In market-based
methods, all the market forces will be considered and some of them are market penetration
pricing and skimming method.
Inventory management systems: There is the stock which is to be retained in the business in a
required quantity and for the determination of that all the knowledge about important aspects of
that factors shall be gained. In this process, there will be the use of economic order quantity
technique which will be helpful in this case. The valuation methods will be undertaken so that
the appropriate value will be determined.
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Job costing system: The process which is undertaken in the carrying out of the production will
be involving various jobs that are performed. By the help of job costing system, the cost which is
related to them will be ascertained and also the manner in which company is required to carry
out them so that best results are derived will be identified.
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P2 Explain different methods used for management accounting reporting.
The reporting is the process under which all the information which is collected will be recorded
in the appropriate manner. There are several reports which will be made in the business and by
the help of them, it will be possible for Zylla to evaluate all the aspects in a proper way. All the
changes which are taking place will be identified and then decisions will be taken in such manner
by which they all can be incorporated in the company.
Variance report: Budgets are the plans which are made in all the businesses and in them there
are all the estimates which remade in respect of the cost which is to be incurred in the coming
period. In the actual when processes are undertaken there arise certain differences and they are
identified as variance. In this process variance analysis is carried out so that all the budgets
which have been made can be compared with the amounts which have been spending in the
actual. By the help of this, all the deviations will be determined and they will be recorded in this
report due to which this is known as variance analysis report. By the use of this report, it will be
possible to determine the main causes which are responsible for the deviations and then Zylla
will be able to take the measures by the use of which they can be eliminated.
Segment reports: The working in the business is performed in various segments and it is
required that the operations shall be carried in a proper manner. There is the need to identify the
requirements and all the other aspects in relation to them. By the help of them, it will be possible
to ascertain the manner in which this shall be undertaken. All of the information which is
identified will be recorded in this report. This will be beneficial as all the departments will be
having the required information which will make their processes more effective and efficient.
This will also be advantageous for the company as all the departments are working for the
benefit of the business only.
Budgets: In the company, there are several expenditures which are to be met and for that, it is
very necessary that they shall be ascertained in the advance so that proper arrangements in
respect of them can be made. In this, there are presumptions which remade and then they are
recorded. There are various types of budgets which will be made by Zylla and they include
operating budgets and capital budgets (De Jong, et. al., 2012). By the help of them, it will be
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possible to maintain the amount which is to be spending in the business. There will be no over
expenditure which will be incurred and this will lead to a reduction in the overall cost of the
business will be achieved and this will be in the interest of business as the profits will be
increasing.
Investment appraisal report: In the company, there is the need that all the projects which are
there shall be evaluated in a proper manner so that investment can be made in such which will be
providing the company with the maximum amount of returns. In this procedure, there is the need
to use various techniques which are available so that no loss is faced in the coming period
(Legaspi, 2014). Some of them include net present value method, payback period and internal
rate of return. They all will be providing the results which will help the management in taking
the decision in respect of investment. All of this will be recorded in the investment appraisal
report.
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M1 evaluate the benefits of management accounting systems and their application within
an organizational context.
The systems which are used by Zylla will be useful for them as they will be bringing company
various benefits which are as follows:
 The main benefit will be that there will be such decisions which are made which yield
best results for the company.
 All the information will be used in the making the plan so that operations are performed
without any hindrance.
 The employees will be motivated as there will be several aims which are specified and
have to be achieved by them.
 The cost which is incurred is controlled and reduction in it is attained as working is
performed as per the set plan.
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D1 provides a critical evaluation of how management accounting systems and management
accounting reporting are integrated within organizational processes.
In the business there exist some integration among all the systems and reports which are being
made and this is because of there some aspect which relates all of them and makes them
dependable on each other. There is the need to take decisions in various areas and for that
information will be collected by the help of systems. Then the reports are made by including the
findings so that conclusions can be drawn out of them (Lunkes, et. al., 2013). The decisions are
required various types of information which is collected by several systems and this makes them
interrelated. This can be understood as in the pricing decision cost will also be required which is
collected by another system and therefore all are required for each other.
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LO2: Apply a range of management accounting techniques.
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing.
The production of any product requires the occurrence of some costs and they can be classified
into various types such as direct, indirect, fixed and variable. They will have to be allocated in
the most appropriate manner so that there are no over or under allocation of the cost which is
adverse for any business. For this proper methods are to be used and two of them are explained
below.
Absorption costing: This is one of the methods to identify the cost and then prepare the income
statement with the help of it. In this, there will be the inclusion of all the cost which will be made
in the production and are related to production. They will be allocated to all the units and this
will apply to fixed expenses also (Aurora, 2013).
Marginal costing: The variable cost which will be made will be included in this and all the other
cost will not be taken into account while allocation will be made. In this, all the variables will be
deducted and the amount that will be remained is identified as a contribution. The fixed cost
which is incurred will be deducted in total from that so that the net amount of profit or loss can
be determined.
The income statements in accordance with both the methods are presented below:
Income statement as per Marginal Costing 2017
£ £
Sales (30 x 800) 24000
Cost of Sales :
Opening Stock 0
Cost of Production (6 x 1000) 6000
Variable Production cost (2 x 1000) 2000
Cost of Goods Sold 8000
Less Closing Stock (8x 200) 1600 6400
Contribution 17600
Less Fixed Cost
Administration cost 1200
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Production overhead expense 2000 3200
Net Profit 14400
Income statement as per Absorption Costing 2017
£ £
Sales (30 x 800) 24000
Cost of Sales :
Opening Stock 0
cost of Production (6 x 1000) 6000
Fixed production cost 2000
Variable Production cost (2 x 1000) 2000
Add Closing Stock (10 x 200) 2000
Gross Profit 16000
Less Fixed Cost
Administration cost 1200 1200
Net Profit 14800
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M2 Apply a range of management accounting techniques and produce appropriate
financial reporting documents.
Management accounting techniques are very relevant to be used in all the organizations as by the
help of the proper reporting is made. There are various statements and reports which are to be
performed and it is required that proper tool shall be used so that no mistake is made in them.
Variance analysis will be carried so that all the deviations can be reported. In the calculation of
the cost and making of cost report all the methods such as activity-based costing, target costing
and standard costing will be taken into use (Vasile and Croiteru, 2013). There will another report
also which will be prepared and for that, some of the analysis such as ratio analysis will be
undertaken so that best reporting is made possible.
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D2 Produce financial reports that accurately apply and interpret data for a range of
business activities
The income statements have been prepared above and it has been identified that the profits that
are attained are having some deviations and the reason for the same if the fixed production
overheads which are incurred in relation to closing stock. For this purpose there is the need to
make the reconciliation which is provided hereunder:
Reconciliation Statement £
Profit under Absorption costing 14800
Fixed production cost in closing inventory (2 x
200)
400
Profit under Marginal Costing 14400
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LO3: Explain the use of planning tools used in management accounting.
P4 Explain the advantages and disadvantages of different types of planning tools used in
the budgetary control.
In the business, it is required that all the objectives shall be attained and for those effective
operations are required. This will be made possible when there will be proper planning done in
the business (White, 2015). There are various tools which can be used in this process and one is
budget in which all the standards which are to be followed for cost are ascertained.
Advantages of budgets:
 This is the plan with the help of which variance analysis will be carried out and deviation
along with their reasons will be determined.
 The company will be able to establish the proper amount of control on all the
expenditures and there will be reduction that will be achieved in the total cost.
 The chances of the errors in the carrying out of the process will be reduced as there will
be a manner that is to be followed.
Disadvantages of budgets:
 There are various predictions and presumptions which are made and due to this risk is
involved in this process.
 The making of the budget will be requiring a lot of time and in this process, the company
will be required to incur huge amount which is not possible for all.
Different types of budgets:
Incremental budgeting: In the changing environment there are various changes which are
taking place and there is the need to incorporate all of them in the business. For this incremental
budget is made in which clause of inflation is there and due to that, an increase is taken into
consideration which will be required at the time of increment.
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Master budget: This is the plan in which the estimates in respect of all the departments will be
taken into account. By the help of this, it will be possible to ascertain the entire amount and there
will be no need to search various places for the information. There will be saving of cost and
time both in this budget.
Zero-based budgeting: This is the budget in which no prior data will be taken into use by Zylla.
They will be carrying out research for the making of the budget so that no errors which were
there in the previous budget are included in it. This will be consuming more time.
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M3 Analyze the use of different planning tools and their application for preparing and
forecasting budgets.
In the making of the budget, all the factors which will be affecting business shall be taken into
consideration and for that various planning tools will be used. All the external factors will be
considered by the use of Pest analysis and the internal can be analyzed by swot analysis. There
will be other techniques such as variance analysis, activity-based costing and some more which
will be used so that all the figures that are to be included in the budget are identified. This will
lead to making the nest budget which helps Zylla in fulfilling all the objectives so that
sustainable success can be attained.
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LO4: Compare ways in which organizations could use management accounting to respond
to financial problems.
P5 Compare how organizations are adapting management accounting systems to respond
to financial problems.
Various types of problem are faced by organizations like Zylla company ltd. In day to day work.
Some of them are:
Insufficient funds Low Efficiency Abnormal wastage
Every business operation
needs funds and it is
necessary for every business
enterprises to manage their
funds in a sound manner.
Problems like Shortage of
funds; high-interest rates Etc.
are raised because of the
wrong determination of debt
sources and ugly capital
selection. By utilizing tools
and policies of management
accounting frameworks, this
problem can be sold with
zero negative effect on the
company.
Efficiency is a very
important factor for every
business organization. High
efficiency directly generates
profit for business
organizations. Low
productivity and efficiency
can arise because of the
absence of enough
experience and proper
practice. Management
accounting system tools are
utilized to take care of this
issue like standard costing
and variance analysis is
utilized to set the standard
for specific time and
contrasting it with real
Two types of abnormal
losses are controllable and
non-controllable.
Controllable abnormal loss
increases cost of product and
company must reduce it to
increase the profit (Watts and
Yapa, 2014). abnormal losses
can be eliminated by using
the management planning
tools like inventory
management system can be
used to control the inventory
wastage.
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outcomes.
To face and solve above problems following management tools can be used.
Key performance indicators: Key performance indicators are a performance measurement tool
which can be used to evaluate the performance of the entire company or special project. This
system helps business enterprises to track the efficiency and accuracy of operations (Watts and
Yapa, 2014). To measure the efficiency of the business process some financial and non-financial
parameters are used in this tool which are:
Image 1: some parameters of Key performance indicator
Source: By Author. 2018
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Financial
indicators
Leverage ratios
Operating ratios
Sales ratios
Debt equity ratios
Non-financial
indicators
Special skills like Patents
brand goodwill
Human resources
managerial ability

Benchmarking: Benchmarking is a measurement method which is used to find out the level of
efficiency and accuracy of business operations by comparing with the industry standards
(Ajelabi and Tang, 2012). It can be used by Zylla ltd to estimate and compare the efficiency of
business operations with another best business organization.
There are several types of benchmarks are used in different industries. Some mostly known
categories are:
 Performance measurement benchmarks
 Strategy planning benchmarks (Suttle, 2018).
 micro bench makes
 Macro-benchmarks
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Financial governance: financial governance is defined as the set or group of rules and policies
which are issued by the authority to ensure the correctness of financial processes of companies
(Edmunds, 2018). Financial Governance works like a guard for external parties and draws a
responsibility on management for their decisions.
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M4: you should analyze how, in responding to financial problems, management
accounting can lead organizations to sustainable success.
Management accounting system supports business operations in numerous ways. Management
system ensures high productivity and profitability for business organizations. Some advantages
of management accounting are as follows;
Project planning: when a company starts new projects estimation of profitability is a must.
Management system involves various tools to measure the cost and profit of project on the basis
of past experience. The manager can use these tools as per needs (Gartenstein, 2018).
Management of Funds: management accounting gives help to deal with the funds in a sound
way. It gives deep investigation of accessible fund sources. The manager can pick best funding
choice by examining all facts of accessible sources.
Cost reduction: higher cost is a common problem in most organizations. Management system
gives many tools which can be used to monitor the expenses and costs. Effective monitoring will
stop extra expenditure and increase profit for the company.
Performance development: performance improvement is must increase the profitability of the
business. Management tools like responsibility budgeting or performance analysis can be used to
improve the performance of the company (Suttle, 2018).
Departmental coordination: management tools increases the communication between
departments and management. This combination ensures sound coordination between different
departments and the same is must to ensure the sustainable success.
Risk management: different management accounting give a definite investigation of business
threats. All things considered, management accounting system is related with the business
procedure beginning to end so the problem of each business activity can be smoothly recognized
by the management system and manager can make strategies according to need (Gartenstein,
2018).
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D3: how planning tools for accounting respond appropriately to solving financial problems
to lead the organization to sustainable success:
Management accounting has different systems to manage the business activities effectively. With
the assistance of management planning framework, the manager can distinguish the potential
dangers and beneficial chances of the external environment and influence policy as indicated by
so organization to profit the advantage of potential chances and limit the impact of dangers.
Also, planning tools support managers to make plans as per capacity of the company and the
same ensures the sound use of available resources. Management planning tools give assistance to
create and execute plans effectively (Gartenstein, 2018). Other benefits from planning tools are
risk management, funding management etc. all above reasons prove that management system is
very useful to ensure the sustainable success of the business.
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Conclusion
From the report which is presented, it can be concluded that there is the need to use various
systems which are available so that all the information is ascertained and then it can be used in
the making of decisions. By the help of this, there will be the elimination of the risk that is
involved as correct decisions will be made. The company is also required to follow the methods
of costing which have been described so that income statements are made which helps in
determination of the net profits which are made. There are planning tools which have been used
so that proper planning is carried out and all the operations are performed in the best manner.
The methods by which all the issues can be avoided are also taken into account.
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