Management Accounting: A Comprehensive Guide to Systems, Reporting, and Financial Problem Solving

This report provides a comprehensive overview of management accounting, covering essential systems, reporting methods, and financial problem-solving techniques. It explores various management accounting systems, including cost management, inventory management, and price optimization, highlighting their benefits and requirements. The report delves into the calculation of cost and preparation of income statements using marginal and absorption costing, demonstrating their differences and providing a reconciliation statement. It also examines budgetary control tools, their advantages and disadvantages, and planning tools used in forecasting budgets. The report concludes by discussing how management accounting systems can be adapted to respond to financial problems, including the use of benchmarking, key performance indicators, and variance analysis.

Management Accounting
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Table of Contents
Introduction..................................................................................................................................4
Task 1.............................................................................................................................................5
Management accounting:..........................................................................................................5
Various management accounting systems and their requirements:.....................................5
Benefits of management accounting systems..........................................................................7
Different methods used for management accounting reporting............................................8
Integration of management accounting systems and management accounting reporting..9
Task 2...........................................................................................................................................10
Calculation of cost and preparation of income statement using marginal and absorption
costing.......................................................................................................................................10
Report showing profit when sale of 5000 units is made by absorption and marginal
costing.......................................................................................................................................12
Interpretation of business activities.......................................................................................14
Advantages and disadvantages of tools used in budgetary control.....................................15
Planning tools used and applied in forecasting budgets.......................................................16
Adapting management accounting systems to respond to financial problems..................17
Responding to financial problems by management accounting..........................................18
Planning tools for responding to solving financial problems...............................................19
Conclusion..................................................................................................................................20
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References..................................................................................................................................21
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Introduction
In the business, there are various essential requirements which are required to be
completed in relation to management accounting. For that, the report is presented in
which all of the aspects which are related to the same will be covered. There will be an
explanation which will be provided for the reports and the systems which are to be
undertaken. The manner in which cost is calculated will be understood with the
calculation for the variances also. There will be proper planning tools which will be used
by which company will be able to have the appropriate level of control. The techniques
which are required to be undertaken so that all the issues are dealt with appropriately
and also their occurrence in future can be avoided.
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Task 1
Management accounting:
In the entity, it is required that all of the practices shall be applied in a proper way so
that the managers are able to have the required knowledge which can be used by them
in the making of the decisions. For this, the management accounting is taken into
consideration in which there are various processes such as collection, identification, and
analyzation which will be performed and the results will be used in the company
(Butterfield, 2016). By the help of this, it will be possible to attain the required outcomes
by which objectives and gals will be met.
By the help of management accounting, it will be possible for the managers to make the
decisions by the use of which it will be possible to attain the required outcomes and this
will be enhancing the sustainability of the business. There is the use of financial
accounting also which will be different in certain terms form this and they are provided
below:
In the process of management accounting, there are various activities which are
performed such as planning, controlling and directing. For the carrying out of them in
the proper manner it will be required that all the requirements shall be fulfilled and in
that information will be needed which can be attained by the help of systems which are
as follows:
Various management accounting systems and their requirements:
Cost management system:
In the business, it is very much essential that proper control shall be established on the
costs which are incurred and for that this system will be taken into consideration. In this,
all of the components which are involved in the cash will be ascertained and then they
will be managed in the manner by which the reduction will be achieved in the total cost
of the company (DONIZETTI, 2016). The cost of the business will be classified as the
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direct cost and indirect cost and then in them, there will be fixed and variable elements
which will be involved and shall be determined. The cost related data will be attained
and by that all of the decisions will be made in a manner that profits are maximized.
Inventory management system:
In the processes which are performed in the business, there are various inventories
which are required and they include finished stock, inventory in the process and
different raw materials. It will be required that they all shall be managed in such manner
that all of the production is carried in a most effective manner (Viktorovna and
Ivanovich, 2016). There are several policies which are required to be followed in this
such as the just in time approach, ABC costing, EOQ, FIFO, and LIFO. By all of them,
the inventory will be properly measured and there will be proper records which can be
maintained in this regard.
Price optimization system:
In the company, the products are provided to the customers at different prices and it is
needed that the reaction of the consumers on the price change shall be analyzed. For
that, this system is used. In this, all the factors will be ascertained and then the price will
be set accordingly by the use of various strategies which are available in this respect
(Lopez-Valeiras, et. al., 2015). They include the price penetration and price skimming.
Also, the techniques in which cost is taken as the base are considered. This way the
overall development will be made possible and increase in the profitability will be
ensured.
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Benefits of management accounting systems
All the functions which are undertaken in the company will be carried in the best manner
if the management accounting will be taken into use in the business (Kerzner and
Kerzner, 2017). There are various policies which are followed under this and by that
several benefits are received which are as follows:
 By the help of them, all the information will be collected and that helps in the
making of the best plan which will be followed by the company. This way all
operations will be performed in the most efficient manner and also the
performance of all can be measured and evaluated by the use of this.
 The decisions will be made after considering all of the factors which affect the
business and by that chance of the errors will be reduced and the results will be
improved due to this.
 All of the data will be taken from the various sections of the company and there
will be proper flow which will be ensuring the appropriate coordination among all
of them. As there will be coordination so control will also be managed in a proper
manner.
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Different methods used for management accounting reporting
The reports will be made by the business so that they can be used in various aspects
and they are explained below:
Cost report: The cost which will be determined will be used and the report will be made
in which all of the information which related to the same will be entered. There will be
proper cost allocation which will be made and this helps the company to manage the
cost by the making of the required decisions (Sullivan, 2018). This will be maintaining
the level of the cost and also the proper distribution of the funds will be made to all the
segments as the requirements will be identified in advance.
Demand reports: It is required that the products which are required I the market shall
be identified and also the quantity in which they will be needed. There will be evaluation
which is to be made of the demands which are prevailing and the new choices. They will
be used so that production is carried in such manner by which the proper stock will be
maintained and no issues are faced. All of the data will be recorded so that it can also
be considered in the future.
Budget reports: In the making of the plan it is required that all the expenses which will
be incurred shall also be estimated and the report in which they will be recorded will be
known as a budget. This will be described the manner in which all the operations shall
be performed and also the resource allocation is made by the help of this as the needs
will be identified (Klychova, et. al., 2014). They will be managed in such manner that the
company will be able to make the best use of the resources which are available.
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Integration of management accounting systems and management accounting
reporting
The process which is involved in the making of the decisions requires the use of both
the reports and systems and due to this they both are called to be integrated. There will
be the management accounting systems by the use of which there is the collection of
the data which is needed in the company. Then the reports which are to be made will be
undertaken with the help of the information and this shows that both will be requiring
each other. As the performance of their business will be improved due to this it is also
considered to be integrated with them.
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Task 2
Calculation of cost and preparation of income statement using marginal and
absorption costing
In the process of calculation of the cost, there are various methods which can be used
and they involve absorption costing and marginal costing (Aurora, 2013). The treatment
under them is different and so the two costs will be determined which will then be used
in the making of the income statements which are provided below:
Calculation of cost and income statement in marginal costing:
Particulars Amount
(£)
Direct Costs:
Direct Material 5
Direct Labour 3
Variable Manufacturing
overhead
2
Total Cost per unit 10
TSR Pvt. Ltd.
Income Statement
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*10000) 250000
Cost of Sales
Opening Inventory 0
Add: Cost of Production (10*10000) 100000
Less: Closing Inventory 0 100000
150000
Less: Variable distribution and
distribution costs:
Administration 30000 30000
Contribution 120000
Less: Fixed Costs
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Fixed manufacturing overhead 40000
Fixed selling and administrative expenses 30000 70000
Net Profit 50000
Calculation of cost and income statement in absorption costing:
Particulars Amount
(£)
Direct Costs:
Direct Material 5
Direct Labour 3
Variable Manufacturing
overhead
2
Fixed Manufacturing
Overhead
4
Total Cost per unit 14
TSR Pvt. Ltd.
Income Statement
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*10000) 250000
Cost of Sales:
Opening Inventory 0
Add: Cost of Production (14*10000) 140000
Less: Closing Inventory 0 140000
Gross Profit at Normal 110000
Less: Distribution and Administration
Costs:
Variable Administration and selling cost 30000
Fixed selling and administrative
expenses
30000 60000
Net Profit 50000
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Report showing profit when sale of 5000 units is made by absorption and
marginal costing
TSR Pvt. Ltd.
Income Statement
Absorption Costing
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*5000) 125000
Cost of Sales:
Opening Inventory 0
Add: Cost of Production (14*10000) 140000
Less: Closing Inventory (14*5000) 70000 70000
Gross Profit at Normal 55000
Less: Distribution and Administration
Costs:
Variable Administration and selling cost 30000
Fixed selling and administrative expenses 30000 60000
Net Loss -5000
TSR Pvt. Ltd.
Income Statement
Marginal Costing
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*5000) 125000
Cost of Sales
Opening Inventory 0
Add: Cost of Production (10*10000) 100000
Less: Closing Inventory (10*5000) 50000 50000
75000
Less: Variable distribution and distribution
costs:
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Administration 30000 30000
Contribution 45000
Less: Fixed Costs
Fixed manufacturing overhead 40000
Fixed selling and administrative expenses 30000 70000
Net Loss -25000
Calculation of the material and labour variances:
Material price variance = (Standard price – actual price) X Actual quantity
= (10 – 9.5) * 2200
= 1100 F
Material usage variance = (Standard quantity - Actual quantity) X Standard price
= ( 2000-2200)*10
= 2000 A
Labour rate variance = (Standard price – actual price) X Actual quantity
= (5-5.2)*3400
= 680 A
Labour Efficiency Variance = (Actual Hours x Standard Rate) – (Standard Hours x
Standard rate)
= Standard cost of Actual Hours – Standard cost
= (3400 x 5) – 15000
=£2000
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Interpretation of business activities
In the calculations which are made above it can be noted that the amount of the income
which is determined is different under the marginal and standard costing. There is the
loss in both the cases but the amount of that is not similar. This is due to the manner in
which the fixed production overheads are considered by the company. Also, the closing
stock which is maintained is responsible in this respect. Due to that, there is the need to
make the reconciliation by which the values in both the approaches will be reconciled.
Reconciliation statement
Particulars Amount (£)
Loss from Absorption costing -25000
Profit in Closing stock (5000*4) 20000
Loss from Marginal costing -5000
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Advantages and disadvantages of tools used in budgetary control
In the business, there is there are various objectives and it is required that they shall be
attained. For that, proper planning is to be made and that will be ensured by the use of
the budgets which are made in the company (De Jong, et. al., 2012). In them, all of the
standards which are to be maintained will be recorded so that all will be having the
knowledge of the targets which are to be attained by them.
Advantages of budgets:
 The operations which are performed in various departments will be coordinated
by the use of the budgets.
 All of the past, as well as future trends, will be taken into consideration by which
the aspects which affect the business will be included so that best results will be
achieved.
 The resources will be identified and also they will be allocated in such manner
that issues due to them will be eliminated.
 There will be motivation among employees as they will be willing to attain the
targets to prove their skills and efficiency.
Disadvantages of Budgets:
 The cost which is involved in the process of budget making is high and this leads
to issues as all of the entities are not in the position to bear such cost.
 In the making of budget only quantitative data is taken into use so all the other
qualitative factors which affect business are avoided and not included in the
process.
 They are just the estimates which are made and so does not ensures that they
are accurate and there may be adverse impact which may arise due to them.
 There is no flexibility in them and so it makes the process rigid as all will be
required to perform in accordance with them and will not be able to use their
creativity.
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Planning tools used and applied in forecasting budgets
In the process of planning and forecasting, there are various tools which will be applied
and they are as follows:
 Capital budget: In the company, there will be several projects which will be
undertaken and in them, there are several capital expenses which will have to be
made. There will need to identify all of them so that proper arrangement for them
can be made. This budget is made in which all the aspects which are related to
them will be considered and recorded. The amount which will be required for
them will be identified and in this way, they will be able to manage the fund
requirement.
 Master budget: This is the budget in which the information in relation to all of the
sections and the departments will be incorporated. Due to this reason, it is
considered as the summary of all the budgets. In this, the managers will be
having all the information at one place by which they can make the proper use of
it in the making of the required decisions (Klychova, et. al., 2014). Also, there will
be saving of the time as the time which was wasted in searching for information
at different places will be saved.
 Operating budget: In any business, there are several activities and operations
which are performed and in them, there will be a requirement of information as
well as the funds. In order to maintain all of them, this budget is made in which all
of them will be determined and entered to be used for the benefit of the
company. The amount which will be needed and then the respective departments
are provided with the same. Also, the manner in which they will have to
undertake all the operations is specified so that effectiveness and efficiency can
be maintained.
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Adapting management accounting systems to respond to financial problems
In the organizations, there are various financial issues which are faced and in order to
deal with them, several techniques are taken into consideration. There is a various
issue which includes the losses which are faced and the cash related issues such as
shortage of the funds (Weygandt, et. al., 2015). For the elimination of the managers will
be required to undertake the process which helps in identification of them and then such
techniques will be used which are appropriate for the company. The capital structure of
the company will be required to be maintained so that there, not excessive costs which
are to be met by the company. For this, the evaluation of this will be made and this can
be done through the use of the ratio analysis. There will be needs to analyze the factors
which are affecting the business and for that internal, as well as external environment,
will be considered and for that tools such as pestle analysis and SWOT will be
undertaken.
The other tools which will be used in this are as follows:
Benchmarking: In this, there will be the targets and the goals will be set which will be
made in accordance with the industry or the other companies which are working in an
effective manner (Ajelabi and Tang, 2012). They will have to be followed so that all of
the adverse impacts can be reduced.
Key performance indicators: In this, the performance of the members will have to be
evaluated and this will be done by the parameters which are set. They will be
considered and the employees are to perform accordingly. Also, the incentives will be
set which will be provided for the attainment of the standards.
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Responding to financial problems by management accounting
By the use of the management accounting, there will be a sustainable success which
will be attained as there will be several tools which will be used in this. There will be
appropriate information which is provided and by that the decisions which are in the
interest of all will be made (Matambele, 2014). They will be such which ensures that
profits will be made and that will be increasing the life of the business and will be
beneficial in long run. There are all the required processes which are undertaken under
this and also the proper planning and controlling is made which is essential for the
success of any business.
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Planning tools for responding to solving financial problems
In the process of solving the financial problems, an important role is played by
management accounting. This is because of the tools which are available in this which
helps in the carrying of the process in an effective manner. There are budgets which are
med and by that proper plan is there which is followed so that no mistake is made and
all the targets are attained (Yalcin, 2012). There is the variance analysis which is
performed and in that, all of the deviations which the company is facing are identified
and then the measures by the use of which this will be eliminated are undertaken. The
cost is also managed and control in a proper manner as there are effective tools which
are used in the calculation of the same.
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Conclusion
The report above explains all the essential aspects which are involved in the business in
relation to the management accounting. There is the understanding which is obtained
for the essential requirements in relation to the various systems which are used in the
business. Also, the reporting is performed in which various reports are made. There are
the profits which are identified by the help of the income statements which are prepared
by the use of marginal costing. Also, the variances in relation to the material and labor
have been ascertained. There are planning tools which are taken into the discussion
and also the merits and demerits of all are identified. The tools to be used for the
problem resolution are explained and then the manner in which success is attained by
them is considered.
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References
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project management performance improvement. International Journal of
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Absorption Costing–A Comparative Approach. Annals-Economy Series, 2,
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(Doctoral dissertation).
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 Sullivan, D., 2018. Types of Managerial Accounting Reports. [online]
Smallbusiness.chron.com. Available at: http://smallbusiness.chron.com/types-
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