Management Accounting: A Comprehensive Guide to Systems, Reporting, and Planning Tools

This comprehensive guide delves into the intricacies of management accounting, exploring its essential requirements, reporting methods, and planning tools. It examines the benefits of management accounting systems within an organizational context and critically evaluates their integration into organizational processes. The guide also covers cost analysis techniques, income statement preparation using marginal and absorption costing, and the advantages and disadvantages of various planning tools used in budgetary control. Furthermore, it analyzes how organizations adapt management accounting systems to respond to financial problems and how management accounting can lead organizations to sustainable success.

Management Accounting
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Table of Contents
Introduction....................................................................................................................................4
LO 1.................................................................................................................................................5
P1 Explain management accounting and give the essential requirements for different types
of management accounting systems.............................................................................................5
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
D1 Critically evaluates how management accounting systems and management accounting
reporting is integrated within organisational processes.............................................................8
LO 2.................................................................................................................................................9
P3 Calculate costs using appropriate techniques of costs analysis to prepare an income
statement using marginal and absorption costs..........................................................................9
[M2, D2] Accurately applies a range of management accounting techniques and produce
appropriate financial reporting documents..............................................................................12
LO 3...............................................................................................................................................13
P4 Explain the advantages and disadvantages of different types of planning tools used in
the budgetary control..................................................................................................................13
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets......................................................................................................................15
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.............................................................16
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LO 4...............................................................................................................................................17
P5 Compare how organisations are adapting management accounting systems to respond
to financial problems...................................................................................................................17
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success...........................................................................................18
Conclusion....................................................................................................................................19
References.....................................................................................................................................20
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Introduction
The central theme of the report focuses on the uses and benefits of management accounting. The
project reports elaborate on various management accounting systems and management
accounting reporting that must be properly adopted and implemented by the Zylla company in
order to have proper and effective command on all the operations and the activities. Apart, the
project report has discussed the benefits and the advantage that the concerned company can gain
so as to have better success and growth in the competitive market scenario. In addition, the
project report has clearly discussed the essential requirements of the management accounting so
that the overall aspects can be understood in a better and enhanced manner. Further, the report
has discussed various planning tools of management accounting with all the positive and
negative aspects so that a better evaluation can be made and in turn lead to better an effective
achievement of goals and objectives.
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LO 1
P1 Explain management accounting and give the essential requirements for different types
of management accounting systems.
Management accounting is the method in which the managers utilise the information provided by
the accounting users so as to enable the authorities to take the decisions in all the matters that
support in the better conduct of the operations of the organisation. This further ensures that the
management of the Zylla Company ensures better command of all the operations so as to have
the early achievement of the goals and objectives (Amirya, et. al., 2014).
Cost Accounting System: Cost accounting system is the accounting system that supports the
authorities of the organisation to have a command on its cost factors thereby having better
command and the analysis of the factors related to profitability and evaluation of inventory.
Inventory accounting system: Under the concerned accounting system the organisations can
have the proper record of the inventory so that all the records and the accounts are provided in an
appropriate manner. In addition, the inventory accounting system requires that the firm maintains
the record on a daily basis so as to have better command on the activities.
Financial accounting System: Financial accounting System provides the organisation in
maintaining a proper record of all the transactions of monetary nature. This enables the firm in
making proper and accurate decisions in relation to the future activities.
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P2 Explain different methods used for management accounting reporting.
There are different methods of the management accounting reporting that supports the firm in
having a better overview of the transactions related to the conduct of the business. These reports
further supports in analysing the information so that the better decisions can be made for the
growth and development (Sukhia, et. al., 2014). Various accounting reporting in this regard are:
Job cost records: Authorities of every company makes utilisation of the job cost records in
order to segregate the cost associated with the jobs. This further ensures that the unnecessary
expenses on the particular job can be controlled so as to have optimum utilisation of the
resources.
Performance reporting: The concerned reporting procedure is done to evaluate the performance
level of the employees so as to have a better understanding of all the aspects and the facts that
can lead to the improvement of the overall organisation. Besides, the concerned reporting enables
that better comparison can be made in the performance level of the company in relation to the
competing firms (Amirya, et. al., 2014).
Budget reporting: Budget reporting requires that the management have better and appropriate
decisions in relation to the standard requirement as well as the actual requirement. There are
various budgets reporting that play a crucial role in the success of the organisation such as cash
budget, purchase budget etc. As such the organisation should adopt the best decision in relation
to the budget reporting (Ada & Ghaffarzadeh, 2015).
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M1 Evaluate the benefits of management accounting systems and their application within
an organisational context.
Management accounting provides various significant factors that can support the Zylla Company
in having the following benefits:
Supports in judgment making: Management accounting provides with much useful
information that can ensure that the authorities of the concerned company to have better and
appropriate judgement on all the matters that can support in the success of the organisation
leading to having a better share in the market. In addition, the concerned company can have a
better evaluation of all the facts and aspects (Strelnik, et. al., 2015).
Optimum utilisation of resources: Management accounting ensures that all the activities and
the operations of the concerned business in a coordinated manner so as to have the proper focus
on the fact that the resources of the company are utilised in the best possible manner. This will
ensure better efficiency in the overall operations leading to better conduct of the business.
Enhancement of the cash flows: Effective adoption and implementation of the management
accounting ensures a positive flow of the cash. This factor further ensures that the company
improve the position of the liquidity so as to sustain for a longer period of time (Strelnik, et. al.,
2015).
Reduction of unnecessary expenditure: Another benefit that can be availed with the proper and
effective implementation of the management accounting is that it acts as an aid in controlling the
expenses of unnecessary nature. As such the authorities of the concerned establishment can make
further strategic decisions in relation to the expansion of its operations Mamary, et. al., 2014).
Maximum returns: Adopting the management accounting in a systematic manner will support
the authorities of the concerned establishment in gaining the enhance returns. This will further
ensure that the concerned company can plan its activities in a proper manner leading to better
sustainability and growth.
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D1 Critically evaluates how management accounting systems and management accounting
reporting is integrated within organisational processes.
Management accounting system and management accounting reporting are the aspects that are of
great importance that highly supports in the better conduct and the operations of the Zylla
Company. In order to have better and large share in the competitive market, it is very crucial that
the company focus on the proper adoption and implementation of all the systems related to the
management accounting and also requires that the reporting format in relation to the evaluating
the level of performance of its employees and the overall organisation (Strelnik, et. al., 2015).
Both the management accounting system and management accounting reporting support the
Zylla Company in making better decisions so that adequate command can be gained on all the
activities and the conduct of the business. Apart, since the company is dealing with the different
changes over the number of years this has led to the various decisions in relation to the
expansion, acquisitions etc. As such the authorities of the concerned company must properly
integrate the benefits of management accounting system and management accounting reporting
to effectively handle all sorts of changes and survive in the market in an enhanced manner
(Mamary, et. al., 2014). This will further support in the easy and easily achievement of all the
goals and objectives of the company.
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LO 2
P3 Calculate costs using appropriate techniques of costs analysis to prepare an income
statement using marginal and absorption costs.
The following information is also provided:
(a) Total fixed indirect manufacturing cost is £92,000 per year.
(b) Direct labour costs were £10 per unit.
(c) Direct material costs were £13 per unit.
(d) Variable expenses were £7 per unit.
(e) Sales were 2,600 units. The selling price is £85 per unit.
(f) Production 3,500 units. Interest expense £1,100.
(g) Other overheads are as follows:
 Distribution expenses £24,000 for each year.
 Administrative expenses £89,000 for each year.
Income Statement as per Marginal Costing approach
Particulars Amount
(Amount in £)
Sales Revenue (A) 221000
Cost of Sales (B)
Opening Inventory 0
Add: Cost of Production 105000
Less: Closing Inventory 27000
Less: Variable or marginal distribution and
distribution costs:
Distribution expenses 24000
Administration expenses 89,000
Contribution 30,000
Less: Fixed Costs 92,000
Net Profit or net loss -62,000
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Income Statement as per Absorption Costing approach
Particulars Amount
(Amount in £)
Sales Revenue 221000
Cost of Sales:
Opening Inventory 0.00
Add: Cost of Production 197000
Less: Closing Inventory 50657.14
Gross Profit 74657.00
Less: Distribution and Administration Costs:
Distribution expenses 24,000
Administration expenses 89,000
Net Profit or net loss -38343.00
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[M2, D2] Accurately applies a range of management accounting techniques and produce
appropriate financial reporting documents.
Reconciliation statement of profit under absorption costing and
marginal costing:
Particulars Amount
Income or loss as per Absorption costing -38343.00
Less: Difference in Closing stock valuation 23661
Income or loss as per marginal costing -62004.00
Valuation of stock as per marginal costing
approach:
Particulars Amount
Cost of production 105000
Units produced 3500
Per unit cost 30
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LO 3
P4 Explain the advantages and disadvantages of different types of planning tools used in
the budgetary control.
Budgetary control is very important aspects that involve various planning tools and techniques
that support the authorities of Zylla Company in the better planning and decision for the overall
functions of the company. Various planning tools in relation to the budgetary control involve:
Activity-based budgeting:
The concerned planning tools involve the preparation of the budget on the basis of the activities
in relation to the priority of the importance (Mahal & Hossain, 2015).
Advantages:
 Supports in identifying the flaws in the overall operations of the company.
 Ensures better and effective coordination of all the activities and working.
Disadvantages:
 Activity-based costing is a highly complex technique to implement.
 Involves advice from various technical experts that require a lot of time.
Financial Budgeting:
Financial Budgeting is the tool that supports in having proper command on all the transactions
related to the monetary aspects so as to provide the authorities to have better and effective
command of all the operations (Strelnik, et. al., 2015).
Advantages:
 Supports in making a value judgement for the future operations.
 Supports in making proper estimation in relation to the activities of the future period.
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Disadvantages:
 The concerned planning tool proves to be unreliable in unusual circumstances.
 Difficult to predict the changes (Baldauf, et. al., 2015).
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M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
Planning tools are very crucial and effective to ensure that the activities and the operations of the
concerned company are managed in an appropriate manner. Various planning tools provide Zylla
Company with following benefits that can support them to have proper working and knowledge:
Benefits of Activity-based budgeting:
 Activity-based budgeting ensures that there is a better command of all the process of the
activities. This supports the authorities in making a better decision on all the process
leading to the effective and efficient utilisation of the resources in accordance with the
level of priority (Mahal & Hossain, 2015).
 Ensures that all the activities involved in the process are properly linked to the financial
budget so that there is no hindrance to the activities and the further operations.
 Support in maintains the level of efficiency such that the management has proper and
sufficient control on all the factors of cost and the utilisation of resources.
Benefits of Financial Budgeting:
 Financial Budgeting is very crucial and important in order to maintain a proper balance
between the earing capacity and the factors of expenditure of the concerned company.
 Financial Budget at as a tool in ensuring that the goal and objectives of financial nature
are effectively achieved so as to have better and effective control on the overall scenario
of the company.
 Financial budgeting greatly supports the authorities of the concerned company in making
a proper planning in relation to the strategic areas and also the decisions related to the
future activities.
 Supports in the identification of the opportunities and the risk factors that can affect the
conduct of the business. This will further support in having better and effective
competitive advantage in the competitive market (Baldauf, et. al., 2015).
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D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success.
Various planning tools are there that can be adopted and implemented by the Zylla company in
order to effectively manage the operations and working. Planning tools support the concerned
company in providing financial assistance in managing all the problems. In addition, the
planning tools such as activity-based budgeting ensure that all the cost is effectively linked to the
appropriate activity (Anna, 2015). This further ensures that the resources are effectively utilised
leading to the maximum advantage.
Apart, planning tools ensure that the comparison can be done in an adequate manner in relation
to the past years so that appropriate decisions can be made in relation to the future activities and
operations. Planning tools further ensure that the concerned company can have a proper
framework so that an appropriate budget can be set so that the activities and the operations can
be conducted in accordance with the set budgets. This will further help in having the assurance
that the activity is conducted in a proper format.
Planning tools are required to have proper and adequate observation by Zylla Company as the
planning tools provide a benchmark in accordance with which the personnel of the company has
to carry its activities and operations so as to have a better outcome (Omotayo, 2015).
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LO 4
P5 Compare how organisations are adapting management accounting systems to respond
to financial problems.
There are various changes that are taking place in the external as well as an internal environment
that requires that the Zylla Company must focus on the implementation of the management
accounting (Aruomoaghe & Agbo, 2013). For the purpose the concerned company must
implement in its operation the following factors so as to effectively manage the changes and deal
with the problems of financial nature:
Preparing periodical budgets
In order to have proper control and regulate on all the activities so as to deal with the financial
problem, it is necessary that the company makes proper periodical budgets so that there is no
confusion on any aspects and proper decisions can be made for the future activities.
Applying standard costing
Zylla Company must understand the concepts of standard costing. This will support the
concerned company in the calculation of the predetermined cost that can further ensure in
making a comparison with the actual expenses. This, in turn, will help in finding out the
deviations in the concerned expenses (Omotayo, 2015).
Calculating variances
Calculation of variances ensures that a suitable comparison can be made between the budgeted
and the actual facts so that current decisions relating to the growth and development can be
taken. In addition, it ensures that a proper estimation can be made for the forthcoming years.
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M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success.
Management accounting plays a vital role in the achievement of the sustainability and thereby
leading to the better success of Zylla Company (Anna, 2015). The following responses can be
evaluated in relation to the dealing of the financial problems:
Determination of price: Management accounting supports in the determination of the price
factors related to the final products. Apart, the management accounting ensures that the suitable
and appropriate changes can be made from time to time. This can, however, be possible with the
proper implementation of the planning tools.
Efficiency in the factors of cost: Cost is a very crucial factor in every form of organisation. As
such it very crucial to focus on the factors that can support the reduction of cost. For the purpose,
the planning tools of management accounting such as budgetary control, analyses of variance
etc. are very important. Zylla Company must, therefore, have proper knowledge and
understanding of all the factors of cost so as to ensure better terms of profitability.
Ensuring suitable competition: There is a great and tough level of competition due to much
advancement in the working scenario. As such in order to manage the changes in an effective
manner, it is quite essential that the management accounting system and its tools are effectively
implemented in the operations so that all the barriers and the problems can be managed and
thereby turn into better success and growth for a longer period of time (Aruomoaghe & Agbo,
2013).
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Conclusion
The entire report concludes on the importance of the management accounting. The report has
highlighted significantly on the importance of the management accounting that can be gained by
the concerned organisation if adequately adopted and implemented. The report also concludes
that with the changing environment it is essential and crucial to effectively understand the
aspects of management accounting system as well as various planning tools so as to have better
and adequate performance. The report has further concluded on the various practical implications
that can be improved with the utilisation of the concepts and facts related to the management
accounting. In addition, the report elaborates that the management accounting and its various
aspects and facts are essential and crucial if the Zylla Company wants better sustainability and
the growth. Apart, it will also support in having a better advantage on the competitors thereby
leading to better and strong position in the market.
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References
 Anna, A., 2015. Strategic Management Tools and Techniques and Organizational
Performance: Findings from the Czech Republic. Journal of Competitiveness.
 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.
 Amirya, M., Djamhuri, A., & Ludigdo, U., 2014. Development of Accounting and Budget
System of General Services Board in Universitas Brawijaya: Study of Interpretive.
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 Aruomoaghe, J., & Agbo, S., 2013. Application of Variance Analysis for Performance
Evaluation: A Cost/Benefit Approach. Research Journal of Finance and Accounting.
 Omotayo, F.O., 2015. Knowledge Management as an important tool in Organisational
Management: A Review of Literature. University of Nebraska – Lincoln. Baldauf, J., Steckel, R., & Steller, M., 2015. The Influence of Audit Risk and Materiality
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