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

This comprehensive guide explores the fundamentals of management accounting, encompassing systems, techniques, and planning tools. It delves into the essential requirements for different types of management accounting, examines various methods used for reporting, and evaluates the benefits of management accounting systems within an organizational context. The guide further explores the application of cost analysis techniques, including marginal and absorption costing, to prepare income statements. It also analyzes the use of planning tools like budgets and variance analysis for forecasting and responding to financial problems. Through a critical evaluation of management accounting systems and reporting, the guide demonstrates how these tools can be integrated within organizational processes to 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.....................7
M1 evaluate the benefits of management accounting systems and their application
within an organizational context.............................................................................................8
D1 provides a critical evaluation of how management accounting systems and
management accounting reporting are integrated within organizational processes......9
LO2: Apply a range of management accounting techniques...............................................10
P3 Calculate costs using appropriate techniques of cost analysis to prepare an
income statement using marginal and absorption costing...............................................10
M2 Apply a range of management accounting techniques and produce appropriate
financial reporting documents...............................................................................................12
D2 Produce financial reports that accurately apply and interpret data for a range of
business activities...................................................................................................................13
LO3: Explain the use of planning tools used in management accounting.........................14
P4 Explain the advantages and disadvantages of different types of planning tools
used in the budgetary control................................................................................................14
M3 Analyze the use of different planning tools and their application for preparing and
forecasting budgets................................................................................................................15
LO4: Compare ways in which organizations could use management accounting to
respond to financial problems...................................................................................................16
P5 Compare how organizations are adapting management accounting systems to
respond to financial problems...............................................................................................16
M4 Analyze how, in responding to financial problems, management accounting can
lead organizations to sustainable success.........................................................................16
D3 Evaluate how planning tools for accounting respond appropriately to solving
financial problems to lead organizations to sustainable success....................................17
Conclusion....................................................................................................................................18
References...................................................................................................................................19
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Introduction
In the business, there are various operations which are performed and it is required that
they shall be carried in the best possible manner. For this purpose management
accounting will be taken into consideration as there are various tools which are
available under this. There will be a requirement of the information for this purpose and
it will be gained by using the management accounting systems. Then reporting will be
made with the help of the collected data so that it can be considered in the process of
decision making. All of this will be carried in this report and that too in context of Zylla.
The manner in which income statement is to be prepared by the use of the methods
which are available will be discussed in the report below with the help of the practical
problem. Budgetary control will be taken into account and that will be explained together
with the manner in which benefits will be received by it. The last part will be describing
the techniques by the use of which all the problems will be identified and resolved in the
business.
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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.
Decision making is to be performed in the most effective manner and for that there will
need to use the systems so that the data which will be needed will be collected on the
timely basis. It has been identified that there are various changes which are occurring in
the Zylla and for that it will be required that proper tools shall be used so that they can
be incorporated in the process. There are various activities which will be performed with
the help of management accounting and they are as follows:
Planning is the initial step which is required to be carried in business and by the help of
that, it will be possible to determine the manner in which operations are to be performed
so that they make the tasks completed in the best manner and all the objectives will be
attained. In the plan, data will be required and that will be collected and then used in the
process involved in making of the plan such as budget (Legaspi, 2014). After this, it will
be ensured that the directions shall be provided to all who are required to perform the
operations so that they do not make any mistakes in it and as there will be standards so
they will prove to be a motivational factor for all of them. Zylla shall check that proper
control shall be there and for that proper strategies shall be made in this respect so that
proper controlling is made.
There are various principles and it will be required that they shall be followed and it
includes the principle of causality and analogy. By the use of it will be possible to
improve the decision-making process of the company.
In the business, there are various types of accounting which will be carried and they
include financial accounting, cost accounting and management accounting (Lunkes, et.
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Planning
Directing and
Motivating
Controlling

al., 2013). There are systems which will be undertaken and with the help of them, it will
be possible to develop the integration in the business among all the departments which
will be beneficial in the attainment of the results which have been defined in the plan.
In all of them, some of the deviations are there and the major differences which exist
between management and financial accounting can be understood by the table below:
Management accounting Financial accounting
The focus under this is kept on any
particular department only.
The complete organization will be involved
in the process under this.
The main functions which are undertaken
in this include planning and controlling.
The information will be used in the making
of investment decisions by the third
parties.
The standards are not required to comply
with this and therefore format will also not
be specified.
All the standards which are set will have to
be followed so that reporting can be made
in the formats which are specified.
There is no mandatory requirement under
this and so this can be carried in any
manner.
It is compulsory for the company to
undertake this as they are required by law.
All the information which will be needed can be collected with the use of the systems
which are available and they all are explained below in detail:
Cost accounting systems: This is the system in which company will be able to
determine the cost which is incurred in respect of the production of any product. For
this, there is various method which can be used and the most important are process
costing and job costing. Accounting of all the cost will be undertaken in this and that will
be used by the managers in the coming period for the making of decisions in this
respect (Vasile and Croiteru, 2013).
Inventory management systems: Inventory can be valued with the help of this system
and for that, it will be needed that all the important elements which are involved in this
will have to be included. There are many such methods which will be used in this and
they include economic order quantity and just in time approach (Bukenya, 2014). The
level of units which will be required to be maintained in this will be identified. Then the
cost which is incurred in the holding, storage, and ordering of the stock will be
considered so that they can be controlled.
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Job costing system: In the company, there will need to maintain the jobs in the proper
manner and for that, the information which will be needed is collected with the help of
this system. There are various costs which are incurred in the performance of the job
and they all will be identified with the help of job costing system. After the determination,
all the amounts will have to be allocated on the appropriate basis by the help of this.
Price optimizing systems: The main objective of any business is to maximize the
profits and for that it will be needed that appropriate price shall be determined. In order
to attain this, there are various methods which can be considered and in them, some
are based on the cost in which there will need to add the amount of profit in the cost
which has been made (De Toni, et. al., 2017). Another way is to consider all the
conditions of the market and the make the price decision in accordance with that. In this
price skimming, market penetration and other techniques will be used.
P2 Explain different methods used for management accounting reporting.
The identification of data is needed but after that, it is also necessary that they shall be
presented in an appropriate manner and for that, it shall be ensured that it is reliable
and accurate so that there are no issues due to this. They shall be presented in such
manner by which comparison can be made so that proper evaluation is made and
decisions are taken. There will be need of the various reports due to this and they all
are explained below in detail.
Variance report: In the business, there will be various budgets which are made and
then it will be required that they are implemented in a proper manner. for this evaluation
will be required to make so that it can be identified that targets are achieved or not. This
can be performed with the help of the variance analysis in which all the budgeted
amounts will be compared with the expenditures which are made in actual. All the
differences which exist among them will be determined and then Zylla will be
undertaking such process which will help in identification of the reasons which are
responsible for this. After this, the measures will be taken which will be helpful in the
elimination of all of those issues which are there. By this, it will be ensured that no
deviations are there and all the targets are attained which will make the entire process
successful and this will be beneficial for the company.
Budgets: All the expenses which are incurred and the data which has been collected in
respect of them will be used in the making of the budget. The assumptions will also be
made in respect of the future period and then they will help in making the targets which
will have to be attained by all the employees. There is the need for managers and other
workers to perform actions in such manner by which all this will be made possible
(Egbide and Agbude, 2014). Zylla will also be using this in which all the changes will be
included and various budgets will be made such as sales budget, cash budget and
many more. By the help of this, it will also be ensured that proper performance is carried
in the business (Egbide and Agbude, 2014).
Segment reports: In the company, there are various departments and all perform
several functions. It is needed that the performance of them shall be measured and for
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that there will be a requirement of information and that will be included in this report. All
the departments will be compared with one another so that it can be seen that which are
the sections performing in the best manner. all the aspects such as profit, cost, and
investments will be included in this. There are various plans which are formulated in
respect of all the sections and this will help in identifying that whether they have been
implemented in a proper manner by them or not (Egbide and Agbude, 2014). The return
which is earned on the investments and profits which are made will also be considered
so that overall evaluation can be made and decisions are then made on their basis.
Investment appraisal report: in order to increase the overall returns in business it will
be required that proper investments are made. For this purpose, it will be required that
all of them shall be evaluated in an appropriate manner. This will be undertaken with the
help of the investment appraisal techniques. Some of them are internal rate of return,
payback period and net present value. By the help of them, it will be identified that what
is the amount which will be earned and also the time that will be required to collect the
entire amount of investment back (Egbide and Agbude, 2014). All of the results which
will be attained by the implementation of them will be recorded in this report and then
they will be used in the process of making of decisions in regards to investment.
M1 evaluate the benefits of management accounting systems and their
application within an organizational context.
The company will be able to attain several benefits which are available due to the
implementation of systems and they are as follows:
 It will be possible for the company to make the best plan and that will help in the
performance of the effective operations.
 In the business, there are several aspects and the data about them will be made
available with the help of systems.
 As there will be targets so they will act as a motivational factor for all which will
render good results.
 There will be making such decisions which will bring the company best results
necessary for ensuring sustainable success.
 The overall expenditures which are made will be reduced as there will be the
implementation of the appropriate cost control measures (Egbide and Agbude,
2014).
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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 company, there is the need for various decisions which will be made with the help
of management accounting such as pricing decisions. There will be various targets and
that will lead to increase in the productivity as the employees will be required to perform
in such way which will make this happen. The systems which are available are related
to each other and due to this, it will be ensured that all the departments are also
coordinating with one another as hen only effective implementation of systems will be
made. This will be beneficial for the Zylla and then it will be needed that recording of the
collected data is made so that it can be useful in the future also (Egbide and Agbude,
2014). Due to all this, it can be said that system and reports are integrated and also
involved in the process of the company which includes both.
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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.
Profit is the factor because of which all of the processes in business are carried and in
the maximization of it, the main role is played by cost. This is because of the relation
which exists between cost and profit. There are various components of cost and they all
are to be taken into account so that reduction in them can be achieved. They are of
various types such as direct cost and indirect cost and all of them will also be
categorized as fixed and variable components. In order to ascertain the best cost, it will
be required that below-provided methods shall be used.
Absorption costing: This will not be making the differentiation in cost on the basis of
the variable and fixed element. Rather the categorization will be made by the use of the
activity to which it is related. Due to this, all the production expense will be included in
the total cost and then they will be apportioned among the units which have been
manufactured in that period (Aurora, 2013). As there will be involvement of all the
expenses so this will also be identified as full costing.
Marginal costing: The expenses which are variable will be included in the calculation
of the contribution and after that, it will be needed that all the fixed expenses are taken
into consideration. There will be no allocation which will be made in respect of the
closing stock which is available with the business (Aurora, 2013).
This process can be understood in the better manner by the help of the income
statements which are provided hereunder by using both the methods.
Income statement as per Marginal Costing 2017
£ £
Sales (20 x 600) 12000
Cost of Sales :
Opening Stock 0
Cost of Production (5 x 700) 3500
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Variable Production cost (1 x 700) 700
Cost of Goods Sold 4200
Less Closing Stock (6x 100) 600 3600
Contribution 8400
Less Fixed Cost
Administration cost 1500
Production overhead expense 2100 3600
Net Profit 4800
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Income statement as per Absorption Costing 2017
£ £
Sales (20 x 600) 12000
Cost of Sales :
Opening Stock 0
cost of Production (5 x 700) 3500
Fixed production cost 2100
Variable Production cost (1 x 700) 700
Add Closing Stock (9 x 100) 900
Gross Profit 6600
Less Fixed Cost
Administration cost 1500 1500
Net Profit 5100
M2 Apply a range of management accounting techniques and produce
appropriate financial reporting documents.
In the business, there are various documents which are required to be made and for
that, it will be needed that management accounting shall be taken into consideration.
There will be several such techniques which will aid in this such as for the identification
of cost, the company can use standards costing and that will help in the making of cost
report and also in income statement preparation. Activity-based costing can also be
taken into consideration as in this the apportionment will be made with the help of cost
drivers that are present in relation to all the activities. Variance analysis can be used to
identify the deviation which will be helpful in making variance report. Profits will be
determined and for that inventory valuation will have to be made which can be done by
using average cost or FIFO or LIFO method.
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D2 Produce financial reports that accurately apply and interpret data for a range
of business activities
In order to interpret the data which is available by the income statements, it will be
required that proper analysis shall be made. It can be seen that the profits in case of
absorption are 5100 which is higher than 4800 that is earned in case of marginal
costing. The reason for the difference is the manner in which allocation of fixed cost is
made in both the methods. The deviation relates to the stock which is remaining in the
end. In order to resolve this, there is the need for reconciliation statement which is
provided below:
Reconciliation Statement £
Profit under Absorption costing 5100
Fixed production cost in closing inventory (3 x
100)
300
Profit under Marginal Costing 4800
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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 carrying out of business, there will be need of making of various budgets which
are divided into two categories such as financial and capital budget (Raghunandan, et.
al., 2012). By the help of them, best operations will be performed which will lead to the
attainment of all the targets which are set. The advantages and disadvantages of them
are explained below.
Advantages of budgets:
 The company will be required to work in accordance with the standards by which
errors will be reduced.
 The proper control system will be established by which there will be reduced
which will be attained in respect of cost.
 The company will include the variations in the plan which will be made.
Disadvantages of budgets:
 There is a risk which is involved in the budget due to the assumptions which are
made in making the budget.
 The high amount of cost and time will be required in this which is a demerit.
Different types of budgets:
Incremental budgeting: This is the budget in the making of which inflation will be taken
into consideration. All the figures from past will be taken and then the amount which will
be required to meet the increased will be added in that. There will always be an addition
which will be made for all the expenses.
Flexible budget: Under this, the targets will be specified in respect of the particular
quantity and then all the other budgets can be made by taking that in consideration (De
Jong, et. al., 2012). By the use of this company will be relieved from making of various
budgets as all the other targets can be ascertained by one budget.
Zero-based budgeting: There will be proper research which will be required to be
made in this as no data will be used which is already available in respect of past years.
So all the value will be taken from the starting and due to this, it is known as zero-based
(White, 2015). The deviations which exist in the previous budget will not be considered
in this.
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M3 Analyze the use of different planning tools and their application for preparing
and forecasting budgets.
In the process of budgeting, there are various aspects which are required to be taken
into consideration and for that proper tools will have to be included in this process. For
the identification of cost, there is ABC costing which will be used. Then variances will
have to be incorporated and that will be done with the help of variance analysis. In that,
all the deviations which will be determined will be included in making the plan ( De Jong,
et. al., 2012). In order to inculcate the external factors in the business, there will need to
consider the factors which will be affecting it and for that PEST analysis will be
performed which will make the business awareness about the required changes that
shall be made to make the business successful in ongoing market conditions.
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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.
In the process of resolving the financial problems, there will be a requirement to identify
them in the first place. For this purpose management accounting systems will be used
as all the required data will be collected with the help of them only (Carbon, 2014). Then
there will be a requirement to make a proper evaluation of the information so that the
issues which are present can be determined and the measures to resolve them can be
undertaken. Some of the broadly used techniques for this are presented below which
will be used by Zylla.
Benchmarks: Under this, the entities which are best in the market are selected and
standards are set on the basis of the policies followed by them. Then the actual
performance will be compared with them and the deviations will be identified. So due to
this employee will be motivated to perform in such manner that no variance is
discovered as this measures their performance.
Key performance indicators: This is the tool in which all the employees will be
required to perform by considering the parameters which are set for them in form of key
performance indicators. This is because their performance will be evaluated by the help
of the results which will be obtained by their working (Carbon, 2014). This will help in
reducing the issues which are faced with work will be performed with full potential.
Financial governance: All the issues which are related to finance will be resolved with
the help of this tool. In this policy and procedures will be set which will be governing the
manner in which all the financial activities shall be performed (Hassan and Ahmed,
2012). Also, the manner in which allocation of funds shall be made will also be
determined which is the main issue in most of the businesses (Carbon, 2014).
M4 Analyze how, in responding to financial problems, management accounting
can lead organizations to sustainable success.
Management accounting will be helping business in many ways so that problems can
be resolved and success can be attained. All the information which will be required in
the process of identification of problems will be collected with the help of the systems
which are also part of management accounting (Zaleha Abdul Rasid, et. al., 2014).
Then in order to consider them inappropriate manner, all of them will be reported to the
authorities with the help of reports. The steps will be taken by which resolving of
problems will be made and for that planning will be made. As the issues will be dealt
with the company will be able to maintain the operations in an effective manner which
will lead to the achievement of objectives.
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D3 Evaluate how planning tools for accounting respond appropriately to solving
financial problems to lead organizations to sustainable success.
In the solving of financial problems, there are various tools which are undertaken and
they all have been explained in the above part of this report. With the help of them, it is
ascertained that is the cost which shall be incurred so that no over expenditure is made.
This will reduce the cost and so the problem which is due to this will be eliminated
(Konsta and Plomaritou, 2012). Variance analysis will be helpful to make the changes
so that all the differences can be included. The then the other tool which is needed for
planning is budget in which the limit is specified and by meeting that it will be ensured
that proper system is undertaken and no mistake has been made in the processes
involved in the business (Konsta and Plomaritou, 2012).
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Conclusion
From the report which is presented above, it can be concluded that there are various
uses of the information and for that systems are undertaken and then they are used to
collect the data. Decisions will be made with the help of that and they will be helpful to
improve the overall performance which is essential. The reporting made is also
determined and then the manner in which income statements are made with the help of
the methods of costing is also ascertained with the help of solution to a practical.
Budgeting making is important and for that, there is the need to use various tools and
they all have been identified in the above-presented report. The issues which are
present are identified and resolved in an effective manner by the use of management
accounting and techniques which are available in this process and this all is beneficial
for Zylla.
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