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

This comprehensive guide delves into the intricacies of management accounting, exploring its systems, techniques, and planning tools. It examines the essential requirements of different management accounting systems, including cost accounting, inventory management, and pricing optimization. The report also analyzes various costing techniques, such as marginal and absorption costing, and their application in preparing income statements. Furthermore, it explores the advantages and disadvantages of planning tools for budgetary control, including ABC analysis, variance analysis, and budgeting. The report concludes by critically evaluating how management accounting can effectively respond to financial problems and lead organizations towards sustainable success.

Managment accounting
1

Contents
Introduction:...............................................................................................................................3
LO1: Demonstrate an understanding of management accounting systems...............................4
P1. Explain management accounting and give the essential requirements for different types
of management accounting. [P1, M1]....................................................................................4
P2 Explain different methods used for management accounting reporting...........................7
M1 Evaluate the benefits of management accounting systems and their application within
an organisational context........................................................................................................9
D1 Critical evaluation of how management accounting systems and management
accounting reporting are integrated within organisational 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
D2 produce financial reports that accurately apply and interpret data for a range of business
activities................................................................................................................................15
LO3: the explanation of the application of planning tools in management accounting:.........16
[P4.] Advantages and disadvantages of planning tools for budgetary control: -..................16
[M3]. Analyse the use of different planning tools and their application for preparing and
forecasting budgets...............................................................................................................18
LO4: Compare ways in which organisations could use management accounting to respond to
financial problems....................................................................................................................20
P5, Compare how organisations are adapting management accounting systems to respond
to financial problems............................................................................................................20
M4, you should analyse how, in responding to financial problems, management accounting
can lead organisations to sustainable success.......................................................................22
D3, you should critically evaluate how planning tools for accounting respond appropriately
to solving financial problems to lead organisations to sustainable success.........................23
Conclusion:..............................................................................................................................24
References:...............................................................................................................................25
2

Introduction:
Zylla company is the largest corporation which is indulged in adopting management
accounting systems and increase the use of management accounting software in order to
resolve financial performance and manage the level of operational and decision-making the
process at the time of acquisition and business expansion project. This company needs to
evaluate and monitor the whole situation and new market expansion project through the
proper and effective implication of management accounting process and systems. Therefore,
this report is being prepared to give proper acknowledgement and make discussion regarding
the significance of management accounting systems. This reading will include an explanation
related to various costing technique to deal with managerial and financial issues and
problems. Relevant use of management information & planning tool will also discuss in order
to examine the sustainable growth of an organisation.
3

LO1: Demonstrate an understanding of management accounting systems
P1. Explain management accounting and give the essential requirements for different
types of management accounting. [P1, M1]
Definition of management accounting:
Management accounting can be taken as study concept of the collection of data, records and
documentation, evaluation and interpretation of financial facts are also included in this in
order to make proper responsive and effective statement of financial decisions. Management
accounting is kind of profession that is used in an organisation in order to generate
quantitative and qualitative forecasting proposals with effective regard to improvement and
management of business activities.
Management accounting is based on using accounting principle, convention and planning
tools and systems management systems are used in managing a business operation of an
organisation to get long-term achievements and positive process.
A principle of management accounting:
(Source: Author, 2018)
4

The origin of management accounting is started form the UK revolutionary age in order to
satisfy the requirements of cash, funds and make the optimum plan and make reliable use of
financial resources. It was categorised into two parts: first was traditional accounting systems
and second was modern accounting systems. Traditional accounting systems were quite well
in performing financial data and unable to give proper managerial and financial analysis of
business performance. On the other side, modern accounting systems were based on
following principles:
1. A principle of casualty: Modern management accounting systems are quite able to
maintain cause and an effective relation between standards and actual variables. It establishes
cost revenue relation in order to provide effective statements of practical results (Otley and
Emmanuel, 2013).
2. A principle of transparency: it provides relevant and accurate information to the
customers and an organisation in order to manage transparency and reliability in the facts.
Essential requirements of various kinds of management accounting systems:
(Source: Author, 2018)
1. Cost Accounting Systems:
5

This is the system which allows the organisation to monitor and measure qualitative and
quantitative variables to ascertain cost and procurement of financial resources based on the
financial operation.
Characteristics and requirements:
 These costs systems are based determination of each cost centre and job orders such
as production, purchase, services cost centre.
 These systems are highly qualified in measuring cost and revenue relation with the
help of job costing systems, the process determining systems etc. in order to track cost and
funds behaviour.
 These systems are basically designed for examining cost-effectiveness that allows
Zylla Company to a valuation of inventory, planning and plotting of production, proper
ascertainment of cost through procurement of funds.
2. Inventory Management Systems:
Inventory management systems are these systems which are used in determining and
understanding actual inventory level through recognising different components related to cost
of the stock. This inventory management systems basically provide knowledge related to
actual inventory to avoid future difficulties such as under-valuation and overvaluation of
inventory. These systems help the company to reduce carrying of ordering cost of inventory
through JIT, EOQ measurement.
 Economic Order Quantity: EOQ means economic order quantity which allows the
Zylla Company in determining proper timing and quantity of stocks in order to purchase and
handling the cost to make it minimum as per requirement. Ordering cost, carrying the cost,
handling cost is based on quantity and quality of inventory.
 JIT (Just in time): this tool is designed and helpful in managing storage capacity of
inventory properly to help an organisation in taking production and inventory management
decision just in time. It focuses on cost control and allows the company to create and manage
space in the warehouses for effective inventory management (Drucy, 2015).
3. Pricing optimising systems:
Pricing optimising systems are used in the organisation to recognise and filter the variation of
prices of company’s commodities according to market demand and customers’ choices. It
allows the company in integrating whole results and observations in the regards of
management tools and production cost in order to manage and create standards related to the
prices of the products.
6

P2 Explain different methods used for management accounting reporting.
Management accounting reports are produced and prepared by the management to get
specific and accurate results related to the financial performance of the company. Preparation
of management accounting reports is the medium of measuring and monitoring business
operations and each activity in order to get future decisions in an effective manner.
Management reports are:
(Source: Author, 2018)
1. Budget report: Budget reporting is the process of managing business audit and
budgetary control activity. Budget reports are prepared to contain knowledge related to
business operation and financial performance of the business. While preparing the budget,
estimated variances and actual results are compared in relation to monitor and create effective
budget decisions.
2. Sales report: Sales report are those report which is based on company’s sales volume
and production level. The company make this report in order to make effective knowledge
and understanding of sales revenue relation. It allows the company to manage production
level and increase the productivity of the company (Otley and Emmanuel, 2013).
7
Salesreport

3. Investment report: it is also known as appraisal report. Investment appraisal report is
prepared in order to optimise knowledge and create the understanding of investment
proposals according to market demand. It is produced to create funding, investment
forecasting, decision-related to forecasting management.
8

M1 Evaluate the benefits of management accounting systems and their application
within an organisational context.
Management accounting systems and their benefit in the context of Zylla Company:
(Source: Author, 2018)
1. Financial decision: MIS is essential and useful for the company to adopt and
implicate them as the decision-making tool. Zylla Company can utilise MIS tool as
accounting planning technique to make their objectives target oriented and provide flexible
knowledge of data and financial information with transparency and reliability in making
organisational decisions successful.
2. Cost analysis: MIS gives an opportunity to the company to regulate financial and
operational activities in the business through cost measurement and benefit analysis. A
company can effectively propose management decisions relate to forecasting through
variance analysis, balance scorecard and job order costing etc. it measures actual requirement
of cash and funds to manage and allocation of financial resources through cost-based analysis
(Paul Singh and Hahn Winther, 2017).
3. An increment in productivity level: MIS provides effective and proper knowledge
of utilisation of financial resources to achieve targets. Zylla can adopt managerial planning
9
Costanalysis

tools such as fund flow statement, cash flow statement, variance analysis, standard and
marginal costing to increment productivity and efficiency level of the company.
4. Investment decision: Application of MIS is beneficial in regards to Zylla Company
to measure fund requirements and cash flow behaviour in order to make perfect and effective
investment policies and decisions. Zylla is allowed to make investment policies with
perfection in relation to achieve long-term investment achievements.
10

D1 Critical evaluation of how management accounting systems and management
accounting reporting are integrated within organisational processes
Management accounting systems are those systems are that are adopted and implicated in the
company to avoid future financial difficulties effectively and easily increase managerial
profit from the market. MIS is useful for the company in providing accurate and flexible
information which help the management in observing the situation and change strategies
accordingly. Zylla Company needs to prepare usage of management accounting in order to
regulate cost and control internal management changes. Mostly planning tools are adopted in
an organisation to get responses from market and customers through comparative and
competitive analysis. Tools are helpful for the Zylla Company at the time of acquisition and
merger decision and investment decision to get a long-term achievement.
11

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.
Any organisation needs to make effective and relevant managerial and financial strategies in
order to maintain financial records, control budgetary and auditory activities, arrange the
effective range of managerial decision in the company. Applying management tools as
planning technique and a budgetary tool will be helpful in costing analysis, cost measurement
and making financial decisions. Using costing techniques such as marginal and absorption
technique as planning tool are helpful in measuring and monitoring each job order in the
company. These tools are associated with the managerial performance to determine effective
prices of company’s products and ascertain cost at the time of king financial statements
(Nuhu, et. al., 2017).
Zylla Company is the organisation that needs to adopt costing technique in a wide range to
measure cost business activity through marginal and absorption technique. Variable costing
tools are adopted in order to manage relevancy in sales revenue decisions, in another side,
absorption costing technique is used at the time of determining each cost such randomly at
the time of ascertaining production cost. In the marginal cost variable and fixed are
determined or ascertain separately. Following are the example of marginal and absorption
costing technique to produce Income statement account:
12

Marginal costing technique:
Absorption costing technique:
13

M2 Apply a range of management accounting techniques and produce appropriate
financial reporting documents
Appropriate financial records and transactions are made with the help of application of
management accounting and costing techniques. Costing techniques are helpful in defining
the competitive and financial performance of the company. Using marginal and absorption
technique company are able to measure the cost to reduce additional expenses and maintain
the cost-revenue relationship for getting a long-term achievement and organisational goals.
1. Marginal costing:
Marginal costing technique is used in order to determine each variable cost per unit produced.
In the measurement of cost-effectiveness, the total production and variables cost is subtracted
from sales to get the contribution. Fixed cost will be deducted from contribution to get
generating profit from business operations. After deducting the fixed cost from contribution
company become able to get ney profit (Novas, et. al., 2017).
2. Absorption costing:
The systems of absorbing closing inventory at the total cost of production in which total cost
such as variable and fixed cost expenses has been involved are valued at an absorbed rate.
Therefore the under absorption situation of fixed overhead is reduced and overvalued
condition of fixed cost are summed up by sales to get net profit.
14

D2 produce financial reports that accurately apply and interpret data for a range of
business activities
Financial reports should be produced in the organisation in order to identify and recognise
flexible and accurate from using costing technique. While making income statement from
marginal and absorption techniques, there I the far differences in their valuation technique so
that outcomes from such techniques result also different. While calculating net profit from
marginal and absorption costing technique, the valuation of the closing stock is lower in
marginal costing in comparison to absorption costing method (Novas, et. al., 2017).
15

LO3: the explanation of the application of planning tools in management accounting:
[P4.] Advantages and disadvantages of planning tools for budgetary control: -
Planning tools are determined as those tools which help the company in regulating budgetary
decisions. The utilisation of management and budgetary tools allows the company to get
required information related to taxation, finance, and economics and so on. These facts, data
allows the company to take effective and relevant steps in the consideration to lead towards
managerial goals and long-term achievements. Benefits of management planning tools are
given below disadvantages and impacts are also shown below:
Planning tools Advantages Disadvantages
ABC analysis ABC is activity-based
costing analysis that is
depended on financial and
operational activities.
ABC analysis allows the
company to keep tracking
each job cost &behaviour to
enhance productivity and
profitability level.
This planning tool is not able
to identify actual changes
occurring in the financial
performance of the company.
Variance analysis Variance analysis process is
used to determine actual
outcomes versus estimated
attributes (Soin and Collier,
2013).
It is based on standard cost
and value of performance for
the improvisation of financial
It is unable to record and
trace past movements and
giving accurate responses.
16

position of the company.
Budgeting A budgeting process is
quantitative statement or
process of organisational
strategies and financial
tactics which is expressed in
financial forms.
Budgeting activity is
beneficial for the company to
regulate and control cost and
monitoring financial
resources to fulfil future
forecasting needs.
These budgets specify and
ascertain standards, KPI’s for
the company to cover
beneficial projects of the
company.
These budgets are unable to
give accurate results due to
assumptions and sometimes
lack of efficiency (Mohamed,
et. al., 2016)
17

[M3]. Analyse the use of different planning tools and their application for preparing
and forecasting budgets.
Management accounting tools are utilised in the company determine strategies, making plans,
set goals, decide benchmarks and KPI's in order to get long-term achievements. Planning
tools are variance analysis, fund flow analysis, the cost-benefit measurement that provide
opportunities to the company to resolve financial problems and get an effective solution to
each issue. Application of different planning tools given below which helps the company in
attaining maximum profit:
Planning tools: Application of planning
tools
Evaluation and
effectiveness of forecasting
budgets
ABC analysis ABC analysis is applied in
middle and lower level
management to measure
requirement of financial
resources and for their
accurate allocation.
This tools and methods are
used for identifying and
evaluating business
objectives and to control
audit and budgetary process.
ABC analysis is based on
performing and accurate
allocation of resources.
Variance Analysis Application of variance
analysis can be done through
middle-level management in
the organisation in order to
make the flexible comparison
between actual outcomes and
estimated standards to set
benchmarks for the company
while making profitable
decisions (Horngren, et. al.,
This technique is used in the
management in order to
recognise business objectives
and operational purposes to
improve performance oft eh
company. Favourable
variance is applied as
forecasting budget to
describe the strength of the
company and adverse
18

2013). variances are utilised in the
management to determine
weaknesses and ensuring
optimum use of alternate
resources.
Budgeting This planning tool is
integrated with top level
Management. High-level
management uses budget
report and makes statements
for implementing budgetary
policies in order to achieve
desired goals (Fisher and
Krumwiede, 2015).
Budget statement process is
usually used in the company
for making budgetary plans
and objectives. Company,
measures, evaluate and set
benchmarks for itself in
relation to understand
changes and make the
profitable financial decision.
19

LO4: Compare ways in which organisations could use management accounting to
respond to financial problems.
P5, Compare how organisations are adapting management accounting systems to
respond to financial problems.
Management accounting tools and systems are utilised in the organisation to observe the
financial situation of the company and produce statements and reports for the perspective of
making successful decisions in the management (Edmonds and Olds, 2013). Managers are
used such kinds of MIS system for the optimisation of pricing, investment and budgetary
strategies. Responses of management accounting tools in regards to solving financial
problems in the management are given below:
(Source: Author, 2018)
1. Set financial goals: this study includes the identification of financial threat and
hurdles so that reduce them in order to get desired goals and objectives. MIS helps the
management in resolving financial issues by adopting target oriented planning tools in the
organisation. Setting benchmarking, key performance indicators, a budgetary performance of
the company are the example of financial aims of the company to get success through
overcoming from financial issues.
20

2. Financial governance: financial governances are ethics and code of standards
adopted by the company for controlling and monitoring usage and allocation of financial
resources of the company. This guide and direct the manager of the company to regulate and
examine each task appropriately.
3. Set benchmarking: application of management accounting tools is helpful for
managers to set benchmarking and deciding legislative framework in order to control and
avoid unnecessary activities. These benchmarks are used and help the company to set strong
ethics and code of standards to get achievements.
4. Management accounting skills set: setting management accounting skills set means
using knowledge, skills and behaviour through MIS properly in order to make competitive
measurement and decisions. Setting management accounting skills are commonly known as
the analytical and logical interpretation of situation which allows the company to use the
accurate and flexible information to avoid future threats while making decisions(Brown, et.
al., 2016).
5. Interpretation of data and effective strategies: Zylla Company can use
management accounting systems to get long-term achievements by avoiding future problems
and make the effective budgetary control. Inventory management systems are utilised in
evaluating actual level of inventory to increase storage capacity. On the other side, variance
analysis is used in making the comparison between actual and estimated variables in the
company for making effective plans and take beneficial decisions.
21

M4, you should analyse how, in responding to financial problems, management
accounting can lead organisations to sustainable success.
Management accounting systems are taken as those systems which are applied in the
company to make revolutionary and drastic effects after managing and avoiding financial
threats. MIS is used in attaining profitable decision and maintaining sustainable growth.
Management accounting systems and reporting activities are adapted to recognise financial
problems. Managers are generally tied to observe the situation and direct their employees to
complete whole tasks on time to get and achieve desired goals.
1. MIS is used to collect data, organise and maintain documents and interpret the whole
situation in relation to maintain internal stability.
2. MIS allows the company to measure cost and revenue relation on the basis of cost-
effectiveness to control external changes (Brierley, 2017).
3. Planning tools basically provide an accurate and flexible information related to sales,
promotion, manufacturing activities to respond each job order, project effectively.
4. MI tools are quietly adjustable and understandable in use. It measures company's
requirement to allocation financial resources effectively.
22

D3, you should critically evaluate how planning tools for accounting respond
appropriately to solving financial problems to lead organisations to sustainable success.
Management accounting tools and planning techniques are taken as cost measurement and
budgetary control process or tools that provide accurate, flexible and feasible results through
keeping records, implementing financial strategies and make corrective steps by making
beneficial decisions. A proper implication of management accounting tools can be performed
through great evaluation:
Considering following points:
1. Management accounting systems are universally adopted systems which are generally
managed and used by the top level of management.
2. MIS collect data and provide the management to the management based on previous
transactions; this information helps the management to avoid duplicacy and financial threats
(Adebayo, et. al., 2014).
3. Updated data and information are used to make the profitable interpretation to get rid
of financial problems and making an investment and capital decisions effectively.
4. It determines cost and price and specific projects, it monitors managerial tasks and
compares it to previous one to make work more target oriented.
5. Proper allocation of financial resources, cost-effectiveness examination, budgetary
control can be done through the effective use of planning tools to make effective
arrangements in order to achieve goals (Drury, 2015).
23

Conclusion:
This report has been prepared to provide the better understanding of management accounting
and their systems in order to promote business expansion and financial activities. This study
has been revolving around Zylla Company and their business objectives. A company needs to
adopt management accounting tools for their long-term growth. This report has also been
included a significance of management accounting systems in order to earn profits and long-
term organisational profit. This report also mentioned about management reporting and
costing technique in order to reduce cost measurement and monitor the financial performance
of the company. A proper recommendation and analysis have been made under this reading
to provide an effective knowledge about the company and their future plans of a decision-
making process.
24

References:
1. Adebayo, O., Lawrence, I. and Taofeek Sola, A., 2014. Budgetary Control: A Tool for
Cost Control in Manufacturing Companies in Nigeria. European Journal of Business and
Management, 6(37), pp.98-108.
2. Brierley, J.A., 2017. The domination of financial accounting over product
costing. Cost Management, pp.32-40.
3. Brown, J.L., Fisher, J.G., Peffer, S.A. and Sprinkle, G.B., 2016. The Effect of Budget
Framing and Budget-Setting Process on Managerial Reporting. Journal of Management
Accounting Research, 29(1), pp.31-44.
4. Drury, C., 2015.Management and Cost Accounting. 9th Ed. Cengage Learning.
5. Edmonds, T. and Olds, P., 2013. Fundamental Managerial Accounting Concepts. 7th
Ed. Maidenhead: McGraw-Hill.
6. Fisher, J.G. and Krumwiede, K., 2015. Product costing systems: finding the right
approach. Journal of Corporate Accounting & Finance, 26(4), pp.13-21.
7. Horngren, C., Sunden, G., Straton, W., Burgstalher, D. and Schatzberg, J., 2013.
Introduction to Management Accounting. Global Ed. Harlow: Pearson Education
8. Horngren, C.T.,Datar, S.M., and Rajan, M.V., 2014. Cost Accounting: a Managerial
Emphasis. Harlow: Pearson Education.
9. Mohamed, I.A., Tirimba, O.I. and Kerosi, E., 2016. Analysis of the Effectiveness of
Budgetary Control Techniques on Organizational Performance at DaraSalaam Bank
Headquarters in Hargeisa Somaliland.
10. Novas, J.C., Novas, J.C., Alves, M.D.C.G., Alves, M.D.C.G., Sousa, A. and Sousa,
A., 2017. The role of management accounting systems in the development of intellectual
capital. Journal of Intellectual Capital, 18(2), pp.286-315.
11. Nuhu, N.A., Nuhu, N.A., Baird, K., Baird, K., BalaAppuhamilage, A. and
BalaAppuhamilage, A. 2017. The adoption and success of contemporary management
accounting practices in the public sector. Asian Review of Accounting, 25(1), pp.106-126.
12. Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management
control. Springer.
13. Paul Singh, H. and Hahn Winther, K., 2017. Inventory Management System (Doctoral
dissertation).
25

14. Soin, K. and Collier, P., 2013. Risk and risk management in management accounting
and control.
26

27