Integrated Management Accounting Systems and Management Accounting Reporting

It is the process of preparation of management reports and accounts that give close and on time financial and statistical substance needed by managers to make day to day and short term decision. It analyzes the business cost and operation for preparation of internal financial report, accounts to aid managers and records for purpose of decision-making. Different types of management accounting system that Fontain motors uses [pic] There are various types of management accounting system which can be used by the Fontain Motors. The following managerial information system

Management accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
A. Explain management accounting and different types of management accounting system....2
B. Different types of the management accounting report with their importance........................4
C. Benefits of the management accounting systems...................................................................5
D. Critically evaluate how the management accounting systems and management accounting
reporting are integrated in your organization..............................................................................7
TASK 2............................................................................................................................................7
A. 1) what is marginal costing and absorption costing...............................................................7
2). Prepare the income statement as marginal and absorption costing method..........................7
B. Calculate the following with breakeven analysis...................................................................9
C. Apply the range of management accounting techniques and produce appropriate financial
reporting documents accurately................................................................................................10
D. Produce financial reports that accurately apply and interpret the data for the business
activities shown in the scenarios in Task 2 above.....................................................................11
TASK 3..........................................................................................................................................12
A. Advantages and disadvantages of budgetary control with examples...................................12
B. Applications of Planning Tools:...........................................................................................16
C. Management accounting systems to respond to financial problems....................................17
D. Management Accounting Techniques used in solving financial problems..........................19
E. Planning Tools......................................................................................................................20
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22
1

INTRODUCTION
Management accounting system plays an important role in the organization decision
making. It helps managers to perform process of decision making to attain organizational goals.
Present report will provide detailed meaning of management accounting and its systems. The
report consist of various type of report which are implemented inside Fontain motors which is
the motor dealership company. The assignment will criticize benefits of various types of
accounting system with various types of techniques like marginal costing and absorption costing.
Later, report will provide report suggesting implementing various techniques of management
accounting.
TASK 1
A. Explain management accounting and different types of management accounting system.
Managerial accounting is used by managers in organization. In these managers use
provision of the information of accounting in order to better inform other managers to take better
decision for organization.
It is the process of preparation of management reports and accounts that give close and
on time financial and statistical substance needed by managers to make day to day and short term
decision. It is also called management or cost accounting. It analyzes the business cost and
operation for preparation of internal financial report, accounts to aid managers and records for
purpose of decision-making. In the cost accounting, managers interpret these data and estimates
into knowledge that will finally be uses to escort decision making.
Different types of management accounting system that Fontain motors uses
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There are various types of management accounting system which can be used by the
Fontain Motors. Managers requires to perform an analyses by the professional of venture. The
following managerial information system are discussed under:
Cost accounting: It is an accounting method that focuses to inhibit Fontain motor's cost
of production by evaluating inputs costs of each step of production as well as fixed cost (Van der
Stede, 2016).
In this method, all the cost incurred in carrying out an activity or execute a purpose are
gathered, categorized, and transcribed.
Tax accounting: It is very different throughout the world. It focuses on the return on tax
and payments rather than preparing of public financial statements. It is used in Fontain motors,
as it determine taxable income, preparation of federal and state income tax returns planning of
the operations inside organization.
Financial accounting: Financial accounting helps the Fontain motor's in preparing the
financial statement and also identifying financial health of t business. The use of financial
accounting in Fontain motors is that it accumulate and report on financial information about
performance, financial position, and cash flows of a business.
Management accounting: With the help of these financial statements', management of
Fontain motors helps to take decision to achieve organizational goals.
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Accounting system design: It is a computer based data system which tracks all records
of Fontain motors. It considers single or double entry, account code structure, cash or accrual
basis, Divisional representation, Reports, Procedure, controls etc.
Non for profit accounting: This type of accounting techniques do not have any
commercial owner. In this system funds are generated in accounts and get utilized for welfare of
the society (Tucker and Schaltegger, 2016). It will be used for social care and health service,
technical development, donation etc.
Auditing: Auditing is systematic analysis of financial data of Fontain motors. It is a
systematic and independent examination of books, accounts, statutory records, documents and
vouchers of an organization.
Budgetary accounting: It is a procedure of account in which sum of money that Fontain
motors formed to consume and amount that really have been consumed are included in accounts
so that you can witness how much of budget is left.
Inventory and manufacturing report: Organization that produce the physical products,
particularly those in manufacturing with low responsibility endurance, find these reports
precious. They help centralization of information on inventory reimbursement, labor, and other
forms of expenses involved in the process of production.
B. Different types of the management accounting report with their importance.
Management accounting reports are important part of t business which make sure that the
organization have a complete picture about performance of business. A systematic detailed
report should be made in every four month to provide the financial position of the business
finances. This is particularly captious for small business owners, who can derive important
insights from these important representation (Senftlechner, and Hiebl, 2015).
There are various types of reports that are valuable for protecting a business and
managerial accounting report. Reports that helps in analyzing performance of business are
discussed under.
Budget report
This report is most fundamental report in managerial accounting. It helps the owner of
organization to understand and control cost of firm, whether it is a small organization or has
many departments (Shields, 2015). With help of evaluation of expenses in prior years, it became
possible to make estimation of budget for year and how to overcome cost.
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Accounts receivables aging report
Many business offers credit to customers, this type of report is crucial in this case. It
renders overview of credit balances according to age, include many categories for items that are
30, 60, and 90 days late (Renz, 2016). This can aid to set the credit policies to line up them with
customers' defrayal capabilities.
Job cost report
This report provides slight view of total cost accumulated from one single project
comparing to anticipated revenue obtained by that project (Nielsen, Mitchell, and Nørreklit,
2015). This type of reports helps manager to evaluate profit of specific types of jobs and
optimization of operation by focusing on jobs that are profitable.
Inventory and manufacturing report
Organization that produce physical products, particularly those in manufacturing with
low responsibility endurance, find these reports precious. They help centralize information on
inventory reimbursement, labor, and other forms of expense involved in process of production.
C. Benefits of the management accounting systems
Following are the benefits of the management accounting system.
Management accounting
system
Benefits
Cost accounting  It measures the efficiency than to maintain and
improve it.
 It provides information about profitable and non-
profitable activities (Messner, 2016).
 The good cost accounting system destruct wastes,
losses and inefficiencies by mending t standard for
everything.
Management accounting  The actual performance in comparison with budget is
done by management accounting
 With application of both budgeting and planning
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business activities are managed
Financial accounting  It helps in maintain the business records.
 It acts as a legal evidence as proper books of accounts
are maintained in well-defined structure and act as a
legal evidence in case of disputes (McLean,McGovern.
and Davie, 2015).
Tax accounting  It provides valuable sources of information.
 It helps in minimization of the cost.
Budgetary accounting  This helps managers in integration of personal efforts
within organization towards common goal.
 It helps in measuring the performance
Auditing  It helps to detect and prevents errors from the frauds.
 It helps in maintain account regularly
Non for profit accounting  It permits soliciting funds (in the form of gifts,
donations, bequests, etc.).
 An additive source of financial support for nonprofits
is through government grants.
Accounting system design  It is an automation system, it saves the time and
eliminates many time consuming process.
 It is very accurate, so it lessen the chances of errors.
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D. Critically evaluate how the management accounting systems and management accounting
reporting are integrated in your organization
An integrated financial reports, quantify the effect and ramifications of the stakeholders'
information and the financial performance. It very important for the Fontain motors to translate
the effect of operations into financial information to accomplish in a systematic manner.
Delaying of content will not obtain and management would get absolute data on time.
Computerized accounting is helpful starring to fast and efficient work (Langfield-Smith,and
et.al). Accounting process is compact in the best possible manner and costs are minimised too.
Integral head of functional tasks are taken in step-by-step way on cost of transaction, operational
job done by labours etc. Hence, management accounting system and reports are integrated to
supply adequate information for decision-making to management.
TASK 2
A. 1) what is marginal costing and absorption costing
It is a technique used to take decision to identify the total cost of production. It is a
technique that differentiate the fixed and variable cost. It is a method of analysing cost
information to provide management which tries to trigger out effect on revenue obtained due to
change in volume of profit. It involves the cost of producing one additional unit. In this the
calculation is done by taking variable cost into consideration (Fullerton, Kennedy and Widener,
2014).
Talking about t absorption costing, it is a technique which determines cost and profit.
Absorption costing is an activity under which both fixed t and variable cost are charged into
operations, process or productions (Hall, 2016). Therefore, it also known as full c and total
costing. In absorption costing, all production cost are unwrapped by unit produced.
2). Prepare the income statement as marginal and absorption costing method.
Particulars Amount Amount
Income 33000 33000
material 5600
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labour 4800
Production expenses (variable) 1600
Sales expenses (variable) 800 12800
Less: closing inventory
Direct material 1400
Direct labour 1200
Production expenses (variable) 400
Sales expenses (variable) 200 3200
Cost Of Production (per unit) 9600
23400
Less: Fixed cost
Overheads (Production) 3200
Fixed administrative expense 1200
Fixed selling expense 1500
5900
Net income 17500
Absorption costing
Particulars Amount Amount
Total revenue 33000 33000
Direct material 5600
Direct labour 4800
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Production expenses (variable) 1600
Sales expenses (variable) 800 12800
Less: Closing inventory
Direct material 1400
Direct labour 1200
Sales expenses (variable) 200
Less: Sales expenses (variable) 600 3400
Less: Absorption of Overheads
(Fixed)
Cost of production 9400
Per unit contribution 23600
Less: fixed cost
Overheads (production) 3200
Fixed administrative expense 1200
Fixed selling expense 1500 5900
Net Income 17700
B. Calculate the following with breakeven analysis.
9

C. Apply the range of management accounting techniques and produce appropriate financial
reporting documents accurately.
From- MOA
To- GM
Subject- Rendering information about approving management accounting technique which are
need to be implicated.
Sir,
With context in rendering fruitful information which could be reflector of high fecundity
as well as proper allocation of costs (Dekker, 2016). Marginal cost and absorption costing are
two types of management technique which will help system in discovery of sufficient profit for
Fontain motors. Hence, in this case procedure of absorption will be proper for best result
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because it dwells all cost incurred while doing production of units. Moreover, there are many
methods which are helpful to the management accounting techniques like:
 Cash flow statements, historical checking
 Analyzing the financial accounts
 Financial accounting
 Communicating the information etc.
 Review of the accounts.
By adopting both the methods it is intelligibly seen that in marginal costing profit of a
Fontain motors is relatively low as equivalence with absorption costing. There is a profit
of 17700 absorption costing and 17500 in marginal costing techniques (Cooper,
Ezzamel, and Qu, 2017). Hence, it is confidently said that use of absorption costing is
much more fruitful to organization. It is a full cost method and show the competent net
profit. In marginal costing, all the uncertain expenses are taken into consideration like
direct labor and production overhead direct material. In absorption costing method all
fixed as well as variables expenses are taken into account. There are various reporting
techniques which are to be implemented in the organization are as under
 cash flows
 startup costing
 Balance sheet
 Budget and forecast table.
Thank you
D. Produce financial reports that accurately apply and interpret the data for the business activities
shown in the scenarios in Task 2 above
Interpretation
The calculation of above question is done by applying two techniques named marginal and
absorption costing. By applying this technique, it can be easily seen that profit of absorption
costing is high than marginal costing. The individual interpretation is done below: -
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Marginal costing
By utilizing this method, it is intelligibly ascertained that Fontain motors does not attain
much net profit. The profit is attained in marginal costing is 17500 which is relatively reduced
than next proficiency. This proficiency move with use of only variable costs into operations. It
does not take any fixed expenses while calculation.
Absorption costing
The absorption method has accomplished the profit of the 17700 which is much more
than in marginal costing. Marginal costing takes all cost both variable and fixed into it and then
trigger out profits.
TASK 3
A. Advantages and disadvantages of budgetary control with examples
It is a process used by businesses to control their finances which involves comparison of
actual financial results with budgets (Financial Planning Tools, 2018). Here are some
advantages and disadvantages of budgetary control:
1. Budgeting indulge the element of definite planning as it is based on well-defined plans
which enables different leaders to know what is expected of them.
2. It promotes economy and efficiency by eliminating the wastage and controlling cost in an
effective manner.
3. Every budget is executed by taking lower level of management in consideration for
supply of feedback information. This makes 2-way communication easier.
4. Budgeting highlights weak spots in management by comparing actual and budgeted
performance where attention is much needed for improvement.
5. As it is a centralized function between all diversified operations of a business, it helps in
coordination between different departments like sales, production, etc.
6. It encourages delegation of authority among executives and subordinates. Authority
could be used within the set limits of budgeting.
7. Control is taken over costs, capital expenditure and revenue to maximize profits of an
organization.
Disadvantages:
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1. Budgets are completely made on the basis of estimates, if estimates are wrong then it
will result in misleading of budgetary control. Thus, its success depends upon accuracy
of estimates.
2. A budget is prepared to fight from future financial consequences, future is uncertain and
cannot be predicted accurately.
3. Administration expenses could rise as budgets are revised again and again with change
in conditions.
4. Employees might lose their faith in budgeting if budgets are changed again and again.
5. Budgetary control needs active participation and cooperation with employees and staff
for implementing it at all levels (Key Tools for Planning Finances, 2018). This type of
participation and cooperation is not easily available.
Examples of planning tools used for Fontain Motors:
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Affinity Diagram: This tool is used to manage a large amount of unmanaged data into groups
based on their natural relationships. In most cases, this tool is used to solve problems with issues
that seems to be difficult and very complex to manage. This technique also enables to generate
and organize data concerning complex processes. This tools is used when there are many facts
and ideas in confusion.
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(Source: The Seven Management and Planning Tools, 2018)

Interrelationship Diagram: This diagram create a link between ideas and concepts to highlight
more than one links at a time (Top 11 Techniques used in Management Accounting, 2018). This
process of making an interrelated diagram enables to systematically identify and analyze the
cause and effect relationships that exist among all critical issues. It encourages to think in
multiple directions rather than thinking geometrically.
15
Illustration 1: Affinity Diagram (KJ
Method)
(Source: The Seven Management
and Planning Tools, 2016)

B. Applications of Planning Tools:
Budgeting, planning and forecasting is a process in which an organization's long and
short term financial goals are determined. It is maintained under chief financial officer's
guidance. There are two tools that are used in financial forecasting, which are as follows:
1. Budgeting: It is an essential tool in preparation of financial forecasting which ensures it
stays in control of costs. Budget assists in following ways; controlling finances,
confirming planned activity, making financial decision in educated manner, identifying
areas of potential, etc. Quality of information that is provided through budget is equal to
the efforts invested in it. To be successful in budgeting, a business person will need to
invest needed time in it, be honest and realistic and review the budgets at regular
intervals.
2. Cash Flow Forecasting: It is very predictive by its nature whereas budgeting is useful
for planning purposes. Cash Flow Forecasting helps business owners in identifying
limitation in bank finance. It identifies areas such as; fund requirements, areas of cost that
are needed to be reviewed, terms that need to be renegotiated. This tool also remind
business owners that cash operates differently from profits. It is also possible that if one
business is profitable than also it may be facing cash flow issues.
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Illustration 2: Interrelationship Diagram
(ID)
(Source: The Seven Management and
Planning Tools)

Planning, budgeting and forecasting centralizes financial information which make it
easier for financial managers to produce more accurate budgets and to perform analysis of
scenario.
C. Management accounting systems to respond to financial problems
There are 4 factors that are involved in management accounting system which are
different from other and are used by Fontain Motors to respond financial problems, which are as
follows:
1. Financial Governance: In simple words, it is a way in which an organization collects,
manages, monitors, and controls financial information. It also includes the process of
how companies track their financial transactions, manage performance and control data.
If financial governance is poor, it can result in fraud, misappropriation, regulatory
penalties, etc. Financial government is important for Fontain Motors to have internal
controls, understandability of financial policies, to conduct internal and external audits of
organization, for effective workflow, to have control over financial transactions, for
tracking data and data security.
2. Bench Marking: It is a standard against which performance of a security, mutual fund or
investment manager can be measured. A market segment is used for this purpose. It is
also used to assess current performance against a competitor or group of organizations.
It's not a survey, it's a detailed process which delivers reliable data. Benchmarking is
simple but a detailed process of 5 steps; choose a product to benchmark, determination of
competitor, gathering of information on their internal performance, adoption of policies
and processes in place (Balanced Scorecard, 2018). After completion of this process
benchmarking will point out changes that will make the most difference but it completely
depends upon financial officers and business to put them in right place. It benefited
Fontain Motors by; improving employee understanding of structures of cost and internal
processes, encouraging team building, improving familiarity with key performance
metrics.
3. Key Performance Indicator: These are a set of quantifiable measures that an
organization uses to review its performance over time. These are used to determine
company's progress in achieving its operational and strategic goals and to compare
financial performance against other businesses. Those KPI's which are tied to the
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financials are focused on revenue and profit margins. Bottom line is one of the best and
basic profit based measurement. To be well defined and effective, a KPI must; be
quantifiable, be communicated throughout the organization, be crucial in achieving goals,
be applicable in line of business. Fontain Motors make use of following performance
indicators as financial metrics; profit, cost, LOB revenue Vs. target, cost of goods sold,
day sales outstanding, sales by region and LOB expenses Vs. Budget.
4. Balance Score Card: BSC is a performance model which is used to translate mission and
vision of any organization into actual actions. It can also help in providing information on the
strategy that has been chosen more, manages feedback as well as determine target figures. BSC
starts from vision and strategy that are viewed from four different perspectives; financial,
customer, internal business processes and learning or growth. When it comes to Fontain Motors,
BSC was viewed by financial perspective in order to respond to financial problems. As financial
18
Illustration 3: Examples of KPI's
(Source: Financial Key performance indicators, 2018)

perspective is important for almost all shareholders and financial backers of an organization. It is
a type of quantitative benchmark based on past figures. It was introduced by Dr. Robert Kalpan
and Dr. Norton.
D. Management Accounting Techniques used in solving financial problems
Management Accounting Techniques helps in deciding in advance about financial
activities to achieve its primary objectives irrespective of long or short term. It also allows firm
to analyze financial statement data for making forecast of future earnings. Historic cost
accounting provides data to the management relating to the cost of each job. These all
management techniques help an organization in solving financial problems. Some more
techniques are:
Standard Costing: It is the establishment of standard costs under most efficient operating
systems. This is also necessary to have cost control. To identify the different variances between
actual cost that has occurred in the production of goods and standard cost which was anticipated
19
Illustration 4: Example of balanced score card
(Source: Balanced Score Card (BSC), 2018)

before production, some manufactures uses this accounting technique. If the company's
expenses exceeds the standard cost than the organization will unable to met its projected income.
Budgetary Control: Management Accounting comprises tools of budgetary control for planning
and controlling various activities of business. It is a technique to define the ability of the
mangers that how well they use budgets to monitor and control costs and the operations in a
provided financial year.
Marginal Costing: By using techniques of marginal costing financial problems can be prevented
or their damage may be reduced. It is a costing a method which includes the variable cost for the
production while the fixed cost can be exempted totally. The marginal cost is the additional cost
which is implied in producing an extra unit of output. In this costing, cost are bifurcated between
fixed and variable. It provides an idea of the cost behavior that gives a huge impact on the
profitability of the businesses. Marginal costing technique is used by the managers for the
purpose of the decision making.
Funds Flow Statement: This technique of accounting is used when there is change in financial
position of business. Fund flow statement depicts the out flow and inflow of the funds. The
preparation of fund flow statement is done to identified the change in working capital fund flow
statements are of two types long term funds developed by issues of equity and debenture and the
funds generated from the operations.
Cash Flow Statement: This type of statements are useful long range financial planning. The
outflow and inflow of the cash are known as cash flow statements. It is prepared in order to find
out the firms financial position. It gives the exact data of the company's financial health of inflow
and outflow that are obtained from the operations of the business. Cash flow statements
consisted of three types of activities like cash flow from operating activity, cash flow from
investing activity , cash flow from financing activities. Operating activities consisted of
transactions from all the operational business activities. Cash flow from investing activities
include the purchase and sale of asset and liability. Cash from financing includes the issues and
redemption of share and debentures.
Above used all management accounting techniques could be used to solve any financial
problem effectively. Theese management accounting techniques are used by the mangers in an
organization to find out any complexity in the finances of the company. these are the techniques
which heps the manger in the effective decision-making and it is a important part of the business.
20

E. Planning Tools
Planning is the first most important activity to be done in an business. Planning and
managing requires specific key tools which are acquired through continual self-education (Yoder
and et.al., 2017). Following are some important tool of planning which helps in solving financial
problems:
Business Plan: In financial planning, firstly a solid business plan should be drafted which is
planning tool. This plan lists every critical aspect of an organization and second part analyze the
market.
Budget and Cost Projection: Cost projection and preparation of budget is one of the key tool
for financial planning. For preparing budget a company need to formulate a reasonable sales
projection, factoring in peak and off- seasons.
Break-Even Analysis: It highlights the gross sales volume needed for company to cover its
expenses. Break even is that point in the production when the organization do not have any
profit or loss.
Financial Statements: It contains information about company's assets, liabilities, profits and
loses. By proper understanding it and preparing accurate statements can result in solution to
problems of finance. Financial statements of the organizations includes the balance sheets ,
income statements, cash flow statements.
CONCLUSION
It has been summed up that various types of management accounting systems are Cost
accounting, Tax accounting, financial accounting, Management accounting, etc. and importance
of reports of management, benefits of system, absorption and marginal costing methods,
management accounting techniques, etc. are also explained. Last part of project report contains
financial planning and methods of solving financial problems in an organization with relevant
examples and illustrations. Main emphasis is also given on topics like financial governance,
bench marking and key performance indicator and balanced score cards.
21

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