Management Accounting and Techniques

This document provides an overview of management accounting and different types of management accounting systems. It also discusses various methods for management accounting reporting and techniques of cost analysis to prepare an income statement. The document is relevant for students studying management accounting and related subjects.

Management Accounting
And Techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Management accounting and different types of management accounting systems:..............3
P2: Different methods for management accounting reporting:....................................................5
M1: Benefits of management accounting system and their application within an organisation: 6
D1: How management accounting system and management accounting reports are integrated
within an organisation:.................................................................................................................6
TASK 2............................................................................................................................................6
P3: Techniques of cost analysis to prepare an income statement:...............................................6
TASK 3..........................................................................................................................................11
P4: Different types of planning tool and their advantages or disadvantages:............................11
M3: Planning tools and their applications for forecasting and preparing budget:.....................13
TASK 4 ........................................................................................................................................13
P5: How organisations are adapting management accounting systems in respond to financial
problems:....................................................................................................................................13
M4: Analyse financial problems in management accounting can lead organisation to
sustainable success:....................................................................................................................15
D3: How planning tools helps in to solving financial problems:...............................................15
CONCLUSION..............................................................................................................................16
REFERENCES:.............................................................................................................................17

INTRODUCTION
Management is the process of some functions that includes planning, organising,
directing, controlling and managing. These principles done by physical, financial, human and
informational resources those are done work efficiently in order to achieve organisational goals.
It is the coordination and administration of tasks in order to accomplish it with its resources. The
activities includes setting objectives, organising, motivating team, devising system, developing
people etc. management is completed for review the work and complete it on time. Although the
duties of managers differ from different departments and industries but the basic responsibilities
are almost same. Management is about handling, careful treatment and supervising skills within
an organisation (Agrawal, 2018). The company which is selected for this report is capital joinery
Ltd. The firm is deals in furniture such as doors, windows and stairs. The company was founded
in 2008, headquarter situated in London UK. This report covers topics such as requirements of
management accounting systems, methods use for management accounting report, cost analysis
for preparing income statement by using marginal and absorption costing. Apart from this it also
covers topics such as disadvantages and advantages of different types of planning tools and how
organisation adapting management accounting system in respond to financial problems.
TASK 1
P1: Management accounting and different types of management accounting systems:
In Management accounting the use of different types of systems is made. The explanation of
these systems is made as follows-
Cost accounting system- In this system, there is an explanation of the use of methods so
that the costs can be assessed. Therefore by making its use the companies can make sure that
they are able to identify the level of costs and thus reduce them. Therefore as Capital Joinery
Ltd. Is a manufacturing company it ensures that it uses this system so that it can identify its
excessive costs and overheads and facilitate their reduction (Alsharari and Abougamos, 2017).
Essential requirements-
 In this system a thorough assessment of the different types of costs must be made. It
should also be accurate so that the organizations are able to accurately find out the level
of costs without problems and issues. In this way the management of Capital Joinery Ltd.
will be able to find out its costs without problems and issues.

 This system must ensure the use of approaches for reducing the costs in different types of
departments. This helps a company like Capital Joinery Ltd. as it will be able to target
enhancement in the overall level of profits.
Inventory management system- In this system, the inventory can be managed properly
because it is helpful in the tracking the inwards and outwards movement of the stock orders. In
the context of Capital Joinery Ltd. It is quite important that it is used so that the assessment of
the inventory costs can be made and approaches and methods can be used so that efficiency and
effectiveness can be brought in the stock management (Borker, 2016).
Essential requirements-
 In this system the management of stock has to be done by making the use of techniques
like LIFO, FIFO, Weighted Average Cost etc. It must be reliable so that the level of
inventory can be easily forecasted effectively and efficiently. In this way it can be helpful
for a company like Capital Joinery Ltd.
 In this system the use of techniques and methods must be made so that the reduction in
the cost of inventory can be used. It will be helpful for the management of Capital
Joinery Ltd. as it will be able to reduce costs and target an enhancement in the overall
level of profits.
Job costing system- In this system, the inwards and outwards movement of job orders is
assessed. Therefore it can be said that this system is highly useful for the managers of
manufacturing organizations. As Capital Joinery Ltd. Is a manufacturing company it uses this
system properly so that the assessment of job costs can be made and techniques can be applied
for their reduction.
Essential requirements-
 In this system the use of methods and techniques for identification of job costs has to be
done. It should be up-to-date so that the latest changes in the job accounting system can
be effectively incorporated thereby helping an organization. This will help a company
like Capital Joinery Ltd. which is a manufacturing company.
 This system must ensure that by using cost reduction techniques expenses of job orders
can be reduced. This will help in reducing the costs of the job orders and targeting
higher-level of profits. In this way it can helpful for a company like Capital Joinery Ltd.

Price optimization system- In this system, the use of mathematical and statistical tools
and techniques is made so that the determination of price to be set in the organizations can be
made. For Capital Joinery Ltd. It is useful so that the company is able to set a proper price for
products and services for maximizing the level of profits.
Essential requirements-
 In this system the use of mathematical and statistical models has to be made for the
purpose of forecasting the prices. It should be able to forecast prices so that the
organizations are able to set appropriate prices. Thus in this way managers of Capital
Joinery Ltd. will be able to earn higher-level of profits.
 This system must be helpful in the setting of price for the purpose of ensuring the
maximization of profits (Cinquini and Tenucci, 2016). In this way it helps a company
like Capital Joinery Ltd. as it can target customers through fair prices so that it can attain
revenue and profit goals.
P2: Different methods for management accounting reporting:
Management accounting reporting:
It helps in telling the companies performance how well does an organisation is
performing. Management accounting reporting should always be prepare on the quarterly basis
so that the actual performance of the company can easily be analysed. With the proper
accounting one can manage our recording system of accounts and helps in analysing the reports
on daily basis (Edmonds and et. al., 2015). They includes the data like profitability, sales, cost
and transactions. It can be classified as performance report, budget report, inventory
management report and account receivable report.
Performance report: It helps in analysing, collecting information and have proper
utilisation of resource and send these to the stake holders is included in performance report.
Capital joinery company should use the performance study so that the clear picture of the
organisation can be analysed so that the company can find its weakness and work on it. Benefits
to capital joinery company after having performance they can set the targets that are easily
achievable, increase the morale of the employee and increase the productivity of the company.
Budget report: It help in estimating the budgeting performance with the actual
performance. It helps in determining which expenditure level is high and can control that

expenditure to bring back in budgeted level. Capital joinery should use the budget report so that
the actual performance of the company can be measured and actions to be taken to make them
correct so that the company can not suffer from the losses. Benefits to capital joinery after
having budgeted reports all the errors can be find out easily and the actions can be taken without
and delay and helps in controlling income and expenditure of the company.
Inventory management report: It helps in storing, selling the inventory to the business
in both ways raw materials and the finished goods and recording all these transaction in a proper
way so that desired results can be found. Capital joinery should use the inventory management
reports so that they can identify the weaknesses and the trends of the company and get the proper
results in future. Inventory management is beneficial to joint venture as it increases the
transparency of the information weather it is under or over stock and helps in increasing the
efficiency of staff in capital joinery.
Accounts receivable reports: It helps in recording the unpaid invoices are their duration
are also recorded. It helps in estimating business bad debts expense and the amount which are
unpaid or due by the customers. It analyse the financial health of the company so that the desired
results can be find. Capital joinery company can use the account receivable so that the person
who are bad debts and the amount from which cannot be recovered or delayed can be found out
easily. Benefits of accounts receivable reports to capital joinery as it helps in gathering the
information of the reliable customers and the daily customers using the services of capital
joinery.
M1: Benefits of management accounting system and their application within an organisation:
Cost accounting system helps in identifying and reducing costs within an organization.
Inventory management system is helpful in the assessment of the level of inventory and reducing
the costs associated with stock. Job costing system is helpful in the assessment of job costs and
reducing them. Price optimization system is helpful in setting of prices and forecasting changes
in prices (Horngren, Datar and Rajan, 2015).
D1: How management accounting system and management accounting reports are integrated
within an organisation:
The Management accounting systems need to be properly integrated within the
organizations. Thus when them management of Capital Joinery Ltd. Integrates these systems

properly in the company they can create benefits for the company and ensure that the maximum
use of these systems is made in the organization therefore helping in the achievement of goals
and objectives.
TASK 2
P3: Techniques of cost analysis to prepare an income statement:
Costing is which management apply in order to know about the cost of activities and
involved all costs occurs in the project and business. It is the process which defining the cost of
product, component and services. Cost accounting determines the cost of each element used in
production includes materials, wages and industrial costs. An efficient business focuses on cost
of inventory, labour and various overheads costs.
There are two types of costing which Capital joinery uses such as Absorption costing and
marginal costing.
Absorption costing: Absorption costing refers all production costs for all units which are
proceed. This costs using both fixed and variable costs as product costs. This costing method
used for reporting purpose (Marelli, 2015). Reporting purpose includes both financial reporting
and tax reporting. Absorption costing is the technique that assumes both fixed costs and variable
costs as product costs. It considers net profit per unit.
Marginal costing: Marginal costing refers to those costs which are occurs in each units
of produced goods. Marginal costing refers to variable costs considered on product costs and
fixed costs considered costs of the period. It is the technique that only assumes variable costs as
product costs. It considers contribution per unit.
Inventory costs: Inventory costs refers to the costs related to storing and managing firms
inventory in the specific period of times. Generally, inventory costs are described as the
percentage of the inventory value on its average inventory. It involves three types of inventory
costs ordering costs, carrying costs and storage costs.
 Ordering costs: The ordering costs refers to order for inventory is placed includes
receiving costs, preparing purchase costs, data interchange costs, transportation costs,
cost of suppliers etc.
 Carrying costs: Carrying costs refers to expenses which are occur on inventory storage
and its maintenance.

 Storage costs: Storage costs refers to which costs business faces when inventory has out
of stock and customers demanded for products (Murthy and Rooney, 2018).
Marginal costing:
Absorption costing:

Reconciliation statement:
Working notes:

LIFO (last in First Out):

AVCO (Average cost):

M2: Range of management accounting techniques for financial reporting:
In this costing of production in organisation, costs plays vital role. Cost should be
relevant in the pricing decisions and estimations. Costs helps firms to know its productivity and
profitability from optimum utilisation of resources. It includes absorption and marginal costing.
D2: Explanation of financial reports in range of business activities:
According to marginal costing net profit is in May 15400 and in June 10500 that refers
less profitability in June month. In absorption costing net profit shows 6400 in June and 4000 in
June that also represents less sell in June rather than May. Reconciliation statement also shows
that in June sales performance was less than May. In using of LIFO method firm left inventory
about 289 units and by using average cost method of inventory valuation it shows 274 units that
refers that average costing method is better for increasing sales.
TASK 3
P4: Different types of planning tool and their advantages or disadvantages:
Budget is refers to process of creating plans to manage spending in the business function.
In other words, it is the process of pre estimation of expenses and income within the
organisation. It allows firms to determine its spendings and helps employees to understand the
way they have to work for efficiently and according to pre estimation. It is about forecasting and
planning of activities which will run in the business by its resources. It allows firms in order to
better utilisation of funds and resources for efficiency in their work. Utilisation of budget out into

the future also allows firms to forecast how much money it has to manage. In context to capital
joinery firm making budget for evaluate and forecast its performance and that ensures firm that it
has enough money for its activities (Okano, 2015).
Budget is important in organisation because it helps in control its spendings, track of
expenses and save more money. Budgeting helps in make better financial decisions,reserves and
focused on long term financial goals. In capital joinery budget provides bench mark for
comparing its actual performance from expected performance. It helps management team for
making plan and strategic decisions. It helps firm to determine its long term goals and makes
path for working towards them. It allows business to create a financial roadmap by setting
objectives and working to achieve those goals.
Types of budget:
 Activity based budgeting: The activity based budgeting refers to a method which is
focused on results that firms wish to achieve. It is highly effective when firm has clear
objectives and fully focused to achieve its goals. it is based budgeting method which is
specially well in short term period in order to meet a specific goals but It can be used in
long term period.
Advantages: Activity based budget allows for control over the budgeting process as it
based on activities and actual results (Ostapiuk and et. al., 2017). Expenses and revenues occurs
at actual level that gives useful details regarding prediction. It helps management to increase
control over the process of budgeting and helps employees to align with budget in order to
accomplish firms goals.
Disadvantages: Activity based budget is more typical to implement and maintain
because it consumes more time as it makes on based on activities runs. Activity based budget
needs assumptions and insight from management.
 Zero based budgeting: Zero based budgeting is the type of flexible budget that requires
line by line tasks budgeting and purchasing. It is used to determined and save budget of
excess spendings. It is based on eliminating extra expenses as it controls expenses and
move towards savings. In capital joinery firms management team used this technique for
minimise its costs and leads to better probability.

Advantages: Zero based budget budgeting helps in build cost benefits analysis, improve in
resource allocation efficiency, optimize business process management, strategic growth and
transparency etc.
Disadvantages: This can be complex and expensive, linked to tangibility, disruptive etc. it
consumes more time than others and requires significant training for managers.
 Flexible budgeting: Flexible budgeting refers to the adjustment of activity and levels of
volume. It is flexible according to the situation, it can be change with the time. It is also
known as variable budget because financial plan of expenses and revenue is based on the
current values and actual amount of output.
Advantages: It is more important than other budgets because it provides actual information of
expenses and income. It is used by financial experts because it helps to shows the accuracy and
actuality and it helps in decreases the expenses.
Disadvantages: Flexible budget is prepared in specific time and in flexible time such as
quarterly etc. as it shows unfavourable conditions it helps firm to prepare for it.
Sales budget- It refers to the budget in which a thorough forecast of the overall level of
sales is made by the organizations. By making its use they are able to make sure that they can
estimate the level of revenues and expenditures related to sales effectively and efficiently.
Therefore for Capital Joinery Ltd. it is a useful budget which has to be prepared by the
organizations.
Advantages- Sales budget helps in effective forecast of the overall revenues and
expenditures related to the sales of the organizations. Also it can help the organization in
comparison effectively and efficiently. In this way it can help Capital Joinery Ltd.
Disadvantages- Sales budget is quite costly to prepare for the organizations. Also it takes
a lot of time to prepare it. Therefore in this way it can create a disadvantage of a firm like Capital
Joinery Ltd.
Cash budget- It refers to the budget in which a thorough forecast of cash revenues and
expenditures is made by the organizations. By making its use the firms can make sure that they
are able to manage their cash properly. Thus in this way it can be helpful for a firm like Capital
Joinery Ltd.

Advantages- Cash budget is helpful for the firms in maintaining the liquidity in a right
manner. Also it can help them to keep a track on cash expenses. In this way it is helpful for
Capital Joinery Ltd.
Disadvantages- Cash budget is not useful for the organizations as it can create
difficulties related to flexibility for them. Therefore in this way it creates a disadvantage for the
managers of Capital Joinery Ltd.
M3: Planning tools and their applications for forecasting and preparing budget:
Every organisation used various planning tools for preparing and budgeting for managing
its financial expenses. As in capital joinery firm use various financial planning tools such as
activity based budget, zero based budget and flexible budget that helps organisation to control its
activities with optimum utilisation of resources (Qian, Burritt and Monroe, 2018). Budget helps
employees to manage their day to day activities according to it because it includes cost of goods
sold and sales of their activities so it can motivate employees for done their task. As activity
budget helps to know actual performance and running activities, zero budget is deals with save
cost and control expenses whereas flexible budget shows flexibility and give actuality. It helps to
employees in order to give direction of work and done their tasks with full effectiveness and
efficiency. As it helps in control expenses that leads to increase in profitability.
TASK 4
P5: How organisations are adapting management accounting systems in respond to financial
problems:
Financial problems: facing challenges and solving problems is the part of organisations
activities. Every firm faces some financial problems that is regarding arrangement of funds and
improper management and utilisation of funds that affects firms cost and expenses that leads to
decrease in profitability. Financial problems includes lack of cash flow, sticking of budget, lack
of capital, extra expenses, improper management etc.
Financial problems faces by Capital joinery as mentioned below:
 Mismanagement of cash flow: Capital joinery faces problems regarding its cash flow.
As because of mismanagement business expenses is more than expected and that affects
its profitability. Firms employees is not uses its resources efficiently and it leads to
increase in expenses and less cash in the business.

 Unforeseen expenses: It is shows unexpected expenses within the business. Unexpected
expenses includes ranging from borrowings, bad debts, credit purchases, increase in rpice
of raw materials. If firms expenses is increasing it leads to not proper utilisation of
resources.
Approaches which are Capital joinery used to avoid financial problems:
Capital joinery as faces various problems it leads to affects their business activities so for
overcoming from the problems firm uses various techniques so that it can utilise its resources
properly. Company should maintain proper management in its activities according to the
planning and keep tacking activities which will helps firm to avoid extra expenses and leads to
savings. Firms should records about its inventory as it helps to track how much company has
with it and time for sale it and that helps in its production process. Better management is
necessary in any organisation for control its expenses and for proper management of activities
that motivates and encourage employees in order to complete their tasks.
Approaches for solving financial problems of the Capital joinery Ltd.: Some approaches that
is used by capital joinery for overcoming from financial problems mentioned below:
 Benchmarking: Benchmarking is the process which involves comparing business
processes and performance metrix and practices of different businesses. It is the practice
for comparing business performance by such elements cost per unit, productivity per unit,
time of production etc. As in capital joinery firm uses benchmarking approach for solving
its financial problems by assessing its production activities and costs for its units. It will
helps reduce expenses and makes company profitability (Rahman and et. al., 2015).
 KPIs: KPIs is based on income statements and balance sheet and also refers to change in
expenses by increasing sales. It is including reports and scorecard that enables to top
management. Quick and current ratios, growth rate, cash conversion cycle these are
important factors that can used in proper management of cash flows.
 Financial governance: It is the set of rules, policies and procedures that uses by firm
from overcoming with its financial problems by this management accounting approach.
Difference between two companies for using management accounting approaches:
Basis Tesco Sainsbury’s
Financial problem Tesco is facing a financial
problem related to excessive
Sainsbury’s is facing a
financial problem related to

costs and overheads. mismanagement of inventory.
Management accounting
system used
Tesco is making the use of
Cost accounting system to
solve this financial problem.
Sainsbury’s is using Inventory
management system to solve
this financial problem.
Management accounting
system used
Tesco can use this system to
assess the level of costs and
overheads effectively and to
make sure that it is able to
reduce these costs and
overheads so that higher-level
of efficiency and effectiveness
can be maintained.
Sainsbury’s can make the use
of this system so that it is able
to assess the level of stock and
therefore make sure that the
techniques related to inventory
management are applied to
reduce the costs of maintaining
inventory.
From the above comparison, it is advised to the management of Capital Joinery Ltd. that
it should learn from the managers of Tesco and Sainsbury’s. As Capital Joinery Ltd. is a
manufacturing company it is bound to face financial problems and difficulties. Therefore it can
use Cost accounting system so that mismanagement of cash flow problem can be solved as it can
identify the excessive costs where cash is being spent so that optimization on the spending can be
done in the right manner. Also for the problem of Unforeseen expenses the company can make
the use of Job costing system as by making its use the company will be able to identify the way
the expenses have increased so that application can be made to reduce these expenses effectively
and efficiently leading towards the attainment of goals and objectives. Thus in this way the
company can use management accounting systems to solve financial problems.
M4: Analyse financial problems in management accounting can lead organisation to sustainable
success:
Management accounting leads to oversee actual performance while taking organisations
goals and objectives into considerations. Capital joinery as faces financial problems related to
mismanagement of cash flows and unforeseen expenses, to resolve these problems firm uses
various management accounting approaches such as benchmarking, KPIs and financial
governance. Through management accounting firms can manage its activities in efficient manner
and gives direction it to accomplish its tasks in proper way so that it increases profitability.

Management accounting trusts to guide critical business decisions and drive to strong business
performance. It leads to how organisations achieve sustainable success in the dynamic
environment with management accounting approaches in business (Singhvi and
BODHANWALA, 2018).
D3: How planning tools helps in to solving financial problems:
Planning tools are the elements that helps organisations for taking actions related to
implementation of an initiative, program and interventions. Planning tools helps organisations in
order to complete their tasks with the pre estimation so that employees works accordingly.
Capital joinery LTD. Uses various planning tools as budgeting for it that includes activity based
budget, zero based budget and flexible budget for making directions in order to improve its
efficiency and better utilisation of resources. Activity based budget refers to method which is
focused on results that firms wish to achieve. zero based budget, It is used to determined and
save budget of excess spendings (Smith, 2019). Flexible budgeting refers to the adjustment of
activity and levels of volume. Budgeting helps organisation in order to control its costs and
achieve higher profitability (Tan, 2016).
CONCLUSION
From the above report it has been concluded that management refers to various functions
such as planning, controlling, managing, directing, budgeting etc. management accounting helps
firm to manage its activities by summarizing all activities as pre estimation. Costing refers to the
costs of all produced goods and services, it has some types such as inventory costing, absorption
costing and marginal costing. Firms uses different planning tools such as budgeting for pre
estimation of activities in order to control costs and maximize its profits. Firms faces financial
problems such as lack of cash flow, sticking of budget, lack of capital, extra expenses, improper
management etc. to solve these problems it uses various techniques such as accounting systems
Benchmarking, KPIs and financial governance. Management is about handling, careful treatment
and supervising skills within an organisation.

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