Understanding Management Accounting System and Methods of Accounting Report

This report analyzes the meaning and types of management accounting system and explains different methods of accounting report. It also discusses the use of planning tools in budgetary controlling.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Understanding management accounting system and their essential requirement ................3
P2. Explaining different methods of accounting report...............................................................5
TASK 2............................................................................................................................................6
P3. Calculating cost that used in techniques to prepare income statement..................................6
TASK 3..........................................................................................................................................11
P4. Explaining the use of planning tools used in budgetary controlling...................................11
TASK 4..........................................................................................................................................13
P5. Comparing different organisation that adapting accounting system to financial response. 13
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting refers to the methods that measure internal process and system
and evaluate the overall management of the organisation. This is important to understand the
financial accounting as the intend purpose of managerial accounting is to make the purposeful
business decision that will help in achieving the goal and objectives (Arwani, 2019).
In this report, the company is Prime Furniture, which is UK based organisation that is
planning to start training course for interns. In this report, the meaning and types of management
accounting system is analysed and their essential requirement is being studied. Management
techniques used in organisation is being used and different methods has being determined in this
report. Apart from that different planning tools and its advantages and disadvantages in the
context of budgetary control is being analysed and comparison of organisation that used in
management accounting with the response of financial problem.
TASK 1
P1. Understanding management accounting system and their essential requirement
Management accounting- It refers to the process of identifying the managerial
accounting and financial accounts that main objective is to provide best information for the user
that will help the manager to take essential decision. In the context of Prime Furniture, this tool
is very important from the point of view of understanding the overall financial position.
Management principles- These are important for every organisation to follow and adhere
with them in order to enhance efficiency (Chukwuemeka, 2019). In the Prime Furniture,
following principles are as follows-
 Relevance- Information is key part in the management accounting that need to be check
and monitor thoroughly as information must be relevant to the fact. This principle can be
used in the selected company as the most useful and relevant information for taking
effective decision-making is determined.
 Credibility- This concern with taking appropriate method to take responsible decision
and shareholder are more likely to invest in the firm. For the chosen company, this helps
in building better image of organisation in the view of shareholder and investor.
Difference between financial accounting and management accounting
Basis Management accounting Financial accounting

Meaning This deals with many activities
and function such as planning,
identification and controlling
of all financial information in
the organisation.
This assess all necessary
financial information that will
help the company in decision-
making.
Purpose This helps in the monitoring
internal process.
This is useful in external
environment of company.
Uses This is useful in taking
important decision-making
that will help in overall
management success.
This is useful for shareholder,
investor and competitors.
Management system- This works for the improvement in the internal process of management
and develop the effectiveness in the performance. Some system are as follows-
 Cost-accounting system- This states the controlling all kinds of cost and expenses
related to the different activities and functions. It aims to tracking all raw material that
uses in production stages and they turns into finished goods (Comerio and Tettamanzi,
2019). For the Prime Furniture, this system is essential requirement as they will help in
controlling the cost by optimizing the cost information. It will also useful in guiding the
price fixation and make easy for the management.
 Inventory-management- This includes the aspects such as monitoring and controlling
the purchases from the suppliers as well as customers. This depends on the types of
products that sell an through which channel. This regulate end-to end production and
business management that also helps in demand forecasting to metrics, reports and other
accounting system. The essential requirement of this system in the selected organisation
are that it helps in forecasting the production process and improve the inventory to fulfil
the demand of the organisation. It is supports the scanning of all inventory process and
track raw material, finished goods for manufactures. This also support the improved,
actionable in the analysis of inventory management.

 Price optimising system- This helps in analysing and focusing the key areas such as
margin of sales and regulate the number of conversions (Divate, 2020). As, price is
prominent factor that influence the buying decision of people. It play necessary role in
managing and regulating the pricing decisions to increase the sales and probability. The
essential requirement of this system for the chosen organisation itr facilitates in financial
benefits through analysing the margin of sales and useful in the growth and expansion of
business.
Management accounting
system
Uses Application
Cost accounting system This helps in determining the
estimated cost and leads to
proper control of expenses.
Prime furniture need this
system to implement to reduce
the expenses of activities and
functions.
Price optimisation This provide control over the
price that is being established
by organisation and effectively
evaluate for profit
maximization.
Prime Furniture is applying
this to regulate whole process
of pricing strategies to increase
the profit for the management.
Inventory-management
system
This is useful in monitoring
and managing the process of
raw material that converted to
finished goods.
Its application in Prime
Furniture will oversee the
whole process of inventory in
the organisation.
P2. Explaining different methods of accounting report
The reports in organisation contains important part as it include essential records that has
different transaction like operational cost, product profitability and regional sales
(Dombrovskaya, 2020). This are necessary for all managers to make necessary business decision
that will lead to better growth and success. In the context of selected company, this report
provides necessary information about operational and strategical activities and functions through
that they could clearly implement the steps and actions. Following reports are as follows-

 Job costing reports- This type of reports helps in analysing the right way to conduct the
activities of job so that they could effectively give output. This define the problem during
the job and when it completed after and need to find out the error in the equipment. In the
context of Prime Furniture, this report helps in comparing the actual budgeted cost and
also assist the manager in determining job schedule (Doughan, 2020). Its benefits that it
track the labour hours which is part of job costing and estimating the Equipment rentals
that is using in job.
 Performance report- Business report is something that s very valuable for organisation
as it helps in analysing the forecasting revenues, expenses and profit and assist the top
management in taking decision regarding business performance. In the context of Prime
Furniture, this report will support the goals and evaluating the weakness to make
improvement in the various system in the organisation. It provides benefits in increasing
the process optimisation and helps in measuring the report parameters.
TASK 2
P3. Calculating cost that used in techniques to prepare income statement
Cost- This is the amount that is spend by company to produce or manufacture any
product and services in order to sell to consumer. This is like cost of product that is charged by
producer and it does not include mark-up for profit. Types of cost are as follows-
 Direct cost- This cost directly associated with process of production of product and
services it include labour or material (Fathoni and Rohim, 2019).
 Indirect cost- This are not directly related to the production and this is difficult to trace
for the management. This cost include IT and office maintenance staff and not related to
company.
Cost analysis- It refers to the measuring the cost and output relationship that is concerned by
economist to determined the cost. It helps in analysing overall cost of production to achieve the
optimum level. Types of Cost analysis are as follows-
 Opportunity cost- This concern with expected returns from second best alternative use
of resources such as land , labour and capital.
 Actual cost- This cost is also called as Explicit cost that is incurred by firm for producing
physical payments that include cost of material, labour, plant and technology.

Cost-volume profit- This is the method of cost accounting and also known as break even
analysis. This is useful for manager to take short term economic decision and determine different
sales volumes and cost structure.
 Flexible budgeting- This budget adjust changes in the volume or activity and it is more
sophisticated and useful than any other budget. This budget is compared to actual
expenses for control purpose and this adjust the changes in actual revenue levels.
 Cost variance- This is difference between the cost that is incurred and budgeted or
planned amount of cost. This mostly tracked for the expenses of line items and also track
the job or project level. They generally monitor and investigate the report by cost
accounted and then recommended action taken by them.
Marginal costing- This costing techniques refers to the variable cost that is charged to units of
cost and implies additional cost involve in producing an extra unit of output. In the context of
Prime Furniture, this helps in valuation of stock, classification into fixed and variable cost to
improve overall effectiveness in the management of company.
Absorption costing- This allocates the fixed overhead cost to the product whether it is sold or
not in the period. This differs from variable costing as it allocated fixed overhead cost to each
unit. This also called as full costing and in the context of selected company this ensure accurate
accounting for ending inventory and helps in taking internal pricing decisions for the
management (George, B., Van de Walle and Hammerschmid, 2019).

Product costing
This is the process that determined the accounting process of determining all expenses that create
company products and this include raw material purchases, workers wages, expenses. In the
context of company this useful in determining the efficient level of product cost to ensure better
production process.
 Variable cost- This cost is associated with number of goods and services that company
produces and it is increases and decreases with the production volume. Examples are
labour, commission, packaging and raw material. In the context of company, this helps in
comparing the cost with other firm and identify the way to reduce them.
 Fixed cost- This does not carry volume of production and it remain same regardless of
goods or services produced or not. This cost cannot be avoid by company and has to

incurred it. In the context of Prime Furniture, this helps the company to take appropriate
step to minimise its investment to enhance the growth of company.
 Cost allocation- This is process of identification, aggregating and assigning cost and its
examples are products, research project, customer and sales region. This used in financial
reporting purpose and used in profitability at the department. This is used in derivation of
transfer price between subsidiary. In the selected organisation, the main purpose is to
predict the economic effect of planning and support in control decision.
Cost of inventory
Inventory cost refers to the cost that holding the inventory and it is most substantial factor in the
success of company. This included certain methods such as financing, equipment, labour,
protective measure. This combine all factor that create the total cost of holding inventory. In the
context of Prime furniture , this helps in controlling the inventory cost and play essential role in
working capital decision-making process. Types of inventory cost are as follows-
 Ordering cost- This refers to wages and related payroll taxes and different benefits and
this is essential cost that occurred every time when customer place order from supplier.
 Holding cost- This cost related to the storing inventory that remain unsold and this is one
component of total inventory cost. This include the cost of storage space, labour and
insurance as well as price of damaged goods. They is difficulty in identifying these cost
as they are hidden in many activities which is nor easy to determine.
TASK 3
P4. Explaining the use of planning tools used in budgetary controlling
Budgets-
Budgets are plans that displays how money an entity or individual will earn and how
much they have to spend. In context to Prime furniture, they will provide systematic framework
in order to achieve there goals. Various types of budgets are mention as under-
Capital Budget- These budgets are formed to calculate income and payments as
opposed to revenue account (Ilona, 2020). This budget helps in building the better way
understanding the capital expenditure made by company. Prime Furniture will be benefited from
this budget as they can analyse risks associated in investment opportunities and get the ideas of

methods that will promote the more investment options for the company. Decisions derived from
this budget are of long term and irreversible in nature which will be a limitation for company.
Operating Budget- These budgets show daily business operations of expenditures and
revenues to entities. This budget will useful in taking better decision making regarding
operational activities and functions. This is useful in building the better way to improve the
efficiency in the organisation so, that they could achieve the profitability (Wu,, Choi and Li,
2019). This budget will benefit Prime Furniture to derive accurate information about the
management that will help in knowing the ways to but it can implement in their company. The
disadvantages is that it discourage innovation some time when their there is inefficiency in
operational budget and leads to problem for the organisation.
Alternative methods of Budgeting- Apart from above budgeting methods there are other
methods which can be used, they are discussed as follows-
Cash Budget- These budgets displays inflow and outflow of cash in organisations. This
budget are very essential to understand the cash position of organisation. This helps in identify
the liquidity and effectiveness regarding the activities relate to the transaction of cash. They are
important part of company where they tell the management about the financial position. Prime
Furniture can avoid their debts which is an advantage but with this they will not be able to build
credit profile which is a limitation of this budget and does not depicts the real value in the
budget.
Flexible Budget- This budget is a financial plan to calculate revenue and cost at various
level of output. This enables the organisation when there is need to change the values or changes
in the production process. This comes with important benefits from the point of view of company
that is dynamic in nature (Majeed and Fayaz, 2020). Prime Furniture with this budget can do
better profit planning and analyse the major sources that could promote the better efficiency in
the management. On the other hand this budget require skilled labour that will cost company
more and it is difficult in implementing the changes in budget in between and leads to confusion
in the managers.
Pricing
Pricing can be define as techniques that companies uses to set price of there goods.
Pricing strategies are methods that entities uses to price their product. Prime Furniture with these
strategies can determine what price they should set to beat competitions. There competitors uses

demand pricing strategy to set price in correlation with demand. New entrants uses penetration
pricing in which they first enter with low prices to create demand and than changes when they
are establish. Company should do forecasting, use software tools and correct data while
considering demand (Queiroz, Telles, and Bonilla, 2019). They should collect information of
inventory, location, production and sources while considering supply.
Strategic Planning-
Prime Furniture should go for these tools to improve and analyse their financial
positions-
PEST- Factors that should be consider -
Political Economic Social Technological
Potential of
government
stability.
Monetary policy
and economic
conditions.
Lifestyle,income
distribution and
demographic of
customers.
Innovations in technology and
international influence.
SWOT
Strengths Weakness Opportunities Threats
Analyse their strong
area to overcome
competition
Work on areas where
competitors are more
powerful
Strategies to find
possibility to increase
profit
Analyse factors that
can harm company
profit margins.
TASK 4
P5. Comparing different organisation that adapting accounting system to financial response
Financial problem refers to problem related to the money that creates lots of problem in
the organisation and that needs to be identified adequately by top management to overcome this
issue. This is related to the money which might be arises from certain reasons and essential steps
need to be taken by company to reduce future uncertainties (Shevlin, 2020). In the context of
selected company, this problem will impact the organisation so negatively if it is was not

addressed at right time. This can be of different ways and might have certain consequences for
the organisation. Following are the types of financial problems are as follows-
 Deficiency in the funds- Funds are most important part that used for the company in the
time of problems and difficulties. Due to lack of funds allocation and revenue amount it
creates the problem in the funds. In the context of selected company, this financial
problem will increase the inefficiency and lack of proper investment by the company in
profitable projects.
 Excessive in expenditure- This is most common issues that is used to face by majority
of the organisation where they has increases the expenditure amount in their company.
This could be related to the many activities such as in marketing, financial or operational
activities (Shvets, 2020). It is very important to identify the expenses made by firm and
must adopt strategy to overcome them. In the context of chosen company, this financial
problem will leads to major fall in the growth of company and reduces the profitability in
the company.
 KPIs- This is very important form of indicator that will help in identifying the financial
and non financial activities. This includes the major key areas that help in getting the tool
to analyse the financial performance. In chosen organisation, this helps in taking
appropriate way to understand the problems and identification of solution.
 Balance scorecard- This is strategic management tool that helps in tracking and
executing the activities of staff. In the context of selected organisation, this will help in
regulating and monitoring the action that arises in the management.
Financial governance- This is government body which concern with controlling the financial
data and using certain methods in taking appropriate manner to understand that financial data is
correct. In the context of Prime furniture, they were effectively using this to maintain the data
sourcing and formatting. This is single system for all process that provides historical
information.
Accounting skills set- This is the skills set practice that involves certain characteristics, skills
and traits in particular that enable them to perform the action effectively. Management
accountant must posses with many essential skills such as proper knowledge of accountancy,
research skills and analytical skills. This skills are important to deal the certain problems as they

provide better knowledge of all rules and policies. This is important for the selected company, it
helps in dealing with the certain problems as it provides adequate understanding of accountancy.
Comparison between organisation and uses of management system
Basis Sainsbury Asda
Financial problem The company faces the problem
related to the deficiency in the
funds. This lower down the
investment capacity in different
projects (Vysochan and Ivasiuk,
2020).
This is retail super market,
facing the financial problem
related to the excessive in
expenditure and this will
negatively impact the
management of company. This
will greatly reduces the
profitability of company and it
affect the business.
Identification of problem To properly identify this
problem the need to use the tool
is KPIs, which is going to help
them in determining the key
areas that need to be monitor.
To identify this issue the
method that is used is Balace
score card that will help in
identify the overall
management activities and
function. This will monitor the
performance of staff and will
help in analysing the way to
control it.

CONCLUSION
From the above report it is concluded that Management accounting refers to those tools
which assist management to do better planning and control. This is important in many
organisation to use effective way of management accounting methods. In this report it is
discussed about the various accounting system such as Inventory management system, Cost
accounting and other system is essential requirement in organisation. It is discussed the certain
cost techniques such as Marginal costing and absorption costing and types of inventory cost.
Apart from that some budgets is being analysed such as Cash budget and Operational budget that
is useful in planning in the firm. It has been studied the different types of report and its benefits
in the organisation. Financial problem are need to be analysed by organisation and some are
Excessive in expenditure and Deficiency in the funds. Some methods are determined like
Balance score card and KPI and importance of accounting skills required in accountant.
1

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