Management Accounting for ABC limited - Assignment

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Management accounting system and its requirements.................................................................3
Various methods for management accounting reporting.............................................................4
Management accounting system and its benefits.........................................................................6
Critically integration of reporting system and management accounting. ...................................7
TASK 2............................................................................................................................................7
. Calculation of marginal and absorption costing.........................................................................7
TASK 3 ...........................................................................................................................................9
Disadvantages and advantages of different planning tools for Budgetary Control.....................9
TASK 4..........................................................................................................................................11
Adaption of management accounting system to solve financial problems....................................11
Analyzing planning tools for solve financial issues and problems. ..........................................13
CONCLUSIONS............................................................................................................................13
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INTRODUCTION
Management accounting application of skill and gathered information about various
accounts that helps to management of company in order to build policies for future planning and
carrying their operations. It is use for providing and useful information and knowledge to
management of company which are help to take decisions for company. The main objective and
use of management accounting is to provide all essential information like financial and cost
management for making decisions. For further information on management accounting, the
report will shows the requirements of management accounting in company by including Cost
accounting system, Job costing system and Inventory management system.
TASK 1
Management accounting system and its requirements.
System of Inventory Management
Inventory management systems assist in tracking goods via while supply chain and
business operations (Gunarathne, 2018). It consists each and every thing from manufacturing,
transportation and every movements of parts and stock in between. This particular method of
managing accounting system assists the organisation in performing valuation of inventory,
making improvements in the accuracy related to inventory through maintaining continues
workflow. Inventory valuation can be performed by using the following methods -
1. LIFO – The full form of LIFO stands for Last In First Out, in this particular method
the good which are bough or purchased at last are available for sale at first place.
2. FIFO – This refers to First In First Out, it focuses on selling the stock which is
purchased at first place on priority basis.
System of Cost accounting
Cost accounting system of an organization assist in making an estimate of the cost of
specific products which are sold in the market. It is used for the purpose of analyzing the
profitability of the business, making valuation of controlling cost and inventory. It also helps in
tracking the cost of raw materials at each stage of production. ABC limited use cost accounting
system to identify the most profitable products. The two main system of cost accounting are the
following-

Cost of job order
Cost accounting system is a combination of production cost separately for tasks and jobs.
It is perfect for the organization that operates in variety or unique products and an assist the
company to identify the most profitable product.
Process costing
It helps in collecting production cost for each and every procedure separately. The
organizations which is involved in various sections and cash flow like one section to other can
utilized process accounting.
Job costing
The data or information collected through the job costing system assist an organization to
determine accuracy of estimation system of the organization. The method of job costing system is
utilized in the situation when an organization is producing a large variety of products with
different cost. It consists of cost of direct labor and direct material which is utilized in carrying
out specific task with overhead costs including rent, depreciation etc. Method of job costing in
managing accounting system is a business practice. In this system, data or information which are
related to incurred cost of each and every job work completed is offered to consumer for getting
cost refund according to agreement or contract (Toussaint and et.al., 2015).
Various methods for management accounting reporting
Management accounting report is assist an organization or business to collect important
and relevant data in relation to organizational performance and activities. It helps managers in
the organization to analyze the accurate situation of the company. Management accounting
reports assist to provide transparency to the stakeholders of the organization and also helps in
providing specific and accurate information for analyzing further. There are different forms of
reports which are utilized under management accounting are as follows:
Budget reports
The budget report is essential to analyze, evaluate & monitor performance of
organization and this can be generated for specific department or entire organization (Mahal,
2015). A budget of the organization includes of expenditure and income sources of the

organization. It assists the organisation in order to provide incentives to employees and cost
cutting. Budget reports also support in the development of future projections & estimation of
business expenses with the help of effective strategies and plans. ABC limited may focus on
conducting business activities effectively and efficiently while utilising limited amount of
budgeted resources and amount.
Account receivable aging report
The account receivable report is play an essential duty in business as it helps in offering
credit to customers. The organization analyze customers segments on the basis of these reports
along with the credit worthiness. That is help to provide credit balance to company generate by
customers which are divided into various categories like – 20, 60, 90 days. These reports also
assist the organization to tighten credit policy. Such kind of reports are significant in situation
such as using acquisition or labor, raw material
Cost Managerial Accounting Report
Cost managerial accounting report is helps to company for assess and determine cost
obtaining for performing production function of any product or services. This considers each and
every overhead cost, raw material etc. It assists managers to realize the cost as well as selling
prices of services and products helping to forecast the revenue or profit amount of the
organization in the future.
Performance report
These documents are made to revaluation presentation of workers and organization per
year. This can aid administrators to create essential judgment relating to company. Performance
documents can assists in creating methods or approaches of the company according workers
presentation and work in organization and also involve in making judgments. This kind of the
report assist in identifying the level of execution of all workers within the firm and team
members as a whole including operation and function of organization. Through utilizing
documents of performance, the ABC limited can create essential strategical conclusion and
programs as well as strategies for development of organization, upcoming growth and success of
ABC limited. Documents of execution of employees gives in depth perspectives related to
procedures and condition of working utilized through organization in transferring operation of
the firm (Weygandt and et.al, 2017). Organization can make effort for formulating and applying

approaches and procedures in relation to accomplish the objectives and goals as well as
improving the organizational performance.
Management accounting system and its benefits.
Below is mention the evaluation of management accounting system are as follows:
Inventory management system
Advantages Disadvantages
 This system assists for decreasing the
prices and saving currency in relation
to run effective activities of firm.
 This can aid raise delivery of execution
of production and track effective
functions of organization.
 It helps in asset tracking and saves time
and energy. It increased the efficiency
of the organization.
 This system raises load of regularly and
cost of installation of system is very
huge.
 It helps in controlling many risk but get
open to other risks.
Cost accounting system
Advantages Disadvantages
 It allows to company for separation in
cost.
 It is also help to ABC limited for
estimating cost of product (Garrison
and et.al., 2011).
 It is easily adaptable in the organization
and provides ease of monitoring and
control labor costs.
 The cost accounting system is
beneficial because this records previous
performance of company but this will
not help to management for build future
decisions for company.
 This will fails in order to solve
problems which are relating to work
and operation research.

Job costing system
Advantages Disadvantages
 The job costing is highly suitable for
contract which are cost plus
(Advantages and disadvantages of Job
costing system, 2019).
 with the help of this management is
able to estimate job cost by taking
review of previous job costing.
 This system is highly expensive and
worthy.
 This will not obtain accurate cost
information since large number of small
jobs at time cost of job.
 It is expensive method and there is no
standardization of job in job costing.
Critically integration of reporting system and management accounting.
Reporting system and management accounting system both are work together in ABC
limited company for increasing efficiency of operations of company. Cost accounting system
will provide the cost report of company. With the help of cost accounting management is able to
sets price of product by keeping competitors in mind (Toussaint and et.al., 2015). it is enable to
the company in giving efficient job costing reports. That gives clear information to company that
which project is profitable and which project is not. Inventory management is help to the
company in order to tracking records of inventory. That is profitable for the company in order to
get and reach out or achieve goals and objectives of company. That is effective and valuable for
the company.
TASK 2
Calculation of marginal and absorption costing
Marginal costing
The marginal cost is the formula which is represent incremental cost for incurred
production for additional units.

Absorption costing
This indicate the all of manufacturing cost as per units of products.

TASK 3
Disadvantages and advantages of different planning tools for Budgetary Control
The ABC limited company is use different types of planning tools which are help to
control budget which aid in dealing with uncertain business situations. The company prepares
budget on the basis of different perspective like optimum utilisation of resources, minimizing
waste and managing smooth flow of business activity. Discussion of some effective planning
tools which can be used by ABC limited is given below:
Fixed Budget
Fixed budgetary planning tool is based on assumption and prepared by firm in stating of financial
years. In this organisation aim at making assumption over cost required and sales on the basis
past years. Fixed budgets are base don fixed profits and sales and therefore considered as
simplified and easiest way of planning and preparing budget.
Advantages Disadvantages
 With the help of this firm is able to
segregate priorities and maintain
consistency in cost planning.
 This is prepared in start of financial
year and therefore do not required
alteration during accounting period.
 This budget lacks flexibility and
cannot changed in middle of year.
 The tool cannot assist the firm in
predicting uncertain situation and
therefore risk in changing business
environment.
Flexible Budget
In this budget planning continuous changes and improvement in budget plan are done on the
basis of changing business environment. With the help of this tool firm is able to create multiple
budgets entire year which aid in managing cost effectiveness with continuous planning and
changes.
Advantages Disadvantages
 This budget planning tool is effective
for assessing performance of individual
 Flexible budgeting leads to increase in
expenses and administrative burdens.

departments.
 It helps the firm in controlling
overheads.
 In this employee made bad choices for
not predicting uncertain situations
which impact cost effectiveness.
Activity based budgeting
The activity based costing is method which is help to identify and analysis various
activities of company related to cost of activities like products and services as per consumption
by each customers.
Advantages Disadvantages
 This help to provide realistic
manufacturing cost for specific
products and services.
 This will offers to ABC limited
company for better justification and
understanding of costs in overhead of
manufacture.
 It is collection and preparation of the
data as per time consuming.
 This have requirement huge amount
resources of company for analysis of
variance in the budget.
 It is expensive from other budgeting
techniques which are requires more
for collecting information and time to
get developed.
TASK 4
Different ways of management accounting system to solve financial problems
Benchmarking
Benchmarking is the best method which is used by company to compares actual
performance with standard performance and best performance like product, services and
processes in business and industry. It helps the company in setting up of budget goals and
financial performance goals (Bromwich, 2016). this will help to company in order to improve
understanding between employees of cost and internal process. Benchmarking helps in find out
how departments of the company perform individually and in the industry as whole. The ABC
limited company is face various problems which are not serve performanace metric. Other hand,

is can provide way in improving as well as taking correct measures in order to solve big and
current issues. This will help to encouring team building for becoming more competitive.
Balanced scorecard
Balanced scorecard is best and effective way of management accounting system which is
used by the company in order to achieve goals and objectives by solving financial problems of
company. This will help to measures and provide feedback to organisation. With the help of
balanced scorecard, company is able to solve traditional accounting problem. It shows all the
information about company while considering objectives of the company (Bobryshev, and et.al.,
2015). It is linked with high performance of company and comparing different actions. Balance
card is help to minimizes load of passing information by limiting number of measures used.
Company is utilizes a balanced scorecard in order to develop strategic initiatives and startegic
goals. By this, ABC limited manager to see which areas where have need to improve their
company performance.
Variance analysis
The variance is quantitative investigation of actual ad planned behaviour of employees.
This will help to company in oreder to miantin control over business. It solves various financial
problems of the company like it helps in controlling the cost of the company. Other hand, this
showing efficiency leads to unfavorable variance. It helps in differentiating the gap between
projected results and desired results (Klychova, and et.al., 2015). This is effective and valuable
for tghe company because this highlight lessons, errors and wastages. With the help of this
company is able to improve their performance as well as control various levels of reponsibilities.
Key performance indicator
Key performance indicator is the best type of performance measurement. With the help of
this company management is highly able to monitor growth and progress of company in order to
achieve goals and best financial results. KPI focuses on gross margin, current ratio etc.
According to the right key performance indicators relies the good understand the importance for
organisation. This is hely needed for the ABC company for understand various techniques in
order to assess present state business and its various ket activities. The company is use different

types and levels in their daily working operations in order to evaluate success. That is help to
reach out towards goals and objectives of companty by giving qualitive feedbacks to employees
performance. Financial KPIs are based on balance sheet and income statement components that
record changes in sales growth. That is enable the company in finding out real reason for
declining in growth.
Financial governance
It is method that ids in gathering, handling, supervising of information or data relating to
financial. This makes sure that company in order to follows all concepts and standards mention
by government (Financial governance, 2019). It helps to company for handle their activities,
approaching as well as compliance from users. If the financial governance is not good, so that it
leads to crime, mistake, penalization as well as leading towards poor decision-making, decrease
in shareholders and bad reputation of the company. Cost-efficient financial governance powers
inside information to organization: checks flowing of activity, lead information and its proof,
security of information and take care of financial argumentation that are mentioned by the
government (Lapsley, 2017). It is very important tool which is help to solve financial problems.
This allow company to build controls on operations and workflows. It solves problem of high
risk as it assesses risk and increase time of response and gets quick insights of upcoming threat
of business which can affect the compliance and reporting of the company.
Analyzing and application of planning tools for solve financial issues and problems.
ABC limited utilizes KPIs as technique of financial in relation to resolve issues of
managing the stocks. This kind of system takes care of stock of organization ware can be either
stock which is getting utilized in special work, input in procedure of manufacture or final goods
which are to be dispatched to end users (Quattrone, 2016). IMS trusts utilization of different
practical applications like mobile devices, barcarole printers etc to handle the administration of
stock list which considers products, expendable, stocks etc. IMS make orders of purchase,
receive inventory, appoint orders of sales, send inventory, print barcarole labels. To check on
performance of the IMS, key performance indicator at doubled levels checks transactions of IMS
to measure success at the time of reaching goals. It uses low level KPI that deals with particular
department process like Sales, HR, Marketing, and Production etc.

The other EFG company uses Benchmarking technique to solve problems in Job costing system
in which benchmarking techniques compares the standard performance set by each job of the
company with actual performance and help company in finding out the areas where it can
improve and also compare the sales and revenue of companies each department with other
competitors.
CONCLUSIONS
Form the above study it had been concluded that the management accounting has
important and essential for company. This has shows managing report in internal environment of
the company for internal uses. It had been also concluded that the make work more efficient,
company used different and various accounting systems. That had been helped in order to
preparing various reports like cost, job costing, inventory reports for achieving goals of the
company. The report concluded various performance indicators that are used by company for
analyzing their performance in reference to cost, sales etc. The report summarized various
budgets and their application of use in the company.

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