Benefits of Management Accounting Systems and their Application

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COURSE: PEARSON BTEC Higher National Certificate/Diploma in Business
RQF LEVEL: LEVEL 5
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PEARSON
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Year 1 / Semester 1
UNIT NAME: Management Accounting
UNIT NUMBER: 1
UNIT LEVEL: 5
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LECTURER: Emmanuel Adiku
DUE DATE: 06/11/2020
LEARNER NAME: Ayas Miah
LEARNER ID NUMBER: AM76
DATE SUBMITTED: 5/6/2020

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Contents
....................................................................................................................................................... 0
Introduction................................................................................................................................... 4
Explain management accounting and give the essential requirements of different types of
management accounting systems...................................................................................................4
Explain different methods used for management accounting reporting.........................................6
Evaluate the benefits of management accounting systems and their application within an
organizational context....................................................................................................................7
Integration of management accounting systems and reporting within the organisation.................8
Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs..............................................................................................9
Accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents......................................................................................................12
Advantages and disadvantages of different planning tools..........................................................12
Analyse the use of different planning tools and their application for preparing and forecasting
budgets.........................................................................................................................................15
Compare how organisations are adapting management accounting systems to respond to
financial problems....................................................................................................................... 16
Analyse how, in responding to financial problems, management accounting can lead
organizations to sustainable success............................................................................................18
Critically evaluate how planning tools for accounting respond appropriately to solve financial
problems to lead organizations to sustainable success. Use examples from your chosen
organization................................................................................................................................. 18
Conclusion................................................................................................................................... 20
References................................................................................................................................... 21

Introduction
Management accounting and management accounting system is a systematic way of organising
accounting data of an organisation and make informed decisions about future cost and profit
planning. Every organisation needs management accounting to help organising daily
transactions. In an organisation tons of transactions happen regularly. You cannot keep track on
them if you don't give an entry. You cannot manage an organisation without knowing the cost
and profit. Management accounting system give entries to your daily transactions, keep track on
accounts receivable and accounts payable and find cost and profit. With these statements
organisation take further important decisions like whether they need to increase production or
not, whether they need more employees or cut employees etc. In this report we will learn about
the importance of management accounting and management accounting system, their integration
within the organisation, different accounting techniques and their applications.
Explain management accounting and give the essential requirements of
different types of management accounting systems.
Management accounting is the systematic way of recording every transaction within the
organisation which is later used for decision making and increase the efficiency and productivity
of the organisation. It is also called managerial accounting or cost accounting. Managerial
accountants keep track on every organisational transactions and turn the data into useful method
for decision making. The main difference between management accounting and financial
accounting is that management accounting report is actually made for internal decision making
process where the financial accounting report is made for external parties for audit and tax etc.
Role of management accounting: management accounting record data of an organisation. So
any member of the organisation can read the data and understand what is going on. Financial
accounting has to maintain some rules to store data so it is somewhat tough to understand for
everybody. Where a non-accountant can also understand management accounting report. Seeing
the management accounting report the leader can see where this organisation is going and what
is needed to be fixed or solved (Otley, and Emmanuel, 2013). Management and leader can see

the current financial situation of the organisation by seeing the report. This report is ready for
any time to use. An internal member can see it whenever he wants to see previous records.
Principle of management accounting:
The four main principles of management accounting are shortly discussed below:
Management by exception: through this principle management accounting explains that the
management accounting report is prepared by following necessary rules (Coase, R.H. 2006).
Different tools and techniques are applied to the management accounting report to provide a
transparent and accurate data to the management of the organisation.
Overhead cost: this cost is calculated by recognising the indirect cost that is connected with the
production process of the organisation. This helps to find out the production cost individually
(Gupta, Pevzner, and Seethamraju, 2010.). Also through this management can predict how much
money has been consumed in each production segments.
Control at source accounting: this principle find out the financial sourcing, observe the cost
and analyse how the cost can be minimized. By analysing previous data before the cost occur
management analyse how they reduce the cost and increase productivity.
Accounting for inflation: this principle considers the inflation rate of currency. The costs that
are consuming and the profit that are gain may be not be the same in different times. So by
calculating inflation rate, management accounting can actually tell how much is in your hand.
What is management accounting system?
Management accounting record business transactions and help them to transfer into useful
information. On the other hand Management accounting system helps to utilise those data and
make further decisions for the organisation by using different tools and techniques. Different
types of management accounting systems are shortly described below:
Job costing system: in this system organisation keep track on the production cost of an
individual products. This is mainly used for keep track on every identical product’s costing. For
example, Cream ltd are selling ice cream, waffles, doughnuts. There will be different pricing
system of each product as each has different costing. And the costing is measured by job costing
method.