Management Accounting Systems and Techniques

This report focuses on management accounting systems and techniques used in organizations. It discusses the benefits of these systems and their integration within organizational processes. The report also includes calculations of costs using appropriate techniques and the concept of break-even point.

Management
Accounting

INTRODUCTION
Management Accounting refers to the use of different types of techniques to analyse and
interpret the financial data and information available in order to take the correct decisions
(Armitage, Webb and Glynn, 2016). If the managers use its provisions in the correct manner then
it can result in taking of such decisions which can likely create a strong impact on the working
pattern and the functioning of the company. For using it the managers are required to have sound
knowledge of the different types of financial concepts and must be able to perform a deep
analysis on the financial data of the company in an accurate manner to get the desired outcomes.
For this report MVMT Watches has been chosen. This company has headquarters in Los Angels,
United States. In this assignment, detailed focus will be made on demonstration of understanding
of management accounting systems, application of a range of its techniques. Additionally,
explanation of the use of planning tools and comparison of ways in which companies are using it
to respond to financial problems will be discussed as a part of this project.
TASK 1
P1: Management Accounting Systems
Management Accounting refers to making the use of different types of financial
provisions in an effective manner so that the managers are able to take the right decisions
effectively and efficiently without problems and issues. Therefore the managers of Innocent
Drinks should be able to make the correct use of it for taking of short-term and long-term
decisions. If they make the right use of its methods and techniques then they will be able to attain
the goals and objectives in the future time period.
There are different types of management accounting systems (Bui and De Villiers, 2017).
These are explained as follows-
Cost Accounting System- This system is basically meant to identify the various costs
which can be incurred within an organization. Using it, the companies like MVMT Watches can
make sure that they are able to identify and reduce the costs effectively and efficiently.
Essential requirements-
 In a Cost Accounting System there must be a methodology which can be used for
identifying and segregating the costs and overheads of different types of departments in
the company.
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 A Cost Accounting System must be able to make sure that the correct techniques can be
used by the companies so that they are able to reduce the costs and overheads to
maximize their level of profits.
Inventory Management System- In this system a company aims to properly manage the
level of stock. The firms like MVMT Watches can use this system so that they are able to
achieve the desired level of efficiency and effectiveness in the management of stock level in the
organization. If the company makes use of methods like LIFO, FIFO, Weighted Average Cost in
a correct manner then this will make sure that the company is able to properly track its level of
inventory.
Essential requirements-
 In a good Inventory Management System it is required that the right measures are used to
value the level of stock.
 In an Inventory Management System there should be proper maintenance of records of
inflows and outflows of the stock.
Job Costing System- In it, there is a particular system which is used in order to track the
different types of job orders (Cooper, Ezzamel and Qu, 2017). Using it, the managers of MVMT
Watches can track and manage their job orders. This will help not only in reducing the costs
incurred in these orders but also in maximizing the level of profits.
Essential requirements-
 A good Job Costing System is the one which is able to track the inwards and outwards
movement of job orders. In this way it makes sure that the company becomes efficient in
dealing with these orders.
 In a Job Costing System there must be a particular focus which must be put on
application of the techniques in order to reduce the overall level of costs.
Price Optimization System- In this system, there are various techniques which can be
used in order to forecast the overall demand of the products as well as services (Gibassier and
Alcouffe, 2018). The management of MVMT Watches can use it so that they are able to set a
right price which will enable the company to earn higher level of profits.
Essential requirements-
 In a Price Optimization System there are techniques which must be used in order to set
the right price in the organization.
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 A good Price Optimization System should be able to make sure that the company earns
higher level of profits in the future time period to get a strategic edge over the
competitors.
P2: Methods used for Management Accounting Reporting
Management Accounting Reports are useful for the managers to get insights in their
business operations. Some of these reports are as follows-
 Inventory Management Report- In this report, a focus is made on the detailed aspects
of the level of inventory (Hall, 2016). The managers of MVMT Watches can use these
reports so that they are able to bring the required level of efficiency as well as
effectiveness in their inventory management. With it, they can make specific analysis and
give their detailed viewpoints on the improvements which can be done to rectify the
different types of deviations and variances which can occur so that desired outcomes can
be achieved. For using them correctly proper cooperation and coordination is required
within the company.
 Departmental Report- There can be different types of departments in an organization
(Honggowati and et.al., 2017). These are Production, Finance, HR, Marketing and Sales.
There are reports which are prepared on them so that specific analysis on each one of
them can be made by the departmental managers. This helps in promoting the
specialization within the organizational processes and its way of functioning. In the
context of MVMT Watches it can be crucial for the managers to identify the problems
and issues facing the departments so that the rectifying measures are taken to sort them
out. If this report has to be used to provide the required results then the managers should
be able to rightly make use of the available data.
 Operating Budget Report- In this report, focus is made particularly on operating budget
of the organization (Hopper and Bui, 2016). Thus once it has been made then this report
is prepared so that the correct viewpoints of the managers can be recorded for taking
crucial decisions in the future time period. For the managers of MVMT Watches, use of
these reports becomes quite crucial so that they are able to make the necessary
judgements. Using it, the managers can make detailed plans of the procedures to be
undertaken to improve the operating profit of the organization so that an overall level of
efficiency and effectiveness may be raised.
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 Product Profitability Report- In this report, the profitability of a particular product in a
market can be determined (Kastberg and Siverbo, 2016). In the context of the managers
of MVMT Watches, preparation of these reports is quite crucial because using it they will
be able to determine the products which will provide them with maximum profits. Thus
specific attention can be given to them and the right plan can be made for the purpose of
their marketing and promotion. The products of the company must be segregated and
detailed analysis should be made on the profits which have been earned due to them in
the last 5 years. Thereafter, the products with maximum profitability must be selected and
plans must be made so that some improvements can be made in them so that they can
satisfy the customers and continue to be profitable for the organization.
M1: Benefits of Management Accounting Systems
Cost Accounting System can help the organizations like MVMT Watches so that they are
able to identify and segregate their various costs and can make use of rectifying techniques to
reduce them. Inventory Management Systems offers the benefits of better tracking and better
usage of the stock. Job Costing System helps the companies so that they are able to identify the
job orders and also allows it to track these job orders. Price Optimization System can be used to
forecast the prices and optimize them to suit the needs and requirements of the companies.
D1: Critical evaluation of Management Accounting Systems and their Integration within
Organizational Processes
Cost Accounting System can be integrated within the organizational processes of MVMT
Watches by identifying and segregating the costs. Inventory Management System can be
integrated by identification and management of the stock levels. Job Costing System can be
integrated by actively tracking the inwards and outwards movement of the job orders. Price
Optimization System can be integrated by forecasting the demand data of the products and
services and setting the price accordingly. Thus in this way all of them can be successfully
integrated within the organizational processes. This will ensure that the correct decisions can be
taken within the context of the organization without problems and issues.
TASK 2
P3: Calculation of costs using appropriate techniques
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Marginal costing
April (£) May (£)
Sales 56000 70000
Less: Marginal cost of sales
Variable manufacturing cost 30000 30000
Closing stock 10000 15000
Opening stock 10000
Total marginal cost of sales 20000 25000
Contribution 36000 45000
Less: Fixed cost
Fixed manufacturing cost 18000 18000
Fixed non manufacturing cost 5000 5000
Net profit 13000 22000
Absorption costing
April (£) May (£)
Sales 56000 70000
Less: Cost of sales
Variable manufacturing cost 30000 30000
Fixed manufacturing cost 18000 18000
Closing stock 16000 24000
Opening stock 16000
Total cost of sales 32000 40000
Gross profit 24000 30000
Less: Fixed non manufacturing cost 5000 5000
Net profit 19000 25000
Reconcilation statement
April (£) May (£)
Profit/loss under marginal cost 13000 22000
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Add/Less: Closing stock 6000 3000
Profit/loss 19000 25000
Profit/loss under absorption cost 19000 25000
Working note:
Calculation of closting stock under marginal costing
April (£) May (£)
Total variable manufacturing cost 30000 30000
Total produced units 6000 6000
Per unit cost 5 5
Closing stock 10000 15000
April (£) May (£)
Calculation of opening stock under marginal costing
Opening stock units 0 2000
Per unit cost 5 5
Opening stock 0 10000
April (£) May (£)
Calculation of closting stock under absorption costing
Variable manufacturing cost 5 5
Fixed manufacturing cost (per unit) 3 3
Total absorption cost per unit 8 8
Closing stock 16000 24000
April (£) May (£)
Calculation of opening stock under absorption costing
Opening stock units 0 2000
Per unit cost 8 8
Closing stock 0 16000
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Calculation of Break even point
Solution:
Variable cost 49
Fixed cost 140000
Selling price 60
Contribution: Selling price-variable cost per unit
Contribution 11
Break even point (In units): Fixed cost/contribution
BEP (In units) 12727.27
Break even point (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/sales*100
PV ratio 18.33
BEP (In revenues) 763636.36
Margin of safety (In units): Budgeted saels (In units)-
BEP (In units)
Budgeted sales 20000
BEP 12727.27
Margin of safety (In units) 7272.73
Margin of safety (In revenues): Budgeted sales (In
revenues)-BEP (In revenues)
Budgeted sales (In revenues) 1200000
BEP (In revenues) 763636.36
Margin of safety (In revenues) 436363.64
Marginal costing-
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It is a technique which is used to find out the profitability level (Kostyukova and et.al.,
2018). In it the variable cost is charged to the units while the fixed cost is written off against the
contribution. Using it, the managers of Innocent Drinks can take the required decisions easily.
Thus it is a very valuable technique for the management. It helps a lot in the determination of
Break-Even Point which is where the companies neither earn profit nor incur losses.
Advantages-
 The technique of Marginal Costing is very simple to use as well as understand. This
creates an advantage for the managers of Innocent Drinks as it can be applied effectively
in the processes of the organization without issues and problems.
 The Marginal Costing Technique helps a lot to the organizations so that they are able to
maintain cost control. For Innocent Drinks, this creates an advantage.
Disadvantages-
 It makes use of certain types of assumptions. If these assumptions are wrong then this can
create problems as it will lead to inaccuracy. For Innocent Drinks this creates a
disadvantage.
 All costs cannot be divided into fixed and variable costs. Therefore some of the costs are
semi-variable in nature. If all the costs are segregated into fixed and variable then this can
give inaccurate results leading to disadvantage for Innocent Drinks.
Absorption Costing-
It is a method in which the costs are calculated by identifying the details of full cost of
manufacturing the product (Kumarasiri and Jubb, 2016). Using it the managers of Innocent
Drinks can make sure that they are able to make use of its correct techniques to find out the
profits. Thus in this way the managers will be able to make sure that they can find out the profits
and can perform the required analysis and interpretation using different methods.
Advantages-
 Absorption Costing technique helps a lot in identifying the full cost which is associated
with the production. The management of Innocent Drinks can use it so that they are able
to get details on their overall costs.
 This technique is helpful for the management as it Cadburyshows less fluctuation in
profits in the case of constant production but fluctuating sales. In the context of Innocent
Drinks, this can help the managers a lot.
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Disadvantages-
 Absorption Costing technique does not helps the managers to take decisions. For the
managers of Innocent Drinks this can create a disadvantage.
 It ignores the CVP analysis which helps in the calculation of Break-Even Point which is
the point at which a company does not earns profits but neither incurs a loss. In the
context of Innocent Drinks this is a disadvantage.
Justification- Both Marginal Costing and Absorption Costing Technique can be used by
the organizations so that they are able to find out the profitability. Companies like Innocent
Drinks can make sure that they can use both these techniques to achieve the desired results.
M2: Accurate application of the techniques
The techniques of marginal and absorption costing can be used by the organizations like
Innocent Drinks to get an overview of their financial position. By applying them in the correct
manner the management is able to make sure that it will raise the standards for the achievement
of aims and targets in the future time period. If the company has to get a strategic edge over its
competitors then it will certainly target the areas where it requires improvement and will use
rectifying techniques for improving. This will increase the chances of attaining the level of
sustainable success which is desired.
D2: Producing of financial reports for accurate application and interpretation of data
The financial reports are useful for the management because they help them a lot. These
are Cash Flow Statement, Income Statement and Balance Sheet. If the managers of the company
use them in the right manner they will be able to draw the right conclusions and
recommendations. This will help in taking the right decisions for growth in the future time
period. Thus the managers of Innocent Drinks should make sure that they are able to achieve the
goals and objectives through analysing and interpreting them.
TASK 3
P3: Advantages and Disadvantages of Planning Tools for Budgetary Control
Cash Budget-
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Cash Budget refers to the forecasting of cash receipts and cash expenses for the future
time period (Leotta, Rizza and Ruggeri, 2017). It is useful for the companies like MVMT
Watches so that they can plan appropriately for their future.
Advantages-Cadbury
Maintaining liquidity- A Cash Budget is very useful for the organization so that they are
able to maintain their liquidity level. Using it, the managers of MVMT Watches can make sure
that they can manage their cash resources effectively and efficiently.
Controlling cash expenses- A Cash Budget can be highly useful for the managers of a
particular organization so that they are able to control the cash expenses. The management of
MVMT Watches can make sure to control the cash expenses effectively and efficiently using it.
Disadvantages-
Inflexibility- A Cash Budget leads to the creation of inflexibility in the organization.
Thus for the managers of MVMT Watches this creates a disadvantage.
Inaccuracy- If the Cash Budget is prepared inaccurately then this can create problems
for a particular organization. In the context of MVMT Watches this can create a disadvantage for
the managers.
Operating Budget-
Operating Budget refers to the forecast of operating revenues and expenses over a
particular period of time (Maas, Schaltegger and Crutzen, 2016). In the context of MVMT
Watches this is very useful so as to make sure that the operations are optimized effectively and
efficiently.
Advantages-
Check on operating expenses- An Operating Budget is useful for the companies so that
they are able to check on their operating expenses (Manyaeva, Piskunov and Fomin, 2016).
MVMT Watches therefore can make sure that it is able to check these expenses.
Maximization of operating profits- An Operating Budget can be useful for the firms so
that they are able to use the right techniques for maximizing their operating profits (Nuhu, Baird
and Appuhami, 2016). MVMT Watches should make sure that by applying the right methods it
maximizes its operating profits.
Disadvantages-
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Lack of specialization- By preparing an operating budget an organization is unable to
get the required specialized information which it needs. The managers of MVMT Watches have
a disadvantage due to this.
Inaccurate forecasts- If the forecasts made by the management regarding the operating
budget are not accurate then this can create a disadvantage for it. The management of MVMT
Watches face a disadvantage due to this.
Master Budget-
The Master Budget of a company refers to the expression of operating and financial plans
during a particular period of time (The Master Budget- Accounting Information, 2019). It can be
summarized by making the use of financial statements. The management of MVMT Watches can
make use of it so that they are able to determine the overall surplus or deficit.
Advantages-
Comprehensive overview- The Master Budget of an organization makes sure that a
comprehensive overview is provided to the management (Otley, 2016). In the context of MVMT
Watches, this creates an advantage.
Solving of issues- Preparation of a Master Budget is helpful for the companies to identify
and solve their various types of issues (Quattrone, 2016). For MVMT Watches this is quite
advantageous.
Disadvantages-
Costly to prepare- Preparation of a Master Budget is costly. Therefore this can create a
disadvantage for MVMT Watches by adding to its expenses.
Time-consuming- Preparing a Master Budget is a time-consuming process. Thus for the
managers of MVMT Watches this creates a disadvantage.
Justification- MVMT Watches must make use of Master Budget as it gives
comprehensive information to the managers of the organization which they can use. In this way
this helps a lot to the managers.
Balanced scorecard-
It is a technique which is used by the organizations so that they are able to track and
monitor the performance of the employees in an effective manner. In this way they will be able
to make sure that they can achieve their goals and objectives. Thus for MVMT Watches this is
quite crucial technique which can be used by it.
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Advantages-
Brings structure to business strategy- Using this technique is helpful in bringing
structure to business strategy. In this way MVMT Watches will be in advantage.
Easier communication- With the use of this technique the managers can easily
communicate with the subordinates. This offers an advantage for the managers of MVMT
Watches.
Disadvantages-
Not easy to implement- It is not easy to implement this technique in the processes of the
organization. Thus for MVMT Watches this can create a disadvantage.
Complicated- It is a complicated technique. Thus this creates a disadvantage for the
management of MVMT Watches.
Investment appraisal-
It is tool through which investments in the organization become attractive for the outside
investors. This can be used by MVMT Watches to make plans for the future.
Advantages-
More investment- Through this technique it is possible to get more investment for the
organization. Thus MVMT Watches is required to take it into consideration.
Value of assets- With the use of this technique the value of assets can be identified by
the managers. In this way it creates an advantage for MVMT Watches.
Disadvantages-
Not an easy technique- This technique is not easy to apply. Thus in this way it can
create a disadvantage for the managers of MVMT Watches.
Wrong calculations- Sometimes the use of this technique can lead towards wrong
calculations. This creates a disadvantage for the management of MVMT Watches.
M3: Analysis of planning tools for budgetary control
The planning tools discussed are all a part of the budgetary process which is followed
within the company. Using this process, the company's managers can make sure that they are
able to achieve the desired targets. For the managers of MVMT Watches they are helpful in
determining the level of profits. Thus this makes sure that the management makes detailed plans
to get a strategic edge over the competitors and to take the required decisions correctly using
appropriate techniques and methods so that the results can be obtained.
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TASK 4
P5: Comparison of organizations and the way they use management accounting systems to
respond to financial problems
Financial Problem- Financial Problem refers to the constraints faced by the organization
in its financial position. Like other organizations, MVMT Watches also faces these problems and
needs to make sure that it is able to solve them for raising its efficiency and effectiveness.
Financial problems-
 Wrong valuation of inventory- In MVMT Watches there is a problem being created due
to the wrong valuation of the inventory level. This is leading towards a decrease in its
profits because its closing stock is undervalued.
 Lack of tracking of job orders- In MVMT Watches, the job orders are not being tracked
which is leading towards their mismanagement. This is affecting the level of profitability
of the organization.
Financial Governance- Financial Governance refers to the collection, organizing,
managing and controlling of the financial data of an organization in such a manner so that it is
able to manage its funds effectively and efficiently. This can be used by the organizations like
MVMT Watches to solve its financial problems so that it is able to increase its profits.
Techniques used for solving problems-
 KPIs- KPIs refer to Key Performance Indicators (Shields and Shelleman, 2016). They
indicate the performance of an organization and therefore are required by it so as to
identify the deviations and variances facilitating the necessary improvements to be done.
MVMT Watches can use KPIs so that it is able to solve the problem of wrong valuation
of inventory as it can use Ratio Analysis for the management of its stock level.
 Balanced scorecard- It is a technique which regulates the performance of the employees
of the organization as it keeps a track of the activities which have been performed by
them (Taylor and Scapens, 2016). The managers of MVMT Watches can use Balanced
scorecard so that they are able to make sure that they can solve the problem of lack of
tracking of job orders as they will be able to fix the accountability of the workers
working in different departments.
Comparison between organizations-
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Basis MVMT Watches Maurice Lacroix
Financial problem MVMT Watches faces the
financial problem of lack of
cash flow. This is affecting the
overall profitability level of
the firm.
Maurice Lacroix faces the
financial problem of selection
of wrong price for its products.
This is making it go behind its
competitors because of its
wrong pricing policy.
Management Accounting
System Used
MVMT Watches can make use
of Cost Accounting System so
that it can identify the various
areas where it is lacking and
can improve its cash flow.
Maurice Lacroix can make use
of Price Optimization System
so that it is able to set a right
price for its products and
services.
Application of the system By applying the Cost
Accounting System effectively
the company can make sure
that it is able to improve Cash
Flow by controlling Cash
Expenses.
By applying the Price
Optimization System the
company can control and set
its prices according to the
demand level in the market to
earn higher-level of profits in
the future time period.
As MVMT Watches faces the financial problem of lack of cash flow it can make use of
Cost Accounting System. By making its use, it will be able to make sure that it is able to find out
the reasons which have resulted in the problem of cash flow. This system also has certain
rectifying techniques which can be used so that the problem can be rectified.
Maurice Lacorix faces the financial problem of selection of wrong price for the products.
Making the use of Price Optimization System, it will be able to make sure that it is able to
identify the appropriate prices to be used for its goods and services. This system makes use of
mathematical models and thus through it forecasting can be done and therefore appropriate price
can be set which will therefore solve the problem.
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M4: Analysis of response to financial problems
The companies like MVMT Watches can use the correct ways through which they can
effectively deal with their financial problems. In this way, the company can achieve the desired
goals as well as objectives if they use the correct method to deal with these problems. Thus the
role of management here becomes crucial as the managers are the ones who will take decisions
on the route to be adopted.
D3: Evaluation of planning tools
The planning tools used by MVMT Watches can lead it towards sustainable success
because by using them the company will be able to make sure that it can prepare the right plans
for the future time period. Right application of the systems is required for this purpose which
will help a lot in taking the correct actions and ensuring that the organization achieves strategic
edge over competitors.
CONCLUSION
From the above report, it can be concluded that Management Accounting is a technique
used by the management for taking crucial decisions having an impact on the organization. It has
various systems which are used according to the suitability of the companies. Its reports give
details about the various aspects in the company. Its technique help in determining the level of
profits. Planning tools for budgetary control help the firms in making the plans for the future
time period. Organizations are using management accounting system to identify and solve their
financial problems so that the working pattern and functioning is not affected.
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Online
The Master Budget- Accounting Information. 2019. [Online]. Available through:
<http://nraomtr.blogspot.com/2011/12/master-budget-accounting-information.html>
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