Concept of Management Accounting - Assignment

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is one of the important part of accounting. It may be defined as
an accounting system which provides financial and non financial information to the management
department of the companies so that they can manage their business effectively (Zhang, Uchida
and Bu, 2013). As well as this kind of accounting system plays a crucial role in the preparation
of competitive strategies, planning etc. Herein, the project report meaning of management
accounting along with types of management accounting and reporting are mentioned. Apart from
it, calculation of production cost and income statement is prepared with the help of marginal and
absorption costing method is included. Additionally, use of various kind of planning tools of
budgetary control ad role of management accounting in solving the financial issues is described
in the project report. To understand about these concept of management accounting, KEF limited
company is selected that is operated in the manufacturing sector.
TASK 1.
- Meaning of management accounting and essential requirement of different kind of management
accounting systems.
The management accounting can be defined as a kind of accounting system that is
associated with the collecting, analysing, presenting and interpreting the monetary and non
monetary information to the managers for managing the business in a respective manner. As well
as this accounting system is beneficial for internal stakeholders not for the external. In the aspect
of KEF limited company they use the various kind of management accounting systems which are
mentioned below: Price optimisation system- It is a kind of accounting system that provides a basis for
determining the price of products and services at a significant level (Cazier, Rego, Tian
and Wilson, 2015). As well as this system also useful in analysing the customer's reaction
at different pricing level so that companies can flex their prices accordingly. So it is
essential for assigning the pricing of products and services. In the aspect of KEF limited
company, they use this accounting system for allocating right price of their manufactured
products.

 Cost accounting system- This is a type of accounting system that is associated with the
effective management of cost of various kind of activities. It computes the cost of all
functions and activities separately so that organisation can manage their cost. Basically, it
is essential for controlling and minimising the cost as much as possible. In the KEF
limited company, they implements this accounting system in their multi-pal
manufacturing activities. Due to this, they get able to have information regarding to the
cost of manufactured activities.
 Inventory management system- It is an accounting system which is related to the
management of inventory or stock (Sánchez-Matamoros, Araujo Pinzon and Alvarez-
Dardet Espejo, 2014). Due to this accounting system, companies can get the information
about how much stock or raw material they have in warehouses as well as how much
quantity of finished goods is stored. Eventually, essential requirement of this accounting
system is that it is useful in providing framework to make decision about purchasing of
new raw material and production of products. Like the KEF limited company is a
manufacturing company so in their multi-pal operations this accounting system help them
in effective management of raw material and finished goods.
So these are the types of management accounting system and each of them have their own
importance. Like in the KEF limited company, they are using these all accounting system in their
manufacturing system.
- Different method of management accounting reporting.
Management accounting reporting- The management accounting reporting are can be
defined as those reports which are related to the providing information about actual performance
(Jacobs, 2012). Eventually, these reports are different from the financial reports. This is why
because these reports are useful for the internal stakeholders. Herein, below some types of
management accounting reports are mentioned below which are as follows: Budget reports- The budget reports are those reports which are prepared with the help of
budgeted information. These reports contains information regarding to the actual income
and expenses as well as budgeted income and expenditures. Due to this, companies can
measure the actual performance. In the KEF limited company, they prepares the budget

reports with the help of actual and budgeted information. This report plays an important
role for them in making evaluation about their performance of different activities. Cost accounting reports- As the name assists, the cost accounting reports are kind of
reports which includes information regarding the total cost of different activities (Burritt
and Tingey-Holyoak, 2012). Basically, these reports are prepared with the help of cost
accounting system. Additionally, with the help of these reports companies can analyse
about which activities are high cost consuming and which ones are not. The KEF limited
company is involved in the manufacturing sector and this report plays an essential role
for them. This is why because with the help of it, they get the detailed information about
the cost of multi-pal operations as well as they can highlight those activities which are
consuming higher cost.
 Inventory reports- The inventory reports are those reports which consists information of
about the quantity of raw and finished goods available in the stores. As well as
information regarding to the ordering cost, storage cost etc. These reports are very
valuable for the companies because on the basis of it, organisations can aware about how
much quantity of raw material they have. Specially for a manufacturing entity, the
inventory reports are very important like for KEF limited company. They prepares this
report to effective management of the raw material of the production as well as to take
decision about production of products.
So these are the reports of management accounting which are helpful in the multi-pal purpose for
the KEF limited company.
- The benefits of management accounting system and their application of organisational context.
The management accounting system includes different kind of accounting systems like
cost accounting system, inventory management and price optimisation system etc. These
accounting system has their own benefits which are mentioned below in the context of KEF
limited company:
Price optimisation system- The price optimisation system is beneficial in fixing an accurate level
of price of products and services (Marr and Gray, 2012). In the KEF limited company, this

accounting system is useful in assigning the price of their manufactured products at an efficient
level which is suitable for both to the customers and company.
Cost accounting system- This accounting system is useful in the controlling the cost of different
activities. In the KEF limited company, it is useful for them in getting detailed information about
the cost of various overhead about manufacturing process.
Inventory management system- This system is important in the management of raw material and
finished goods which are stored in the warehouses. Same as in the KEF limited company, take
the benefit of inventory management system making decision about purchasing of raw material
and for production of new products.
- Management accounting system and reporting are integrated with the organisational process.
The management accounting system and reporting are integrated with the organisational
process. This is why because management accounting system consists different accounting
system such as price optimisation system, cost accounting system and inventory management
system play an important role for preparation of accounting reports (Mook, 2013). Like the
information for cost accounting reports and inventory reports derives from the cost accounting
system, inventory management system. Hence, the management accounting system and
accounting reports are integrated with the organisational process.

TASK 2.
-Production cost per unit:
Interpretation- As per the above solved numerical it has been analysed that direct material is of
12 per unit, direct labour is of 20 and variable production overhead is 8 per unit. As well as total
production overhead is of 120000. So overall, the production cost per unit is of 46.

-Total production cost:
Interpretation- As per the above solved numerical it has been analysed that total production cost
is of 828000 which is calculated by multiplying production unit and production cost per unit.
-Total cost of sales of June
Interpretation- According to above solved numerical it can be interpreted that total cost of sales
is of 736000 which is calculated by deducting closing stock from the total production cost.
-Budgeted profit and loss statements.
Marginal costing- It is a kind of costing techniques in which fixed and variable costs are
considered in different ways. Under this method, fixed cost consider as the period cost and
variable cost as unit cost.
Absorption costing- This is a type of costing method under which fixed and variable,
both costs are taken as unit cost (Hoque, Covaleski and Gooneratne, 2013).
Profit and loss account by absorption costing method for month of June:

Interpretation- From above solved numerical it has been interpreted that from absorption costing
method, the net profit is of 214000 and closing stock is of 92000. Herein, the cost of sales is of
736000 and total sales amount is of 960000.
Profit and loss account by marginal costing method for month of June: -Preparation of final
account after June

Interpretation- From above solved numerical it can be interpreted that total sales amount is of
960000 and contribution amount is of 356000. The net profit is calculated by marginal costing
method which is of 256000.

Interpretation- As per the above solved numerical it has been interpreted that if units are changed
till 19000, then net profit is of 399000. As well as opening stock is nil and closing stock is of
138000. Apart from it, the cost of sales is of 736000.
-Advice to company
The company is using marginal and absorption costing method which have some limits.
Apart from these two methods they should use activity based costing method. This is why
because it is a kind of method that defines and calculates the cost of each activity separately. If
the KEF company will use this method then it will be beneficial for them in getting detailed
information about the cost of different kind of activities and operations.
TASK 3.
- Advantages and disadvantages of various kind of planning tools of budgetary control.
Budgetary control- It is a kind of technique which is being used by the companies to
measure their actual performance (Schaltegger, 2012). Under this, managers set financial and
non financial goal that act as standard. On the basis of standards company compares the actual
performance. Eventually, there are wide range of planning tools of budgetary control which are
mentioned below:
Budget- In general, the budget is the estimation of income and expenditure. On the basis
of these estimation, company compares their actual performance. Eventually, budgets are made
for a particular time period that can be of one year. The KEF limited company make the budget
for their various kind of activities. Herein, below some advantages and disadvantages are
detailed below:
Advantage- The advantage of the budget is that due to this companies can measure the
actual performance.
Disadvantage- As well as drawback is that budget making process consumes too much
time and cost.
Zero based budget- This is a type of budget which is prepared by justifying each activity
of income and expenditure. It does not take the information about previous year's budget. The

KEF limited company can make this budget for new and crucial activities. Below advantages and
disadvantages are mentioned:
Advantage- The main benefit of this budget is that it provides accuracy and transparency
in the budgeted information because each activity has the justification.
Disadvantage- The drawback of this budget is that it increase paper work which leads to
complexity.
Fixed budget- The fixed budget is also known by the static budget. This is a kind of
budget which does not change in relation to change in the sales and volume (Stechemesser and
Guenther, 2012). The KEF limited company make this budget for those activities whose
probability is less to change. It has following advantages and disadvantages:
Advantage- One of the key advantage of this budget is that users do not require to update
timely.
Disadvantage- This budget does not allow to make any change and if there is any huge
change in sales then it becomes difficult for companies to update their budget.
Flexible budget- This budget's nature is totally different from the fixed budget. This is a
type of budget which can be changed if sales change. The KEF limited company, prepares this
budget for long time period so that they can make change accordingly. It includes some benefits
and limits which are as follows:
Advantage- The benefit of this budget is that companies can make changes as per the
change in sales.
Disadvantage- The main drawback of this budget is that due to more changes the standard
of performance can be manipulate.
-Use of different planning tools and their application for preparation and forecasting the budget.
The budgetary control includes a wide range of planning tools such as fixed budget,
flexible budget and zero based budget which helps in preparing and predicting the budget
(McVay, Kennedy and Fullerton, 2016). Like the KEF limited company use fixed budget,
flexible and zero based budget for preparing the budget. The relevant information derives from

these planning tools. So overall planning tools provide the framework for preparing and
forecasting of budgets.
TASK 4.
- Comparison of how organisations are using management accounting techniques to solve the
financial issues.
Companies are facing different kind of issues which are needed to be resolve as soon as
possible otherwise it may become a huge financial crises. There are different kind of accounting
systems to overcome from these financial issues.
Financial problem- The financial problems are the serious issues for the companies.
Eventually, these problems raises due to lack of fund or money to operate multi-pal functions.
Herein, below some financial issues are mentioned that are generally faced by the organisations:
 Spending more then income- This is the most common issue which is faced by the
companies. It is related with a kind of issue in which companies spends too much fund to
multi-pal activities but does not earn as expected. Due to this, losses increase and profit
decrease continuously.
 Unequal cash flow- When companies cash inflows and outflows do not match with each
other then it shows that company is facing the issue of lower liquidity. This issue leads to
the lack of working capital.
Methods to deduct the financial issues:
 KPI (Key performance indicator)- It is a kind of technique which is related with the
highlighting those activities which are profitable and which ones are not. So companies
can easily find out about the financial issue.
 Ratio analysis- The ratio analysis includes different kind of ratios like profitability ratio,
sales ratio, liquidity ratio etc. Due to these ratios companies can find out their actual
financial condition which helps in deducting actual financial issue.
Financial governance- The financial governance can be defined as a kind of process that
is related with the collection, analysing, monitoring and interpreting the financial information.
Comparison of two organisations to solve the financial issue:

Basis KEF limited company TPG processing
Basis They are facing the problem of spending
more then income and because of it
expenses are increasing. As well as due
to this, their other function and activities
are also effecting.
This company is also facing the
financial issue of unequal cash flow and
because of it, they are facing the
problem of lack of working capital for
operating day to day activities.
Managemen
t accounting
system
On the basis of their financial issue they
are required to use an effective
accounting system which can resolve
their issue. Eventually, the above
respected company is needed to apply
cost accounting system. This is a kind of
system which controls and reduce the
cost of various activities. By this system
they will be able to reduce their
expenditures and it will help in solving
the financial issue.
As per the nature of their financial issue
they are required to adopt price
optimisation system. This is why
because it is a kind of accounting
system which helps in assigning right
pricing of products. If they will
implement this system then their sell
will increase and it will lead to increase
in cash or liquidity. Hence their
financial issue will be resolved by this
accounting system.
- The management accounting system can lead to organisational success in respond to solve the
financial issue.
The management accounting consists different kind of accounting systems such as cost
accounting system, inventory management system and price optimisation system. Each system
plays an important role in overcoming from the financial issue. Like the KEF company use cost
accounting system that help them in solving the issue of increased expenditures as well as in the
context of TPG processing company they applied price optimisation system for their financial
issue. So overall, management accounting system plays an important role in solving the financial
problem.

- Evaluation of how planning tools help in solving the financial issues.
Planning tools of budgetary control are beneficial in overcoming from the financial
problems (Myers, 2013). There are different kind of planning tools such as budget, fixed budget,
flexible etc. These all play a significant role in overcoming from the financial issues. This why
because planning tools provide a specific framework that is useful in solution of issues. Like the
KEF limited company implements different kind of tools that leads to organisational success by
solving the financial issues.
CONCLUSION
From above project report it has been concluded that management accounting is an
essential part for internal management of the organisations. In the project report different kind of
accounting methods such as price optimisation, cost accounting system etc. are concluded along
with management accounting reports like cost reports, budget reports are prepared. Additionally,
the income statements with the help of absorption and marginal costing method are calculated.
As well as role of planning tools and management accounting system in solving the financial
issue is concluded in the project report.

REFERENCES
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