Effectiveness of Management Accounting Systems

The given report concludes that effective implementation of management accounting systems helps Tech(UK)Ltd. improve their internal strength through enhanced decision-making power. The Balance Score Card approach is found to be an effective method in reducing losses and earning profits from business operations, resulting in a large number of benefits such as loss reduction and higher financial returns.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting systems..........................................................................................1
P2 Different types of management accounting reports...............................................................3
M1...............................................................................................................................................5
D1................................................................................................................................................5
TASK 2............................................................................................................................................5
P3 Application of cost accounting techniques............................................................................5
M2...............................................................................................................................................8
D2................................................................................................................................................8
TASK 3............................................................................................................................................9
P4 Different planning tools and advantages and disadvantages of budgets................................9
M3.............................................................................................................................................10
D3..............................................................................................................................................11
TASK 4..........................................................................................................................................11
M4.............................................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the process which helps in evaluation of business costs for
preparation of internal financial reports and records which assists internal parties of organisation
in decision-making process. It provides the management of organisation is achieve their goals
within stipulated period of time. To improve the performance of each and every department
management of organisation is need to implement effective management accounting system
which improves their understanding and coordination. The different requirements which are
fulfilled through adoption of the provisions of management accounting includes assessment of
risk, allocation of resources, measurement of performance etc. Tech(UK)Ltd. Is manufacturing
organisation in UK (Zimmerman and Yahya-Zadeh, 2011).
In the present report explain about, different types of management accounting and its
essential requirement, different types of management accounting reports and their importance
and application of cost accounting techniques in formulation of income statements. Also,
advantages and disadvantages of different kind of budgets and its importance for planning and
control process and application of the principles of management accounting to overcome from
financial problems.
TASK 1
P1 Management accounting systems
Management Accounting: It includes the process about determination, analysis,
interpretation and presentation of accounting information through application of the principles of
managerial and cost accounting. It provides the opportunity to the business manager of
Tech(UK)Ltd. Is to formulate their strategies and budgets with the helps of such information for
effective operation of their day to day operations. It also assists the manager in performance of
four major functions like planning, organising, monitoring and controlling (Weißenberger and
Angelkort, 2011).
Importance of management accounting as decision-making tool

Tech(UK)Ltd. Is producing special chargers for mobile telephones and other gadgets for
the retail outlets which are operating in UK. The major issues which are faced by them while
providing their business functions in lack of financial information which has adverse impact
upon their decision-making power. Management accounting is broad concept which also
includes the provisions of cost accounting. It helps in preparation of reports upon the
performance of different departments (Management accounting and its importance). The many
other importance of such systems through its implementation in organisation is defined below:
 Forecasting cash flows: It helps in estimation of flow of cash in organisation within
specifies period of time. It provides opportunity is to manage their future transactions
according to such availability of working capital.
 Prediction of variances: One of the important function is that it helps to identify the
deviations in the actual performance of employees though comparison with set standards.
It helps to use analytical techniques to retain positive variances and effective
management of negative ones.
 Evaluation of rate of return: Effective application of the provisions of management
accounting helps in determination of the returns which are associated with different
projects. It contributes in selection of most profitable projects and improves their earning.
Difference between management and financial accounting
Management Accounting Financial Accounting
It is broad concept which includes the
preparation of different accounts which depicts
the information about different departments of
organisation
This includes the preparation of financial
statements of whole organisation which
provides information about financial position
This can be used by internal parties for
decision making process
It is used by the external parties to take
decisions about their investment decisions
More emphasis is provide on future It has historical perspective

It provides the opportunity regarding planning,
organising, monitoring and controlling
To make strategies for improvement of
financial performance of organisation
It helps in improvement of the overall
performance of organisation
This will helps to improve financial
performance only
Different types of management accounting systems
There are many types of systems which helps in improvement of the performance of
different departments of Tech(UK)Ltd through improvement of their understanding. It helps to
ascertain their support in different departmental functions. The functions of different types of
management accounting systems are mentioned below:
 Cost accounting system: It is important system which provides the opportunity to the
business manager of Tech(UK)Ltd. Is to predict the cost of their different products. It
helps in management of different perspectives like inventory and costs. All such activities
helps in determination of the profitability attached with the production of their products.
The main two cost accounting systems are known as job order and process costing
(Ward, 2012). It is further segmented as actual, standard and absorption costing which are
defined below:
Actual costing Standard costing Normal costing
This will includes
determination of actual cost
which is incurred by
organisation in production of
different products.
It is that kind of cost which
company used to set in the
initial phase of the production.
Such kind of costing
techniques through which
company estimate its overall
cost of production that is
normally going to occur at the
time of production process.
 Inventory management system: The important function of this system is about
management of their existing stocks and inventories through implementation of effective
supervision system. Through this large number of benefits are achieve in their business
functions like effective allocation of inventories to different departments as per their

requirements. It helps to ascertain optimum results through proper utilisation of their
stocks. The different methods which is used regarding management of inventories are
defined below:
◦ LIFO: According to this method such stock is seen first which comes last in
organisation.
◦ FIFO: The stock comes first in organisation is accountable first in organisation for
valuation.
◦ AVCO: This will includes the calculation of average through past values.
 Job costing system: This system is useful for Tech(UK)Ltd. As it manufactures different
kind of chargers for mobile phones and other gadgets. It helps in allocation of cost to
each and every product which are manufactured by them. It provides the opportunity
regarding effective monitoring over their expenses to improve their profit margins.
P2 Different types of management accounting reports
There is huge role is played by such different accounting systems to gather the
information from each and every department of organisation. On the basis of such collected
information different reports are formed like job cost, accounts receivable, budgeting, inventory
and manufacturing reports etc. All such reports provides different information about different
segments which is used further by manager to formulate future strategies and policies to direct
their employees in performance of their functions in more appropriate manner. Another benefits
which are attained by organisation includes effective decision-making, performance appraisal,
controlling of costs, optimum utilisation of resources etc. Overall it helps to combine the efforts
of all different departments towards the achievement of common goals. The different kind of
reports which are formulated by accountant of Tech(UK)Ltd are defined below:
 Budgeting reports: These reports are used by manager to setting up their future plans
which helps in analysis of the overall performance of organisation. While preparing such
report, past data of organisation is used which incurred in actual. On the basis of such
report, actual performance of employees are measured through such budgeted figures. It
provides the opportunity regarding removal of such deviations through application of
innovative techniques. It can also be further used by management regarding formulation

of their incentive strategies as per the actual performance of employees. It motivates the
other employees is work hard to accomplish organisational objectives.
 Accounts receivable report: This report helps the management of Tech(UK)Ltd to
ascertain about the amount which is due from customers. In this regard, need to properly
segregate the invoices on the basis of time period. It contributes to understand about the
viability of their present credit policies. It provides opportunity to enhance their policies
as per need and collect the amount within stipulated period of time to effectively meet
their working capital requirements.
 Job cost reports: This report helps the management is to identifies the cost, expenses
and profits which they going to incur from the production of special chargers for retail
outlets. So, it helps in determination of most earning product where need to put large
number of profits (Van Helden and Northcott, 2010).
Importance of management accounting reports
The role of such different reports have large importance for Tech(UK)Ltd which are
mentioned below:
 Reduction of loss: Such different reports provides information about current issues
which are faced by organisation which results in loss in their operations. For ex.,
Accounts receivable report helps in recovery of their outstanding debts and maintenance
of liquidity. On other hand, Job cost report helps to identify waste process which
increases the cost production. So, with implementation of effective steps the amount of
losses are reduced.
 Increase financial returns: One of the major problem in Tech(UK)Ltd is lack of
information within the internal parties of organisation which reduced their working
capabilities. Implementation of effective management accounting system helps in
formulation of various reports which enhance their decision-making and contributes in
selection of most profitable projects which results in improvement of overall profitability
of organisation.
M1
Benefits of various management accounting systems:
Job costing systems
Advantages

 Helps to identify actual cost of product of different products
 Helps to control expenses
Inventory management systems
Advantages
 Optimum utilisation of resources
 Effective management of stock
D1
Type of reporting Integration with organisational process
Accounts receivable report It provides opportunity to maintain liquidity in
organisation
Job cost report It provides opportunity in reduction of
expenses
TASK 2
P3 Application of cost accounting techniques
Cost: It is the value which paid by the management of Tech(UK)Ltd for production of
their special chargers. There are many things which are involved while producing a product. So,
the monetary value which is incurred in this regard includes in cost like efforts, raw materials,
labour, time , opportunity cost, risks etc.
Marginal cost: One of the method helps in calculation of cost. In this method, Only
variable costs are included and fixed costs are write off totally. This method is useful in short
term decision-making. It helps to identify the change in cost due to production of one more unit
(Shah, Malik and Malik, 2011).
Absorption costing: This method is known as full costing method due to consideration
of both variable and fixed costs. Fixed cost is apportioned among all the units manufactured by
organisation. It helps to ascertain the actual value of inventory.
Marginal costing Absorption costing

Only variable cost is considered Both fixed and variable aspect of cost are
considered
Undervaluation of inventory Actual valuation of inventory
Inventory level decreases, gives higher profit Inventory level increases, provides higher
profit
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Cost of production
Closing stock
Variable sales overheads
Contribution
0
30000
(7500)
52500
(22500)
(7875)
22125

Less Fixed costs:
Fixed Production overheads
Fixed Selling overheads
Net loss
15000
10000 (25000)
(2875)
Income statement on the basis of Absorption costing method:
Selling Price per unit £35
Unit costs
Direct materials cost £8
Direct Labour cost £5
Variable Production overhead £2
Variable sales overhead £5.25
Budgeted production for the period is 3000
units
Fixed cost for a month:
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material £8
Direct labour £5
Variable cost £2
Fixed cost £5
Total £20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory

0 2,000*20 = £40000 500*20 = £10000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: £15000
Fixed overhead: £10000
Total £5000(under absorbed)
Net profit using absorption costing £ £
Sales value
(-) Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less: selling Expenses
Variable sales expenditure
Fixed selling expenditure
Net loss
0
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
(375)
M2
For analysing the financial position of organisation, income statements are used by the
management. It provides the important conclusion which helps to take better decisions. At
present organisation is working in loss. Holding the record of past information provides
opportunity to improve their strengths and removal of weaknesses (Qian, Burritt and Monroe,
2011).

D2
Through application of absorption costing method loss is attained by organisation of 375.
On other hand, through use of marginal costing method loss of 2875 is identified. Such
difference is present because of involvement of fixed cost in absorption costing.
TASK 3
P4 Different planning tools and advantages and disadvantages of budgets
(a). Various types of budget and their advantages and disadvantages
Budgets are differentiate on the basis of their role and function in organisation. The
different kind of budgets which are formulate by Tech(UK)Ltd are known as operational budget,
cash flow budget, master budget, financial budget etc. The support of such budgets in managerial
functions is understand through explanation of their roles below:
 Master budget: It is an strategy which is build by organisation about their expected
future sales, production level, purchases, capital investments, future expenses etc. This
budget includes various reports like financial budgets, forecasted income statement and
balance sheet. It helps in determination of their performance targets.
 Cash flow budget: This budget provides opportunity to the management of organisation
is to determine the flow of cash within the organisation through their operating, financial
and investing activities. It helps in determination of the amount of cash which is available
to them for effective operation of their business functions (Otley and Emmanuel, 2013).
 Financial budget: It helps to identify the amount of expenses and income which is
attained by organisation through their business function in specified period of time.
Types of Budget Advantages Disadvantages
Master Budget It helps in forecast about
different business functions
which improves overall
performance
It is not specific for one
activity. So, the estimation
may be wrong for some
aspects
Cash Flow Budget It helps in effective It is complex process to

management of cash in
organisation
provide business functions as
per such given information.
Financial Budget Helps to control unnecessary
expenses through control over
risks
Difficult to predict future
expenses and income on the
basis of past information.
(b). Budget preparation process
The different steps which helps the management of Tech(UK)Ltd to build effective
budgets is defined below:
 Calculation of expenses: This includes the process of identification of their actual
expenses which are spend every month.
 Determination of income: Need to identify their capabilities about earning of profits
from their business operations. It helps to set the standards according to such estimation.
 Setting of savings and debt pay-off goals: This includes about determination of their
saving goals which helps to pay off their debts in effective manner.
 Record spending and track progress: Need to record their expenses which are done on
actual basis. It helps in ascertaining their future progress.
 Try to follow budget: To accomplish budgeted targets need to follow the standards
provided by budget. It helps to get realistic goals.
Different pricing systems
Price skimming: This will includes about the decide the high price of products for the
purpose of earning large number of profits. This pricing policy is used regarding such products
which are new in market.
Economy pricing: This will includes about fixing of the low price of products for the
purpose of attaining competitive advantage in market. This will helps in attraction of large
number of customers.
(c). Importance of budget as a tool for planning and control
The different benefits which are achieved by Tech(UK)Ltd from preparation of effective
budgets are defined below:

 It is management tool which helps in integration of organisational functions from
planning to controlling.
 Budgets provide standards which helps in measurement of actual performance of
employees. It provides opportunity to take corrective correction, considered as important
part of controlling.
 Budgeting helps in removal of unproductive operations through minimisation of wasteful
resources.
M3
Forecasting and scenario are two planning tools which helps in preparation of budgets as
per risk associated with future operations. It provides the opportunity to attain their goals within
stipulated period of time. It helps to direct the employees to improve performance (Nixon and
Burns, 2012).
D3
From the last year financial statements it is observed that organisation is working in loss.
In this regard, planning tools helps to remove financial issues.
 Forecasting tool: Identifies the future risks in advance and prepares contingency
provisions to reduce their impact upon future performance. It helps to improve their
profitability (Cinquini and Tenucci, 2010).
TASK 4
P5 Contribution of management accounting systems to respond financial issues
Tech(UK)Ltd. Is manufacturing organisation which manufactures special chargers for
retailers in UK. There are many issues are arise while providing their functions which impacts
their financial performance. Such issues are related to their performance, quality and production.
All such issues have direct impact upon the profit making capacity of organisation. It is observed
from the above financial statement that organisation incur loss from their business operations of
£1.5 million. The auditors of organisation has identifies that Balance Scorecard approach helps
to overcome from the financial problems (Garrison And et. al., 2010).
Balance Scorecard approach: Application this approach helps to build relation among
different business functions as per their strategies. It provides the opportunity regarding
maintenance of effective coordination between performance of employees for accomplishment of

organisational objectives. In this regard, need to build training programmes which improves
existing skills of employees. Importance behind adoption of this approach by Tech(UK)Ltd are:
 Focus on important processes to improve overall performance
 Helps to build effective strategies
 Guide employees in right direction
Four perspectives of Balance Scorecard approach
 Financial: Improvement of financial performance through optimum utilisation of
resources.
 Customer and stakeholder: Providence of good quality products which helps in
satisfaction of different requirements of customers (Fullerton, Kennedy and Widener,
2014).
 Internal process: It helps in application of innovative techniques for the purpose of
strengthening internal processes.
 Organisational capacity or learning and growth: Improving business performance
through ascertaining different aspects like infrastructure, technology, culture, human
capital etc.
Zylla is small organisation which deals in diversified products. There are many issues
which impacts their performance which has adverse impact upon their financial performance.
The approach which is used for overcome from this problem is Just in time approach.
Just in time: One of the important technique which helps in reduction of wastes which
has direct upon their working efficiency to provide quality goods which satisfies the different
needs of customers. It helps in determination of their future demand which helps in satisfaction
of their different needs. It provides opportunity to improve profitability (Dillard and Roslender,
2011).
Tech(UK)Ltd. Zylla
Historical data is analysed to monitor their
performances
KPI tool is used to monitor and directs in
business functions

Balance scorecard approach is used to
overcome from financial issues
Just in time approach is used to bring
efficiency
M4
Management accounting systems contributes in removal of issues to attain sustainability
defined below:
 Method of standard costing helps to identify risk associated with project. So, effective
measures are taken to mitigate such risks.
 It helps in formulation of reports which helps to take pricing and budgeting decisions
(Christ and Burritt, 2013).
CONCLUSION
It has been concluded from the above report that, effective implementation of
management accounting systems helps Tech(UK)Ltd. Is to improve their internal strength
through enhancing their decision-making power. Balance score card is effective approach which
helps to reduce their losses and earn profits from business operations. Through preparation of
different kind of reports large number of benefits are gathered like reduction of losses, higher
financial returns etc.