Management Accounting: Overview, Systems, and Reporting

This document provides an overview of management accounting, including its origin and evolution. It discusses different management accounting systems such as cost accounting, inventory management, price optimization, and job order costing. The document also covers management accounting reporting, the importance of relevant and accurate information, and different types of managerial accounting reports. Additionally, it explores the concepts of cost analysis, budget preparation, alternative budgeting methods, pricing strategies, and the use of PEST and SWOT analysis in management accounting.

Management Accounting

INTRODUCTION
Management accounting is defined as a provision of accounting information so as to inform
stakeholders so that an actual financial position can be identified. The accounting manager needs to
get support from finance manager in terms of receiving financial information that can be easily
obtained from profit and loss account, balance sheet etc. It makes easy for making an effective
decision that can increase the possibilities of an organisation to achieve its desired goals and
objectives within pre-determined time period. Prime furniture is chosen organisation which deals in
manufacturing furniture products having strong presence in East London, United Kingdom. The
company decides to conduct an intern on the role of management accounting due to which the
present report includes overview of management accounting and its systems along with their
benefits to an organisation. The report also discusses the reporting system, different costing
methods, planning tools to control budget and role of different management accounting to resolve
financial issues.
TASK 1
P1
Management accounting: It is an activity of analysing the financial information obtained
from financial statements with a purpose of making a profitable decision so that an organisation can
achieve its desired goals and objectives within limited time period (Bagautdinova, Kundakchyan
and Malakhov, 2013).
Origin and evolution of management accounting: The concept of management accounting
introduced during industrial evolution. Such concept came after financial accounting when the need
of making decision on the basis of financial information are high. Two industries which includes
Textiles and Railroad plays a major role in evolution of management accounting (Booth, 2018).
Management accounting systems: There are various kind of systems which every
organisation need to use in order to analyse their actual financial position in competitive market.
These includes cost accounting system, price optimisation system etc. Prime furniture is engaged in
manufacturing industry due to which it is an important to consider the benefits to these systems and
implement accordingly. Here are briefly discussed these systems:
Difference between management and financial accounting:
Management accounting Financial accounting
It assist managers to make profitable decision
for an organisation.
It assist management in analysing their actual
financial position of an organisation by

preparing annual financial records.
It provides information which are in monetary
as well as non-monetary terms.
It provides details of an organisation only in
monetary terms.
Different management accounting systems are as follows:
Cost accounting system: This system facilitates in providing information related with
company’s cost that are invested in manufacturing different products and services. In the context of
Prime furniture, using such system will be more suitable to adopt as it provides them relevant
information of incurred cost in each manufacturing activity. This will make easy for finance
department to prepare an effective budget for future business activities. There are different kinds of
cost which includes direct and indirect. Direct cost refers to an amount which is directly allocated to
manufacturing activity whereas indirect cost refers to the amount which is incurred the support the
execution of manufacturing activity in direct way (Bryson, Crosby and Bloomberg, 2014).
Inventory management system: This system assists in maintaining records of current level
of inventory with an organisation to meet customer’s needs and requirements. Prime furniture is
required to use such system to maintain a better relation with new clients and retain loyalty of
existing customers by maintaining sufficient level of inventory in warehouses so that pre-ordered
products can be deliver on time without any delay. Inventory management system consists of three
types which includes LIFO, FIFO and AVCO. LIFO means the received inventory is used at first for
manufacturing activities. FIFO means the products purchased earlier will be used at first in
production activities (Demski, 2013). The other AVCO referred as an average cost which is
distributed on the basis of units produced. The management of Prime Furniture is responsible to
gather information about these inventories which can be possible through using such kind of
system.
Price optimisation system: This system facilitates in providing information about the
client’s actual perception towards pricing policy framed by an organisation which makes easy for
manager to bring new pricing policy in order to retain loyal customers. It will be more suitable for
Prime Furniture to use such system to maintain existing customer base by meeting their
expectations related with prices charged by them (Grabner,and Moers, 2013).
Job order costing system: This system facilitates in providing information about the actual
cost incurred in manufacturing each and every unit of an organisation. It assists an organisation in
keeping records of total cost which makes easy for manager to estimate the profitable unit which
provides maximum amount in return. This will make easy for manager of Prime Furniture to stop
the producing furniture products which incurs more cost and give less return after selling it to the

customers. This will minimise the cost and increases the income of an organisation.
P2
Management accounting reporting: It is an activity of recording business transactions
which facilitates management in making profitable decision for future growth and success of an
organisation. These reporting systems includes cost accounting report, inventory management
report etc. The management of Prime Furniture must require to prepare these types of reports in
order to analyse their actual financial situation in market (Honggowati and et.al., 2017)
Why information should be relevant to the user, reliable, up to date and accurate:
Information recorded under the accounting reports must be genuine, up-to date, reliable and
accurate so that the trust and loyalty of stakeholders can be easily retained with an organization for
longer period of time. For this, transaction on daily basis must be recorded with an accurate amount
so that mis-representation of data towards stakeholders can be minimized.
Reasons behind understanding and overall easy to comprehensive of reports:
Understanding and interpretation of reports must require by the management as it assist
them in making suitable and correct decision for the growth of business. Analysing the information
available in the accounting reports help stakeholders of Prime Furniture in identifying their actual
status in competitive market.
Types of managerial accounting reports:
Performance Reporting – This reporting is a part of communications management plan. It
is related with gathering the information of performance of the work, analysing such performances
and on the basis of which the reports are prepared and delivered to the stakeholders which are part
of the project. This report create a visibility among the business partner for their activities and their
purchasing behaviour. It helps the managers of Prime furniture to understand the needs and wants of
the customers. Whereas the top management can effectively understand the needs of employees
which helps them to reduces the conflicts at the workplace.
Cost Accounting Report - Cost accounting reports helps the company to determine the
cost of various products which are manufactured by the company. The costs which are included in
this are cost of raw material, labour, overhead etc. On the basis of this reports the managers of the
Prime Furniture takes various decisions relating to the prices of the goods which they offers to their
customers. Also they identify the profit margins for the products on the basis total per unit selling
price (Maas, Schaltegger and Crutzen, 2016).
This report also includes cost which is associated with the wastage of the inventory, labour
cost per hour etc. It also helps all the department to utilise the resources effectively as all the
expenses are easily identified.

Inventory Management Report: The inventory management report helps to understand the
inventory which is related to the business of the organisation which is taken into consideration. It
helps to develop a detailed statement of the stock of the company which includes the quantity that
the company holds and the quantity which they have to procure to keep on their process. The
inventory reports of the Prime Furniture helps them to manage the inventory by tracking the
movements of the inventory. In this the serial numbers are provided to various goods which helps in
easy identification. Various methods are used for managing the inventory such as last in first out,
first in last out etc. Such methods facilitate the Prime Furniture to adjust the impact of price changes
of the products.
Job Costing Report – Job costing is the system which help the organisation to allocate the
cost to various jobs included in the processes of the organisation. The job cost is divided among
various factors such as field overhead cost, labour cost etc. This report helps in estimating the cost
on the basis of various estimates of the cost. All the jobs which are undertaken in the organisation
are arranged in such a manner that the management can determine the actual job related
information. This report is being used by the Prime Furniture as it helps them to track the cost
related to various jobs. It facilitate them to make their customers clear the cost activity and job wise.
Job costing reports helps the Prime Furniture to analyse the profit margins of different jobs which
helps them to determine the most profitable job of the company.
TASK 2
P3
Cost: It is defined as value of amount which is invested in operating different business
activities. This amount includes various aspects such as time, efforts, value etc. Prime Furniture is
engaged in manufacturing furniture products due to which it is important to analyse cost which
makes easy for manager to compare output with invested cost. Cost includes two types such as
direct and indirect cost. Direct cost relates with manufacturing of furniture on direct basis whereas
indirect cost relates with expenses incurred in the process of manufacturing activities indirectly
(Quattrone, 2016).
Cost analysis: It refers to the process of measuring the benefits received due to different
actions so that overall profitability goals can be achieved.

(b): Reason for analysing variations in profit
The above calculation depicts that there is difference in net profit due to changing costing

methods. The main reason of arising such differences is due to inclusion of fixed cost in absorption
costing method. The same is been presented underneath:
For the first quarter:
Overhead absorbed= (66000*0.20) = 13,200
Fixed overhead costs= 16,000
Under absorption: (2,800)
For Second quarter:
Total absorbed expenses: (74000*0.20) = 14,800
Fixed costs= 16,000
Under absorption= (1200)
(c): Reconciliation Statements:
It needs to be done by taking crucial difference those are arises in a project that can help in
reducing those gaps.
TASK 3
P4
Budget: It is considered as a forecasting tool that are used to calculate future revenue and
expenditures for a particular period of time. The manager of Prime Furniture design several types of
budgets for their client as per the requirements of them.
Budget preparation: It includes many steps that are to be considered while making a
budget in order to identify the current resources and future requirements also (Smith, 2017).
Different types of budget:

1. Capital budget: This kind of budget is exercised in order to keep records of all activities
that requires large investment of capital as well as support their financial positions of
Prime Furniture.
Advantages Disadvantages
It records the all informations of finance that
are invested in projects and examine the
financial performance of a company.
As it has collective records of all departments
that are hard to observe and controlled.
2. Operating budget: This defined as a approximation of all future income and expenses on
the basis of past sales and profits of Prime Furniture. This is used by a company to
support the executives of businesses in order to identify the proper utilisation of
financial resources that are allocated.
Advantages Disadvantages
It facilitates a clear view of monetary resources
that are in used by a company.
In this budget figures and data's are not easily
manipulated.
Alternative methods of budgeting:
 Zero based budgeting: It starts from a base of Zero figure as it is developed by Prime
Furniture with respect of their customers for the purpose of reducing operational cost after
justifying the recorded expenses of books.
Advantages Disadvantages
It is accurate in manner as it requires to
formulated new for every year.
It is not appropriate for the short term
organisational planning.
 Traditional budgeting: This kind of budget is based on the inflows as well as outflows of
cash over a specified time duration and this is considered by Prime Furniture to track the
company's financial resources (Zoni, Dossi and Morelli, 2012).
Advantages Disadvantages
It shows the profit and loss of the company in a
clear way.
This restricts the credit transactions ability.
Behavioural implications of budget: This will help to effective communication as well as
coordination among their workers and the resources are properly utilised by an organisation because

of they focused on actual budget rather then estimated figures.
Pricing strategy: To fix the price of goods and services a company use several kind of
pricing strategies. Some are considered as below: Penetration: In this company's focus on set minimum prices at initial phase which are
marketed to their customers.
 Premium: In this prices are high as they prefer superior quality of goods to their customers.
Ways through which prices are determined: In order to identified the prices analysis of
market situations is required to know the competitor’s strategies such as Laz furniture who is a rival
of Prime Furniture.
Supply demand consideration: This is based on the market conditions that are required to
analyse by Prime Furniture to take a competitive advantages and success (Budget, 2019).
PEST analysis: Political: As changes in the governmental policies or unstable political conditions can
impacts on the Prime Furniture while formulating strategies. Economic: Continuously fluctuations in the inflation as well as deflation rates can effect
Prime Furniture’s customers purchasing power. Social: Timely the taste and preferences of people change that can lead to decrease in Prime
Furniture 's profitability.
 Technological: To get a competitive advantages a company requires to emphasised on the
latest technologies.
SWOT analysis: Strength: The good brand image of Prime Furniture in the marketplace is a strength of it. Weakness: They less focused on spending for R&D activities as it results in inappropriate
information towards the market changes. Opportunity: In order to attain high growth and success a company have expansion
opportunity in the marketplace.
 Threat: Huge market competition is a threat for the company as all competitors focused on
gain high market shares.
Balance score card: This is defined as a performance management tool that are in used by
Prime Furniture 's manager in order to analysed and monitor the employee’s performance and
reduce unfavourable circumstances that are in activities.
TASK 4
P5
Financial issues arise due to various reasons which includes the following:

Sudden expenses: Financial issue faced by Prime Furniture is due to inefficient planning
which incurs more cost and less income.
Late payments by customers: Prime Furniture can also face financial issue due to
receiving late payments by its clients. This will reduce their financial situation.
To resolve above financial issues, below are some financial tools which plays an important role:
KEY PERFORMANCE INDICATORS – In order to assess and measure the processes,
companies often use KPI's. Key Performance Indicators are the factors that are tracked by
organisations to analyse their manufacturing processes. This helps Prime Furniture in controlling
worker’s behaviour and their actions, which further defines their performance. These criteria are
used to measure success relative to a set of predetermined goals or objectives.
BENCHMARKING – Benchmarking is the quality improvement tool that identifies what
the company is doing, how the company is doing, how other companies do it, how well the
company is doing it in references to measures and what and how to improve. For example –
Benchmarks could be used to compare the processes used in Prime Furniture with Laz furniture
company.
Financial Governance - Financial governance refers to the way a company collects, manages,
monitors and controls financial information. It helps Prime Furniture to have the entire view of life
cycle of data and where that data appears which results in clear ownership and accountability of the
financial issues.
Budgetary targets: This is considered as an approximation of funds for a specific year and used
by Prime Furniture in order to analyse the variances by measuring actual with standards to deal with
the challenges of finance.
Price optimisation system- It is a system which is used by organisation to identify the estimated
price about its products from the target customers. Due to this activity it is easy for Prime Furniture
to ensure sufficient profits for the organisation. In order to implement this effectively management
recruit experts who leads the firm to gain exact information about the satisfaction level of
customers, according to price and quality of products.
Comparison:
Prime Furniture Laz furniture
The main cause of facing financial issue by
such company is spending more income that
actual and incurring unnecessary expenses.
Delay in payment by customer’s weak financial
stability of an organisation.
Using of cost accounting system is required to
adopt as it assist in analysing the actual cost
Inventory management system is required to
adopt to resolve financial issue as it assist in

incurred in manufacturing activities. This will
help manager in making decision regarding
investment.
maintaining sufficient inventory in warehouses.
CONCLUSION
From the above discussion, it can be concluded that management accounting assists an
organisation to achieve growth and success in competitive market on the basis of financial
information available to them. The accounting manager is held responsible to make corrective
decision and plans in terms of adopting accounting and reporting systems. Two costing methods are
there i.e. marginal and absorption costing method among which best method is used by company
according to their objectives. Flexible budget, cash budget etc. are some kind of tools which is
necessary to prepare in order to reduce company’s expenses.

REFERENCES
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Online
Budget. 2019. [Online]. Available through:
<https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting>