Management Accounting and Systems

This report provides an explanation of management accounting and its essential requirements, reporting methods, and application of various techniques. It discusses the benefits and critical evaluation of management accounting systems. The focus is on Creams Ltd., a company selling ice-creams, doughnuts, and waffles. The report also analyzes the use of planning tools and compares ways in which firms can use management accounting data.

Management
Accounting

Contents
TASK 1..........................................................................................................................................................3
P1: Explanation of management accounting and the essential requirement of its systems....................3
P2: Management accounting reporting methods....................................................................................5
M1: Benefits of management accounting systems..................................................................................6
D1: Critical evaluation of management accounting systems...................................................................6
TASK 2..........................................................................................................................................................6
P3: Application of various techniques of management accounting.........................................................6
M2: Accurate application of techniques................................................................................................13
D2: Producing of financial reports.........................................................................................................13
TASK 3........................................................................................................................................................14
P4: Advantages and disadvantages of planning tools............................................................................14
M3: Analysis of planning tools...............................................................................................................15
TASK 4........................................................................................................................................................16
P5: Comparison of organizations in adapting to management accounting systems to solve financial
problems................................................................................................................................................16
M4: Analysis of organizations dealing with financial problems.............................................................17
D3: Evaluation of planning tools............................................................................................................17
CONCLUSION.............................................................................................................................................17
REFERENCES..............................................................................................................................................19

INTRODUCTION
Management accounting refers to the use of financial provisions, data and information
effectively and efficiently by the managers in order to help in decision-making process
(Alawattage, Wickramasinghe and Uddin, 2017). It is a technique which helps the managers to
take the required decisions at the right time for the enterprise. It helps the managers to better
inform themselves before they take the required decisions which can impact the operations of an
enterprise both in the short-run as well as the long-run. Thus it is quite a helpful tool for the
managers. This report is based on Creams Ltd. which sells ice-creams, doughnuts and waffles in
the market. In this project, specific focus will be made on demonstration of understanding of
management accounting systems, application of a range of techniques. Additionally, analysis on
use of planning tools and comparison of ways in which firms can use management accounting
data will be analyzed.
TASK 1
P1: Explanation of management accounting and the essential requirement of its
systems
Management accounting refers to use of various types of techniques in order to help in
taking of various types of decisions for the benefit of the management of the enterprise
(Alsharari and Youssef, 2017). It is used by the managers of Creams Ltd. in order to help them in
raising the overall efficiency, effectiveness and productivity of the enterprise.
Management accounting systems-
Cost accounting system- Cost accounting system is used for identification of various
types of costs which can incur within an organization such as fixed costs, semi-variable costs and
variable costs. The managers of Creams Ltd. can make use of this system to identify and
segregate their costs in order to reduce it. This will help them in maximizing their level of profits
and achieving their short-term and long-term objectives in the future.
Essential requirements-
 Cost accounting system must be able to identify various types of costs which are
incurring within an enterprise.
 Cost accounting system must be able to identify the overheads and should be able to
provide different techniques to absorb them.
 Cost accounting system must identify the different types of requirements which the
organization may have regarding costs and the style which they can adopt to meet them.

 Cost accounting system should be able to work according to the organizational structure
of the company. In this way it will be able to provide the solution to the problems which
are being faced by the organization.
Inventory management system- Inventory management system is used for the purpose
of management of items in the inventory of the enterprise. It can be used by the managers
of Creams Ltd. to better track the stock items and properly manage them so that there is
no mismanagement of stock occurring within the organization. The managers of Creams
Ltd. can make use of this system so that the stock can be effectively managed within the
organization.
Essential requirements-
 Inventory management system should be able to facilitate better management of
inventory.
 Inventory management system must be able to facilitate the use of techniques like LIFO,
FIFO etc. which help in tracking of inflows and outflows of stock items.
 Inventory management system should use the inventory information which is available so
that the correct techniques can be used for management of inventory.
 Inventory management system should identify the requirements of the information in the
organization so that the correct decisions can be taken.
Job costing system- Job costing system is used in order to maintain a track record of job
orders received and job orders given within the enterprise (Alsharari, 2019). It is most
commonly used by manufacturing organizations. As Creams Ltd. deals in manufacturing
it can use this system. This system will help the company to properly manage its job
orders. By proper management of job orders and tracking those from starting till
completion the company can raise its efficiency, effectiveness and productivity level in
the future.
Essential requirements-
 Job costing system should enable checking of status of job orders from receiving the
orders till their completion.
 Job costing system should enable to maintain a proper track of the job orders received in
the company.

 Job costing system should identify the number of times a particular information is
required to be given to the management. In this way it will help the organization a lot as
it will ensure smoothness of operations.
 Job costing system needs to identify the sources of information to be used within the
organization. This will help it in providing reliable information.
Price optimization system- Price optimization system is used in order to facilitate the
setting up of the right price of a product or a service within the organization. It can be
used to revise the strategies related to pricing. The managers of Creams Ltd. can make
use of it in order to set a right price.
Essential requirements-
 Price optimization system must facilitate setting up of a right price.
 Price optimization system should be able to identify the change in price so that profits
can be maximized by changing price.
 Price optimization system needs to forecast the changes which can be made within the
prices on the basis of demand prevailing in the market.
 Price optimization system should make sure that it is not so costly to be used. This will
not only save the costs of the company but will lead them towards attaining more
efficiency and effectiveness.
P2: Management accounting reporting methods
There are plenty of methods which can be used for management accounting reporting
(Aouni, McGillis and Abdulkarim, 2017). The managers of Creams Ltd. make use of the
following methods which are explained as follows in the context of the company-
Job cost reports- These reports can be used for identifying the various types of costs
associated with the job orders. These reports are prepared on the basis of job costing accounts
within the organization. These reports summarize the overall job orders on the basis of orders
received and orders given. The managers of Creams Ltd. can use these reports to identify
whether excessive expenditure is being done in completion of job orders in the enterprise. If
excessive expenses are being incurred rectification steps can be taken with the help of these
reports so that the level of profits can be maximized within the organization.
Departmental reports- In a big company there are different types of departments and
segments such as production, finance, HR, marketing, sales etc. These reports are prepared in

order to identify the problems which are there in different departments of an enterprise.
Segregation of departments becomes quite essential for preparation of these reports
(Arunruangsirilert and Chonglerttham, 2017). The managers of Creams Ltd. can make use of
these reports which will help in raising the level of efficiency, effectiveness and productivity in
the departments. This will lead to increase in the profits of the company and will provide it with
strategic advantage against its various competitors in the market. Thus these reports are quite
useful from the point of view of management of an organization.
Performance reports- Performance report is an important activity in project
communication management. It involves collection of information and dissemination of
information, utilization of resources and forecasting of future data (Project Management
Concepts: Defining Performance Reporting, 2019). The managers of Creams Ltd. can make use
of these reports which will help in measurement and comparison of performance to identify the
deviations and variances which are occurring in the performance of the organization. This can
help in quickly taking of measures to improve the overall performance so that strategic
advantage which is gained by the company can be maintained.
Product/service profitability report- Product/service profitability report can be used in
order to identify the prospects of earning of profits on a particular product or a service (Bolt-Lee
and Monte Swain, 2016). This is especially very helpful when a firm has to earn higher profits in
the future by innovating new products and services. This report can be used by the managers of
Creams Ltd. to identify the prospects of launching a new product or a service within the market.
It can be used to identify the problems or issues which are related with launching a new product
or service. Thus if the company is able to use this report effectively then it will allow it to
innovate in the market which gives it an excellent opportunity for maximizing its level of profits
in the future time period.
M1: Benefits of management accounting systems
Management accounting systems have their benefits. Cost accounting system is
beneficial as it helps in reducing the excessive costs. Inventory management system helps in
better tracking of stock items in the inventory. Job costing system helps in better tracking of the
job orders within the organization. Price optimization system helps in setting of the right price in
the organization so that the profits can be maximized. Thus the managers of Creams Ltd. can
benefit from using each of these systems.
D1: Critical evaluation of management accounting systems
The management accounting systems can be effectively used within the organization.
Cost accounting system can be used for monitoring and controlling of costs. Inventory
management system can be used to track the movement of inventory within the organization. Job
costing system can be used for the purpose of management of job orders. Price optimization
system helps in choosing a right price for the products and services. Thus all of them can be
effectively used by the managers of Creams Ltd.

TASK 2
P3: Application of various techniques of management accounting

Marginal costing- Marginal costing is a technique in management accounting which is
used in order to identify the impact of variable costs on production level as well as the profits
(Englund and Gerdin, 2018). It helps in the determination of break-even point which is a point at
which a company neither earns profits nor incurs loss. The management of Creams Ltd. has
made use of this technique in its calculations as stated above.
Advantages-
 Marginal costing is quite effective in controlling of various costs within the organization.
Thus by controlling the costs the profits of the enterprise can be easily maximized.
Therefore in this manner this technique is highly useful for the management of any
organization.
 Marginal costing is quite helpful in maximizing the outputs of the production process and
enhances the companies to make use of their full capacity. Therefore, in this manner this
technique is quite helpful for the managers of an organization. It can help in maximizing
the overall level of profits which leads to strategic advantage over competitors.

Disadvantages-
 Marginal costing fixed overheads in a separate category which is disadvantageous for an
organization. This is so because their controllability is reduced. This can create problems
as this will lead to increase in the overheads of the company.
 Marginal costing technique is not as effective as standard costing and budgetary control
in controlling of costs. Thus it many not result in as effective outcomes in controlling of
costs as compared to standard costing and budgetary control.
Absorption costing- Absorption costing is a technique which is used in
management accounting which leads to calculation of the overall costs being incurred
within an organization (Ghasemi and et.al., 2016). This leads to absorption of different
overheads which are incurring within a company. The managers of Creams Ltd. have
made use of this technique which has led to absorption of different overheads of the
company.
Advantages-
 Absorption costing takes into account all the costs which are related with the production
unlike marginal costing. Thus it becomes quite advantageous for the organization.
 Absorption costing helps in absorption of different overheads within an organization.
This helps a lot in determination of the exact level of profitability within the organization.
Disadvantages-
 Absorption costing can skew the profitability level of a company and thus is not very
useful if the management has to perform a detailed analysis on the level of profits of the
company.
 Absorption costing does not help in comparison purposes. Thus it can be quite
disadvantageous for an enterprise if the managers have to compare the data of the current
year with the previous year for comparison. This will lead to creation of problems and
issues within the organization for the management.
Justification- Both the techniques of marginal costing and absorption costing can be
used by the management of the organization. The managers of Creams Ltd. have used

both of these techniques as stated above in the calculations. This has helped the
management of the company to take better decisions for the future.
M2: Accurate application of techniques
The techniques of marginal and absorption costing have been applied by the management
of Creams Ltd. in their calculations. These techniques have resulted in better calculation of level
of profits. Marginal costing has helped the company in finding out its break-even point.
Absorption costing has helped in absorbing the various overheads of the company. Thus by using
both of these techniques for calculation purposes the managers have made sure that they achieve
a higher level of efficiency, effectiveness and productivity within the different processes of the
organization. Also they hope to attain a distinct strategic advantage against the competitors to
facilitate better growth rate in the future.
D2: Producing of financial reports
Financial reports like Income statement, Balance Sheet etc. are quite helpful for any
organization. The managers of Creams Ltd. can make use of these financial reports to report
about what is happening in the business. It can be used for the satisfaction of various
stakeholders who are associated with the organization such as government, employees, suppliers
and customers. This will help the company in comparison of its performance with the previous
year to identify and deviations and variances. Also analysis of the financial strength of the
company can be easily prepared using these reports.
TASK 3
P4: Advantages and disadvantages of planning tools
Budgetary control is a process through which budgets are prepared within an organization
(Golyagina and Valuckas, 2016). Budgets are prepared to find out whether there are any
deviations and variances in the performance of the organization. It is a tool which can be
effectively used by the management of Creams Ltd. to plan for the future. The planning tools of
budgetary control which are used by its management are as follows-
Sales budget-
A sales budget is one of the most common budgets which are prepared within an
organization (Lapsley and Rekers, 2017). The management of Creams Ltd. makes use of this
budget in order to identify any deviations and variances in its sales from previous years using
comparison.
Advantages-

It is advantageous for the organization as it facilitates comparison with the data of the
previous years. It helps in forecasting of sales which can happen in the future so that the
managers can effectively prepare the strategies.
Disadvantages-
It is disadvantageous for the organization as if prepared inaccurately it can give wrong
conclusions and judgments which will be of no use for the management. Also, it makes
use of various assumptions and approximations which can result in inaccurate results.
Production budget-
Production budget refers to an estimate of the production which will happen
within an organization during a particular period of time mostly a year (Leite, Fernandes
and Leite, 2016). The managers of Creams Ltd. can make use of this budget to estimate
and forecast their production requirements for the future.
Advantages-
Production budget can help the organization to properly forecast its production
requirements for the future. Also, this budget can help the enterprises in bringing a much-
required efficiency and effectiveness in their level of production. Thus the companies can
focus on maximizing their level of production so that profits can be maximized.
Disadvantages-
The preparation of a production budget is quite cumbersome in nature and thus a lot of
manpower is required for the same. Skills are also required to prepare it to avoid
inaccuracy. Also, the production budget requires a lot of time to be prepared which can
create problems and issues for many organizations.
Marketing budget-
A marketing budget refers to a marketing plan in terms of cost. It is an estimation of
expenditures to be incurred on marketing during a particular period of time in an
organization which is mostly a year (Uyar and Kuzey, 2016). This budget can be used by
the managers of Creams Ltd. to frame their marketing plans.

Advantages-
Preparation of a marketing budget gives a significant boost to the marketing plans of the
organization. Also, its preparation can provide a firm with a much-required strategic
advantage over its competitors. This can help it in proper execution of its marketing
plans.
Disadvantages-
If there are inaccuracies in the preparation of marketing budget then it can reduce the
profits of the firm. Also it may result in excessive costs as preparation of a specific
marketing budget is a costly process and thus involves a lot of expenditure on the part of
the firm.
M3: Analysis of planning tools
The planning tools of budgetary control namely sales budget, production budget and
marketing budget can help the management of Creams Ltd. Sales budget can help them in
increasing the sales revenue, production budget can help in increasing the volume of production
and marketing budget can help in proper planning of marketing activities. Thus all these budgets
form a part of the budgetary control system of Creams Ltd. and can help in raising the overall
efficiency and effectiveness level in the organization.
TASK 4
P5: Comparison of organizations in adapting to management accounting systems to
solve financial problems
Financial problem in business refers to issues which are faced when there is a shortage of
funds in the organization (Van der Stede, 2016). Like other companies, Creams Ltd. also faces
financial problems. The financial problems which it faces are as follows-
Poor accounting practices- In Creams Ltd., accounting practices are not followed
effectively and efficiently. These poor accounting practices have led to reduction in the profits of
the company from the previous year which is an issue concerning the management.
Poor management of costs in production- In Creams Ltd., the costs of production are
constantly increasing due to poor management practices. This is leading to an increase in the
overall costs of the enterprise.
Techniques used for solving these problems-
Balanced scorecard- Balanced Scorecard refers to a report which is commonly used by
the managers of an organization to keep a track on the level of activities in an organization
(Yigitbasioglu, 2017). It can be used by the managers of Creams Ltd. in order to solve the issue

of poor management of costs in production as a track can be kept on the working pattern of the
production department and the costs it has been incurring so that they can be reduced.
Ratio analysis- Ratio analysis is a technique which is used for the analysis of financial
statements of a business enterprise so that comparisons and conclusions can be drawn easily
(Kumarasiri and Gunasekarage, 2017). It can be used by the managers of Creams Ltd. so that
problem of poor accounting practices can be solved because when the financial statements will
be analyzed the poor accounting practices can be caught easily. This will lead to solving of the
problem as the improvements can be suggested after analyzing the records using various ratios
under ratio analysis technique. Thus, the firm can achieve efficiency and effectiveness in its
processes.
Financial governance- Financial governance refers to the way in which a firm collects,
manages, monitors and controls the financial information (Gomez-Conde, Lunkes and Rosa,
2018). It can help the companies to maintain a financial discipline. It can be displayed by the
management of Creams Ltd. which will help it a lot. Using it, the managers of Creams Ltd. can
easily solve their problems relating to poor accounting practices and poor management of costs
in production. This will help the company to achieve its short-term and long-term objectives in
the future thus allowing it to gain a strategic advantage over its competitors in the market.
Comparison of organizations-
Basis Asda Aldi
Financial problem Asda faces a financial problem
of poor management of costs
in production.
Aldi faces a financial problem
of poor practices in inventory
management.
Management accounting
system used
Asda should use job costing
system.
Aldi should use Inventory
Management System.
Application of the system It can be applied by ensuring
proper tracking of job orders
from starting till completion.
It can be applied by ensuring
following of the techniques of
Inventory Management
System in the processes.
Balanced scorecard- Balanced scorecard refers to a thorough assessment of performance
of different employees working within the organization. It can be used in order to increase the
efficiency, effectiveness and productivity level in the organization. Using Balanced scorecard,
Creams Ltd. can solve its problems of poor accounting practices and poor management of cost in
production. This is so because this technique will allow it to properly maintain its accounts as
well as identify excessive costs in production in order to remove them.
On the basis of above discussion the suggestion which can be made to the managers is as
follows-

 The managers of Creams Ltd. can make use of Balanced Scorecard techniques to assess
the performance of the departments. In this way they can make sure that they can solve
the financial problem of poor accounting practices as they can easily detect the
accounting issues faced in departments like Production, Finance, HR, Sales and
Marketing so that the correct actions can be taken to make them right.
 In Creams Ltd., the use of Ratio Analysis can also be done so that problems related to
production can be identified with the use of ratios. Thus in this manner the management
of the company can ensure that they are able to get rid of this financial problem of poor
management of costs in production.
M4: Analysis of organizations dealing with financial problems
When organizations deal with different types of financial problems it allows them to
ensure sustainable success in the future if the financial problems are successfully overcome in
the business. By resolving their financial problems, the organizations can make sure that they do
not occur again and thus can obtain strategic advantage by maximizing their profits. Also dealing
with the problems displays the problem-solving skills of the managers which can help a company
in overcoming them.
D3: Evaluation of planning tools
The planning tools can be effectively used by the companies in solving of their problems
and also in increasing the overall efficiency, effectiveness and productivity in the organization.
The managers of Creams Ltd. can make use of planning tools in order to raise the standards in
the company. By raising the standards in the company the processes can be optimized and the
desired results can be obtained by the management. Also these tools can be used to plan for the
future and forecast the requirements which may arise in the future time period for the
organization. On the basis of these requirements arrangement of funds can be done so that no
financial problem is faced by the organization in meeting these requirements. Thus, these tools
are quite effective for the management. If used correctly they can provide a distinct advantage to
the company.
CONCLUSION
From the above report, it can be concluded that management accounting helps in taking
the right decisions from the point of view of managers of the company after considering many
factors. It helps in raising the overall efficiency and effectiveness level within the company.
There are many systems of management accounting which the managers can use and its reports
can be prepared which can be quite beneficial for the company. Its techniques can be used for
estimation of profits. Planning tools related to budgetary control are quite beneficial for the
company if used in the right manner. Organizations can make use of its systems so that the right
decisions are taken to resolve the various types of financial problems concerning the company.

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Online
Project Management Concepts: Defining Performance Reporting. 2019. Available through:
<https://www.simplilearn.com/performance-reporting-article>