Management Accounting: Types, Reporting Systems, Costing Methods

This article provides an overview of management accounting, including its role in financial data analysis and decision-making. It discusses different types of accounting systems, reporting systems, and costing methods. The benefits and drawbacks of using accounting systems are also analyzed. The article is relevant for students studying management accounting or anyone interested in improving their understanding of financial data and decision-making.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
P1:Different types of accounting system and their essential utilisation.....................................3
P2: Various accounting system use in reporting ........................................................................5
M1: Benefits of using merits and demerits of using accounting systems ..................................6
D1:Critical analysis of reporting system.....................................................................................7
P3: Different costing methods.....................................................................................................7
M2: Analysis of accounting tools.............................................................................................11
D2: Critical evaluation of income statements...........................................................................11
SECTION 2....................................................................................................................................11
PART 1..........................................................................................................................................11
P4: Merits and demerits of using planning tools in budgetary control ....................................12
M3: Evaluation of planning tools..............................................................................................13
D3: Critical analysis of financial issues....................................................................................13
PART B..........................................................................................................................................13
P5: Various financial issues and measure to resolve it.............................................................13
M4: Evaluation of financial issues............................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is well known as useful process of identification, measurement,
analysis and preparation of financial data those are been used by administration to make plan,
evaluate and control within an organisation. The primary role of managers is to make assure that
appropriate use of accounting data and accountability for its resources are done in well organise
manner. It also comprises the preparation of financial reports for all those parties those are
directly associated with a decision-making of an organisation. Such as shareholders, creditors,
regulator departments and so on (DRURY, 2013).
The main motive of accounting systems is to make appropriate decision about upcoming
growth and stability. This project report provide crucial information regarding importance of
management accounting in order to improve performance of an organisation. Various types of
accounting as well as reporting systems. Use of planning tools in order to control budgetary
process. Few specific techniques which is helpful in solving financial problems are explain under
this project.
SECTION 1
P1:Different types of accounting system and their essential utilisation
In every business enterprises, it has been seen that in order to analyse their accounting
transactions which were perform during there regular business operations. This will help in
providing better chances of increase profitability for the company. Management accounting
informations are collected more systematically and they are evaluated with the help of different
formula and tools. It is best service delivery towards operational operations to increase
productivity and create future opportunities (Management Accounting, 2017). It is more selective
in nature because it choose only those plan which seems to be more profitable for the
department. Accounting information is more helpful in such a manner so that organisational aims
and objectives can be attain in more quick time. In the complex situation, management
accounting is an integral part and effective tools of accounting system (Bodie, 2013). There are
various essential aspects of an organisation. The importance of using management accounting
are discuss underneath:
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Increase in efficiency: It would enhance efficiency of different business activities. The
primary targets of various departments are set prior on forecasting and planning to analyse actual
performance of an organisation.
Measurement of performance: Management accounting plays an important role in
evaluating work performance through the techniques of standard costing and some other aspects
of the departments.
Effective management control: It is more vital for the purpose of increase efficiency of
engagement which depends upon its effective control system. This is a continuous process which
needs to be done to gain maximum advantages of an organisation.
Management accounting Financial accounting
These are mainly regulated by applying top
management decisions. It is not said to be
standardized format.
Financial accounting is totally regulated by
using legal laws and regulations.
These are uses as future data and information
which is not only historical data for the ways
of planning.
These are generally focuses on economic
events which is based on past events and it
does consists of historical data.
The frequency of preparing financial
statements is defined by company itself.
The complication of these statements must
indicate the company as a whole.
All the information that are collected in an
organisation is managed by internal auditors.
Under this, data content of the publish financial
records is mainly supervised by an auditor.
Types of accounting system:
Price optimisation: According to this particular system they need to identify perception
of customers regarding what they think about various prices which is been changed by company
for their products. The information used in various price optimisation consists of various
operating costs, stock and historical value and sales. For this purpose, they uses mathematical
analysis through a company to examine customers reaction about their product feature and
qualities (Kotas, 2014).
Cost accounting system: These accounting systems is related with the total cost a
company incur for the purpose of producing product. The primary aim of an organisation to
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minimise their costs to increase profitability at the same time. It is well organise framework
which is helpful for a firm to identify costs of their products in order to make profitability
analysis.
Inventory management system: It is known as supervision of non-capitalised assets and
inventory products. It is an effective element of supply chain management to make supervision
of goods flow from manufacturers to storehouse. The primary motive behind using this system is
to make control of stock items at the time of their occurrence.
Job costing system: This accounting system is the systematic procedures of assigning
total costs that are incur to a particular job a company is associated with a project. This
information are needed in order to suggest cost data to a client where costs are compensate.
Although, these costs are associated to a specific job that would be determine according to their
time of manufacturing (Otley and Emmanuel, 2013).
P2: Various accounting system use in reporting
A report is a systematic detail information about company to perform in a financial year.
It is crucial for every business enterprise such as Nero Ltd to make use of reports on timely basis
so that proper results can be determine during that particular period of time. It has been seen that
reports are need to be helpful in order to make effective decision which according to there
shareholders and outside investors. The primary sources of report formulation is taken from
various sources such as profit and loss, balance sheet and cash flow statements. The motive
behind doing so is to make evaluation about whether company is capable enough to deal with
short and long term debts of an organisation. At the time of making crucial decision these reports
are taken into consideration for he purpose of analyse key aspects those are affecting the
performance of an organisation (Parker, 2012).
If something needs to be modify then they can be done at the same point of time before
releasing these reports into the market. The mentioned data would be primary base of future
planning. These reports cannot be prepared by taken proper information about all departments.
This idea is more effective so that to avoid any mistakes and biases that would not be presented
in the reports. In every business, they need to make use lot of data in a single day time which is
needed to be recorded into a well organise format. For this, managers uses various accounting
system that can help in reporting of their financial transactions. This will be helpful in attaining
better understanding of company financial position as well as there liquidity position.
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There are various reporting systems that are helpful in analysing accountability of an
organisation. These are mentioned underneath:
Performance report: It is an essential aspects in project communication department. It
consists of gathering and disseminating every project data, utilisation of resources and
forecasting upcoming future growth to various outside parties. This report used to record every
information which will be done in past and current time. This would guide the department to
analyse current situation of an organisation.
Account receivable aging report: This reports is used to present vital information about
unpaid lists of customers invoices and inactive credit note according to there data ranges. It is
known as primary tools which is helpful in order to collect personnel to examine total invoice
which is overdue for future payment. It is a standard reports that provide with every business
accounting details that are related with credit payment options (Qian, Burritt and Monroe,
2011).
Inventory management report: It has been seen that companies those are associated
with product oriented operation are mainly struggle to control stock at maximum level. This
problem can only be resolved by using appropriate stock tools that are been helpful in analyse
inventory's of an organisation. For this purpose, there are plenty of techniques available to
manager them such as EOQ, ABC costing and inventory management ratios etc.
Job cost report: This report are use to track total cost and expenses which were incur
over the production or products. It can be done for a particular project done for one clients or
individual products produced in a batch of units at the same point of time as well as produced
together. It is essential for the managers to make use of the process of coding and proper
allocation of project expenditures in order to deal with financial efficiency and productivity
during the time (Salehi, Rostami and Mogadam, 2010).
M1: Benefits of using merits and demerits of using accounting systems
It has been seen that management always uses accounting systems to track to every
records and reports of financial data for delivering complete review of company performance.
They would help to design accounting systems as per the performance operation of an
organisation. This would help in increasing efficiency of every function of business firm. There
are various tools and techniques that can provide reliability and authenticity to operate there
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operations in more effective manner. By the help of this, complete communication among every
level of management can be done in appropriate manner.
D1:Critical analysis of reporting system
This would be vital for every operating business to generate better results with proper
allocation of resources. It is crucial for Nero Ltd to make use of reporting systems in effective
manner to record financial transactions of the company. This happens to be the primary role of
managers to ensure that every data would be properly inserted in to their respective statements.
This will be helpful in analyse performance and their position in more effective manner. Report
are work as useful tool for the managers in order to make plan for the upcoming projects and to
draw the attention of outside investors and stakeholder to make their investments.
P3: Different costing methods
Cost is a amount which is to be incur by the company during the production or payment
of something. This will consists of time or labour which is essential for the purpose of attainment
of organisation aims and objectives. Basically, it is known as the value of money which is used
up to develop something or make deliver of better services. Thus, it is not available for use of
any more. This would increase productivity of the departments as well as overall organisation.
Managers needs to make analyse of total costs for the purpose of taking vital decision in respect
to manage and control extra costs for the business (Soin and Collier, 2013).
If these extra costs are not controlled in time then it will create more burden on customers
and that make them think to purchase products of the company. Because of this, Nero Ltd needs
to face adverse implication over the productivity and goodwill at the same point of time. In order
to face with such kind of situation, managers requires to identify all those crucial areas that are
taking maximum costs. A perfect techniques and measure would be helpful in order to overcome
these extra costs of the company. For this purpose there are various costing method that will be
helpful in order to increase productivity of an organisation. Some of them are mentioned
underneath:
Absorption costing: It is a managerial accounting techniques which is related with
expensing all costs those are related with production of a specific products. It consists of both
variable and fixed costs. It include anything that is a directly make impacts on the products. The
cost of a finish units in stock can consists of direct labour, material and overhead expenses.
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Marginal costing: These are said to be that costs which is related with additional cost of
units. In accounting system under which variable costs are incurred to a cost units as well as
fixed during that particular period of time. It does not taken fixed cost for the purpose of
evaluating net profitability but only variable costs are taken into considerations.
Comparison
Absorption costing Marginal costing
In case of this costing method, all production
related costs are taken into account to produce
all units.
Only those costs to stocks were incurred were
individual units are produced.
Both variable and fixed overhead costs are
been applied.
Only variable costs are taken into consideration
to evaluate inventory of an organisation.
The profitability will be appear to be minimum
by using this costing methods.
Profit gather from each individual sales will be
appear to be much higher in marginal cost.
With the gross margin profitability can be
measure under this costing.
Only contribution margin is use for measure
the profitability of an organisation.
Quarter 1
Particulars
Amoun
t (in ￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock
(12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
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Fixed & selling expenses 5200
21200
Net profit 1900
Quarter- 2
Particulars
Amoun
t (in ￡)
Sales 74000
Less: Cost of sales
Opening inventory
(12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock
(4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 4700
Absorption costing for
Quarter 1:
Particulars
Amount
(in ￡)
Sales 66000
Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
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Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900
Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Absorption costing for
Quarter 2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
Less: selling expenses -2800
8300
Fixed expenses 5200
Net profit 3100
Working note
Fixed costs 16000
Budgeted cost of production
80000
per units
Budgeted fixed cost 0.2
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Variable cost per units 0.65
(b): Reason for analysing variations in profit
From the above calculation, it has been seen that both costing method are presenting
valuable differences in net profit. The main aspects which is vital to be taken into accounts is
related with the fixed overhead expense because of that these difference are arises. 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.
Reconciliation Q1 Q2
Variable costing profit 1900 4700
Opening inventory 0 7800
Closing stock 7800 2600
Absorption costing profit 4300 3100
Opening inventory 0 10200
Closing stock 10200 3400
Working notes:
Fixed charges= 16,000
=66000*0.20= 13,200
Under absorption=(2800)
= 74000*0.20= 14,800
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Fixed expenditure: 16000
Under absorption= (1200)
M2: Analysis of accounting tools
It has been examine that effective planning leads to help the company in order to
formulate maximum advantages to Nero Ltd. This can assists them to make entry of every
transactions into various financial statements. Accounting tools helps to forecasting in order to
increase productivity of the departments as well as organisation as a whole. Some of them are
conservatism and materiality which is useful in proper running of their business operations.
D2: Critical evaluation of income statements
According to the above calculation, it has been seen that profit generate from using
marginal and absorption costing has been analyse effectively. In the first quarter of sales they are
getting profit of 4700 and 1900 from respective two costing methods. Whereas, in the second
quarter they would estimate as 5900 and 4700. The marginal costing is more effectively use in
order to make future decisions.
SECTION 2
PART 1
P4: Merits and demerits of using planning tools in budgetary control
Planning is an essential aspects for every business organisation to make arrangement of
crucial requirement those are helpful in controlling core operations of the firm. In accordance
with this, managers need to analyse various statements those are mainly useful in deliver positive
outcomes for the company. All short-term issues which are presented in any systems are
determine by making crucial analysis of that particular situations. For this purpose, budget are
made to manager costs and other expenditure which is going to be incurred during upcoming
time. It will be determine as the those activities that is perform in respect to earn maximum
returns are analyse effectively (Zang, 2011).
As budgets are said to be an estimation to company's total costs which is going to be
incurred at manufacturing line. There are various factors those are always presented in decision-
making. This will be functioning at appropriate manner to attain every set targets those are been
set by an organisation. It will lead to increase productivity by attaining every possible objectives
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those are been set during the time. There are various planning tools which related with
organisation for the purpose of controlling budgets are mentioned underneath:
Forecasting tools: It is known as effective techniques which is to be done by estimating
future related with past and present analyse of trends. These are more reliable and accurate
because all the informations are collected from internal and external departments.
Merits: It provides the business maximum chance of creating value for each and every
people.
Demerits: It is very hard to predict accurately the future. Because of its qualitative
nature.
Contingency tools: This is a normal part of evaluating business performance. This is
done in order to analyse total risk those are affecting the profitability of an organization. To deal
with such kind of issues a well organise contingencies strategies is needed from making analyse
of the risk (Chen and et. al., 2011).
Merits: It remain constant in any difficulties those are arises in at the time of planning. It
would empowered staffs to take vital decision-making.
Demerits: It is tool costly and time consuming activities.
Scenario planning: It is known as systematic planning techniques which is faced by
various organisation in order to make use of flexibility at the long term planning. It is wide
aspects of an organisation to adapt classical techniques those are more helpful in generating
better outcome during the time.
Merits: It is primary tools for analysing uncertainty those are affecting the profitability of
Nero Ltd.
Demerits:There is very difficult to correctly predict the future. The variables and
alternative are having too many issues (Luft and Shields, 2010).
M3: Evaluation of planning tools
It is vital for every organisation to make use of planning tools before making any
decision for the future. In this process some of tools such as forecasting and contingencies are
taken into account (Arroyo, 2012). It is essential for the company to examine future gains by
utilising resources in more effective manner.
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D3: Critical analysis of financial issues
The performance of an organization get affecting if they are not able to deal with
financial issues those are arises automatically. The role of managers to make sure that they
would use correct techniques and tools that can assists in solving those financial problems. Such
as Key performance indicators and benchmarking tools.
PART B
P5: Various financial issues and measure to resolve it
It is vital for every business concern to make plan according to the managers to deal with
financial problems those are affecting productivity of an organisation. It is difficult for an
organisation face financial issues as they are directly related with the growth and stability during
the time. Few times it is hard to follow policies and legal regulations that are make huge impacts
on the performance as well as overall development (P. Tucker and D. Lowe, 2014). Every
information gather by using management accounting to determine all those issues those are
useful in dealing with financial problems. Some useful techniques are mentioned underneath:
 KPI (Key performance indicators): This techniques is helpful to deal with problems by
making comparison of past and present time data. Every target should be available for the
limited period of time that are help in implementation of new policies.
 Financial governance: There are certain legal rule and regulations which is been made
by government those needed to be follow by every organisation. This will help to remove
all financial issues.
Unicorn grocery Nero Ltd
The financial performances would be measure
by using proper comparison with another
aspects (Vasile and Man, 2012).
By making comparison among actual and
standard amounts can be define under this
company.
There are specific issues those are arises
between staff and which shall be taken into
accounts by using KPU techniques.
There are various techniques which will be
used by taking benchmarking and financial
governance.
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M4: Evaluation of financial issues
There are various financial those are related with cost accounting, inventory management
and overall performance of an organization. These are making huge impacts on the productivity
as a whole. It can be resolve by using appropriate techniques such as KPI and Benchmarking
tools.
CONCLUSION
From the above project report, it has been seen that management accounting is an
essential aspects for every organisation. By using appropriate accounting systems and reports are
more valuable for increasing profitability of the company. With the use of effective planning
tools as well as appropriate measures to resolve financial issues performance can enhanced in
order to get better outcomes in coming time.
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REFERENCES
Books and Journals:
Online
Management Accounting. 2017.[Online]. Available through:
<https://www.tu-chemnitz.de/wirtschaft/bwl3/English/MA_maacc.php>.
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