Management Accounting Systems and Reporting

MANAGEMENT
ACCOUNTING
1

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Management accounting and different types of system........................................................3
P2: Different method for management accounting reporting. ...................................................5
M1. Evaluation of benefits of various management accounting systems...................................6
D1 Management accounting system and management accounting reporting are integrated
with organisation process. ..........................................................................................................7
TASK 2............................................................................................................................................7
P3: Calculation of costs by using appropriate techniques...........................................................7
M2: Management accounting techniques and financial reporting documents..........................10
D2. Financial reports which applies to interpret many business activities...............................11
TASK 3..........................................................................................................................................11
P4. Advantages and disadvantages of different types of planning tools of budgetary control. 11
M3. Usage of different planning tools for preparing and forecasting budgets.........................14
TASK 4..........................................................................................................................................15
P5. Management accounting systems for responding to financial problems............................15
M4. Management accounting in response to financial problems..............................................17
D3 Various planning tools to resolve financial problems.........................................................18
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19
2

INTRODUCTION
Management accounting is a very crucial component for an organisation in developing plans
and strategies for accomplishing their desired goals. Through this component, firms develop their
reports for taking effective decisions in order to ensure the successful implementation of
strategies and plans. Accounting managers has the roles and responsibilities for managing the
accounting activities so that organisational operations can run smoothly without any issues. It
helps an organisation to maintain their strong financial stability in competitive market
environment by preparing financial accounts such as profit and loss a/cs, balance sheet, and cash
flow statement. The taken firm for this assessment is Creams Ltd which is providing ice creams,
doughnuts, waffles etc. to their customers across UK. This report will discuss the management
accounting systems along with the methods used for management accounting reporting. Along
with this, essential requirements of management accounting systems are also discussed under
this report. The report also explains the different costing methods such as absorption and
marginal costing methods so that the management of Creams Ltd. can decide the selection of
method according to their business objectives. Further, the advantages and disadvantages for
different type of planning tool will be discussed used for budgetary control. This report will also
discuss the comparison of how organisations are adopting management accounting systems for
responding to their financial problems.
TASK 1
P1: Management accounting and different types of system.
Management accounting is the procedure of managing the different aspects of an
organisation by developing the reports. This concept is very beneficial for the business
organisations in developing effective strategies and plans through which objectives can be
achieved in future time of period. This method is not compulsory for the organisation but it can
be used in needy times for enhancing the efficiency and reducing the errors. There are various
types of management accounting systems which can be used by the firms as discussed below:
Cost accounting system: This system is beneficial for the organisations in determining their
various costs such as fixed, variable cost etc. The determination of these costs for their products
and services assist the firms in determining their profit and loss as they can keep an eye on the
expected and obtained results for determining the performance of their offerings. Creams ltd. Is a
3

small firm due to which it is using this system for checking the costs and other financial data of
their products. Through this, the company is ensuring that focus is given to those products which
are serving the customer needs and proved beneficial for the organisation.
Essential requirements-
 Cost Accounting System should be able to provide the organizations with an input
measurement basis. By doing so it will ensure that it is able to identify the right way
through which the measurement of costs can be done. This can help the managers of
Creams Ltd. And the managers are required to ensure this. In a Cost Accounting System there should be the use of techniques through which the
costs can be reduced effectively in the organization. For Creams Ltd. This can be helpful
and the managers must ensure this.
Price optimisation system: This is another system which is used by the business firms for setting
the process of their products and services. This system provides the factors which can impact the
price of the offerings of company. Through this system, companies can analyse the reviews and
feedbacks of the customers regarding the price range so that better decisions can be taken for
ensuring customer satisfaction which will enhance the brand image too. Creams ltd. is also using
this system for setting their prices. This ensures that the prices set by the Creams ltd. will ensure
customer satisfaction and trust as products are provided to them at affordable prices which are
also value based. Along with this, it also helps company to acquiring information about the
actual thoughts of their targeted customers towards their old pricing strategies and make changes
accordingly so as to retain them with company for longer duration.
Essential requirements-
 In a price optimization system there should be a systematic use of right methods for
collection of historical data regarding the prices. Therefore this will ensure that Creams
Ltd.'s managers are able to make the correct use of this data. In a price optimization system, there must be a use of varied techniques of setting up
price according to a change in demand level. In this way the management of Creams Ltd.
will be able to identify the right price to be set according to a change in demand level.
Inventory management system: This system is used for managing and tracking the inventories
for an organisation such as products and services. This system is also beneficial for tracking the
status of the offerings provided by company to its customers. Through this system, firms can
4

improve their supply chain management. Creams ltd is providing ice cream products to their
customers due to which it is essential for Cream ltd. to streamline their inventory for providing
products in an effective manner. This tool has been proved beneficially for the firm in improving
the gap between supply and demand. Adoption of such kind of system helps Creams Ltd. to
minimise business cost by controlling over storage cost of inventory by ordering whenever
required. This makes easy for company to meet the demands of their loyal clients on due date
which indirectly increases their brand image and reputations in rivalry market.
Essential requirements-
 In an Inventory Management System, there should be a use of Inventory Management
Software which manages and tracks the inflows as well as outflows of the stock items
and therefore is able to manage them in a highly effective manner.
 Inventory Management System must ensure that the methods like LIFO, FIFO, Weighted
Average Cost etc. can be used so that stock level can be monitored and if there are any
variances and deviations then they can be rectified effectively.
While considering various management accounting system the managers need to take
into consideration various essential requirements such as :
 Management style: The organisation follows different styles of management with the
help of which they can define to whom and how to inform and get the results. The
Creams ltd has been taking into consideration the democratic style due to which they
easily adopt different management accounting system.
 Organisation structure: It defines the roles and responsibilities of different persona and
the structure in which the people has to work. Creams ltd has been considering
functional structure within their organisation.
P2: Different method for management accounting reporting.
Management accounting of reports is very important for an organisation as these helps in
decision making process. Management accounting is also essential for the business organisations
in taking the decisions regarding the internal information and parts of business. Through these
reports, the business managers can take suitable and effective decisions for implementing the
business strategies so that better output can be obtained (Adler, 2013). The management
accounting reports consist of both monetary and non monetary information. Cream ltd is using
different types of reports which are discussed below:
5

 Performance reports: These reports are developed for measuring and evaluating the
performance of business functions. Performance reports play an essential role in
determining the performance of employees and the business activities so that proper
rewards can be provided to them accordingly. Cream ltd is using the performance reports
for determining the efficiency and performance of their employees. Through this
determination, the company is providing enumeration to the employees so that they can
accomplish their goals in a more effective manner. Budget report: This report is used by the organisation for determining the variation in
expected and obtained performance. Through this, managers can develop better policies
and strategies based on the output obtained through report. This report also estimates the
expenses of the firm for a future time period which will be followed by the departments
and firm. Cream ltd is using this type of report for comparing their obtained financial
efficiency with the targeted goals in order to determine the errors and flaws in strategies.
This is beneficial in improving and implementing the future policies if the current
strategies are giving less output than expected. Accounts receivable ageing report: such type of reports contain the data associated with
the credit transactions of the company. This report is mostly used by the firms which are
making their transactions in credit form. This is beneficial for the firms in determining
the pending amount of customers in the marketplace (Arroyo, 2012). Also these reports
provide the date and time of the credit transactions for quick calculations. Cream ltd is
using this type of reports for determining the amount credited by the customers to the
company for their products.
 Cost managerial accounting report: This is also an essential type of report which is used
by companies for tracking the profit and loss from the different organisational functions.
This report is useful in calculating the expenses of products before selling and then
compares these expenses with the total amount of money received from selling of
products. When the total expenses are high then selling amount then the company is
facing loss whereas if the expenses are low then it is profit for the firm. Cream ltd uses
this report for determining their profit and loss and if losses occurs then strategies and
policies are developed accordingly.
6