Management Accounting and its Types

This article provides an overview of management accounting and its types. It discusses the various methods used for management accounting reporting, such as inventory management report, performance report, budget report, and account receivable report. It also highlights the benefits of MAS and its integration with organizational processes. The content is relevant to the subject of management accounting and is suitable for students studying accounting or business management courses.

MANAGEMENT
ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting is known by managerial accounting, which is the method of
reviewing business costs and activities for internal reporting (Sundin and Brown, 2017). These
reports help executives make better decisions and help an organization's management team
improve the quality of their decision making. Management accounting's main goal is to help
organizational team with valuable information so that they can more effectively carry out
business operations and activities. The project report's goal is to distribute accounting
management information and business significance. The task report chooses the Alpha limited
company that is involved in the creation of making pizzas. The project report contains key
information regards to different MAS, MA reports and planning tools. As well as their
importance in the aspect of solving financial issues.
TASK 1
P1. Management accounting and its types.
Management accounting- It can be outlined as an accounting system involved with the early
stages of planning inner reports for administrators so that as per the business requirements they
can take appropriate judgements.
Cost accounting system - This is a form of accounting system that has to do with a
structured method of cost estimation. It is linked to the financial department of the organization
to allow them to maintain effective control over operating costs (Jacková, 2016). Essentially, the
primary objective of this accounting system is to track all activities that lead to higher costs of
doing business. For companies, therefore, it is necessary to significantly reduce overall costs.
This accounting system is implemented in the case of Alpha Limited Company by their finance
department to keep the costs of their operations below usual costs.
Price optimisation system – It is a system that decide is aligned with process of
collecting market information such as demand of any industry specific product, customers'
perception etc. Industries use market management to determine the best price to maximize
revenue over costs for the goods. It also uses data to determine prospective buyers ' actions at
various product or service costs. The optimizing goal is to find the set of inputs leading to the
maximum capacity. In other terms, find the rates that are likely to lead to the best profit of each

money aspect. This is used by Alpha Limited to earn profits and attract the consumer by
delivering the item at a reasonable price.
Inventory management system- The purpose of this accounting system can be
represented by its name as it relates to the reporting process of the amount of all forms of
business materials (Ionescu, 2016). It is important to track products across the supply chain of
companies. This optimizes the entire process from ordering to customer delivery. This offers
barcode scanning to monitor items, keeps the right amount of product inventory, receives the
right amount of product alert on stock, keeps several warehouses, records of purchasing and
returns. Therefore, it is essential for businesses to track all kinds of products on a regular basis
and to steer the buying team to purchase more goods. Nevertheless, various types of methods are
used to measure the quantity of goods such as LIFO, FIFO, and others. It also gives the right
amount of stock for sale in hands, while Alpha Limited also maintains this system to include the
right amount of stock to the right customer, keeping full product records in the company.
Job order costing system – This can be defined as type of accounting system which is
linked with process of allocating job costs separately, is compatible with the cost evaluation
process of each operation (Burritt and Christ, 2017). It's being used to accrue the aided costs of a
particular product batch, it's used for a tiny product in which the product is generated under
multiple batches. Management needs to ensure that its client's costs are sensible. Products are
manufactured by different strain and depending on each batch costs are assistant. Such as in the
Alpha limited company, it is being used in order to assess cost of job and products as accordance
of batches.
P2. Various methods used for management accounting reporting.
MA reports- This can be described as a type of formal document consisting of data on the
success and outcomes of different activities. Here are some types of documentation which are as
follows:
 Inventory management report - The report provides how much stock the organization
should have for profitable business at any particular time. This shows how much
inventory should be equipped to handle current stock and stock in stores to hold for
potential needs, these documents show stock levels should be available in supermarkets
and shops to reach the required standards. In the Alpha limited company, this helps in

indicating how much of the inventory is available in the warehouses and how much is
ready to ship.
 Performance report - It is a document that is the result of an individual's work, showing
a companioning between real work rather than one of budget results (Al-Qady and El-
Helbawy, 2016). It lets supervisors see how employees to work in line with the expected
schedule, so that document recipients can take the necessary steps to improve the
organization's efficiency. Similar to other goods and services, Alpha limited company
conducts this study to see which brand is doing well on the market. This also provides
staff with a level of performance similar to normal grades.
 Budget report - Such documents provide a contrast between the expected results verses
the real work done by workers, it indicates how similar the actual work is to the work on
the plan, it is an internal report used by management to equate the forecast with the actual
number of results accomplished over a period. Such reports are created to find out the
difference between real and expected employee results. Alpha Limited produces budget
documents to assess the quality of its workers at the standard level, it allows managers to
better control their staff, this document also shows the results of the products and services
provided by organization in the contraction of expected works.
 Account receivable report - It is a document that consists detailed information regards
to number of unpaid customers and creditors whose amount is due. This gathered
information is used to obtain delinquent receipts for payment purposes. Management also
uses this report to assess the effectiveness of the components of loans and collection. It
has 30-day invoices, the leftmost column contains 30-day or less receipts, the next
column includes 31-60-day invoices, the next 61-90-day column invoices, and the list-
box includes all older invoices. Alpha limited company keeps these documents in order to
manage the payment process on time, as well as showing how much money is going to go
into the business and how much capital is going to get paid for the specific period.
M1. Benefits of MAS.
The above-mentioned accounting systems play a significant role for companies. Every
accounting system's purpose is shown as follows:
MAS Benefits

Cost accounting system It is consistent with the cost reduction cycle below normal costs for
various operations and programs. In the case of the above-mentioned
Alpha Organization, administrators use this accounting system to
track costs for each project and to maintain overall cost control.
Price optimisation
system
This refers to the practice of deciding the prices and services of the
commodity as the suitability of different external stakeholders. In the
Alpha limited company, their sales team uses this management
system to fix the price of their pizzas manufactured.
Inventory management
system
This is linked to effective control of the quantity of goods in
warehouses (Adisetiawan and Surono, 2016). Under Alpha Limited
Company, the administrators use this management system to make
efficient use of their processed raw material.
Job costing system The accounting system helps to control the spending of each project
specifically. In the above-mentioned business, they use this
accounting system to calculate the cost of work assigned to different
activities and processes.
D1. Integration of MAS and reports to organisational process.
In the companies there are a large number of activities that are conducted by multiple
departments (O’Grady, Morlidge and Rouse, 2016). MAS interacts with various business
activities and functions in this way. Like the previously mentioned Alpha limited company,
MAS is connected to their different departments. As financial unit is integrated into cost
accounting system, sales division with price optimization system, etc. Business activities and
processes are also connected in the same way as MA documents.
Difference between MA and financial accounting:
Basis Financial accounting Management accounting
Types of Only financial information are On the other hand, under it both types of

information included in this accounting. informations are included.
Compulsory This is essential for companies to
apply this accounting.
It depends on companies whether they
want to implement this accounting or
not.
Outcome It produce financial statements at the
end of year.
This is used to prepare internal reports.
Presentation
of report
Under this accounting, produced
financial statements are shown to
external & internal stakeholders.
On the other hand, in this accounting
internal reports are presented to internal
stakeholders.
TASK 2
P3. Preparation of income statement by help of absorption and marginal costing.
Marginal costing – This costing technique is linked to process of allocating total amount
of cost in a different manner. Such as under it, fixed cost is assigned as cost of unit while
variable cost is considered as cost of product. It is suitable in order to differentiate cost in a
systematic manner.
Absorption costing – It can be defined as a type of cost in which all types of cost is
considered in a similar way. Such as fixed and variable both costs are taken as cost of
unit(Arnaboldi, Busco and Cuganesan, 2017).
Problem 1.
(I) Income statement under absorption and marginal costing:
Absorption costing:
Absorption Costing Statement calculator
Unit Selling Price 8
Unit Cost (FC+VC) 5
Fixed Manufacturing Expenses 150
Non Manufacturing Exp 50

Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19
01/09/
19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 75 60 90 75 70 80
Production 75 75 75 75 85 70
Opening inventory
Closing inventory 0 0 15 0 0 15
0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 600 480 720 600 560 640
Opening inventory 0 0 75 0 0 75
Add: Variable Cost[Production] 375 375 375 375 425 350
Less: Closing Inventory 0 75 0 0 75 25
Marginal Cost of Sales 375 300 450 375 350 400
Gross Profit 225 180 270 225 210 240
Adjustment for Overheads 0 0 0 0 -20 10
Less:Non Manufacturing Cost 50 50 50 50 50 50
Net Profits 175 130 220 175 180 180

Marginal costing:
Marginal Costing Statement calculator
Unit Selling Price 8
Unit Variable Cost 3
Fixed Manufacturing Expenses 150
Non Manufacturing Exp 50
Budgeted Activity 75
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 75 60 90 75 70 80
Production 75 75 75 75 85 70
Opening inventory
Closing inventory 0 0 15 0 0 15
0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000] [£'000]
[£'000
]
[£'000
]
[£'000
]
[£'000
]
Sales 600 480 720 600 560 640
Opening inventory 0 0 45 0 0 45
Add: Variable Cost[Production] 225 225 225 225 255 210
Less: Closing Inventory 0 45 0 0 45 15

Marginal Cost of Sales 225 180 270 225 210 240
Contribution Margin 375 300 450 375 350 400
Less: Fixed Manufacturing Cost 150 150 150 150 150 150
Less:Non Manufacturing Cost 50 50 50 50 50 50
Net Profits 175 100 250 175 150 200
Reconciliation statements:
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000 ]
[£'000
]
[£'00
0 ]
[£'00
0 ]
[£'000
] [£'000 ]
Sales 75 60 90 75 70 80
Production 75 75 75 75 75 75
Opening inventory 0 0 15 0 0 15
Closing inventory 0 15 0 0 15 5
Period 04/19 05/19 06/19 07/19 08/19 09/19
[£'000 ]
[£'000
]
[£'00
0 ]
[£'00
0 ]
[£'000
] [£'000 ]
Net Profits under Absorption Costing 175 130 220 175 180 180
ADD : Fixed Overheads in opening 0 0 30 0 0 30
LESS: Fixed Overheads in closing 0 30 0 0 30 10
Net Profits under Marginal Costing 175 100 250 175 150 200

Problem 2a
1. Calculation of followings:
(A) BEP in units and revenues-
BEP (in units)= Fixed cost / contribution per unit
= 180000/ 12
= 15000 units
BEP (in revenues)= Fixed cost/ PV ratio
= 180000/ 30*100
= £600000
Working Note:
Contribution per unit- Selling price per unit- variable cost per unit
= 40-28
= 12
PV ratio= Contribution/ sales per unit*100
= 12/40*100
= 30%
(B) Contribution margin ratio
= 12/40*100
= 30%
2b If machine is installed:

2 c
Scenario 1. Machine is not installed:
Scenario 2. If machine is installed:

2d. Should company install machine?
According on the above amount, it may be advised that the company install the software
as in the event of no program installation they will face a loss of -£18,000.00. When they design
the computer in the opposite hand, the gain would be £ 1.04,000.00. The system integration will
also be of interest to the above-mentioned business.
M2. Role of accounting techniques to produce income statements.
There are various types of accounting practices used only to manage income and other
accounts. Of instance dual cost techniques are used to build the income statement of the results
in the context of the above metrics (Napitupulu, Mahyuni and Sibarani, 2016). These strategies
are absorption and marginal loss. The term marginal costing is a technique that offers a different
approach to considering fixed and anti-fixed costs. This process takes fixed costs as the cost of
the period and assigns non-fixed costs as cost per unit.
D2. Interpretation of produced financial statements.
On the basis of the information provided from the above part of the report, various types
of calculation are performed. The net profit for April, May, June, July, August and September, as
in the absorption costing system, is 175000, 130000, 220000, 175000, 140000 and 200000.
While the net profit for a similar time period is 175000, 100000, 250000, 175000, 150000 and
200000 under marginal pricing.
TASK 3
P4. Advantages and disadvantages of different planning tools of budgetary control.
Definition of budget – The term budget can be defined as an estimation of possible
income and expenditures for a particular time period. It consists detailed information about those
activities which may lead to cause of expenses and income. In the aspect of Alpha limited
company, they prepare different types of budget in order to better allocation of their resources.
Budgetary control- Budgetary control can be described as a sort of method linked to the process
of establishing financial and non-financial objectives through various types of budgets. It

comprises of a vitally important array of preparation tools, some of which are used by Alpha
Limited Company in such a way as to:
Master budget - It is a budget wherein the entire budget is distributed to determine the
organization's performance within one budget (Meidell and Kaarbøe, 2017). It is delivered in
either quarterly format, explaining how to plan organizational plans for firms' development.
Alpha limited company utilizes master plan to see how the organization operates from time to
time, to make sound leadership, operation and economic strategy decisions.
Advantages- The benefits of the master budget is that it reveals the actual performance of
businesses and help to chart the company's future plans ahead of time. As well as master shows
how companies are working with the manger to make proper use of existing resources.
Disadvantage- Sometimes, it leaves little details behind which can lead to significant inventory
issues. Moreover, this becomes complicated in nature because the mentions of the master budget
are hard to understand.
Zero based budget - It is an approach to planning and financial planning from scratch, with this
budgeting strategy, zero-based budgeting begins from zero instead of a conventional budget
based on past budgets. Managers need to validate each expense before introducing it to the
overall budget. This budget's main objective is to reduce unnecessary expenses by looking at
where expenditures can be cut.
Advantages- It helps businesses to have better source of information allocation, with decent
products and services management accuracy (Gibassier and Alcouffe, 2016). It leads to greater
departmental teamwork and interaction.
Disadvantage- It is prepared from scratch and requires a large number of staff to be involved,
and it takes a company a lot of time to do it yearly as opposed to gradual planning. Along with
the absence of a view of the report's competence. Comprehending from the gazing that further
misleads the knowledge becomes difficult for manger.
Capital budgeting- This can be described as a form of plan that effectively measures the
effectiveness of different investment options. As well as with the aid of this budget, the company
managers are able to take appropriate actions to ensure the effectiveness of different investment

options. As in the aspect of the above-mentioned Alpha limited company, their accountants are
planning this plan to assess their portfolio efficacy. It has listed the following pros and cons:
Advantages- This budget is valuable for businesses to take appropriate action when selecting
investments.
Disadvantage- One of this budget's main downside is that it doesn't produce reliable results and
companies can't fully transmit on it.
How competitors set the prices?
The rivals set their prices in conjunction with customer's actions. This is because if the
product demand is higher, the prices will remain high. If demand is low, at the other hand, prices
should be lower.
Balance score card- The balanced scorecard is a policy performance enhancement tool–a
structured semi-standard report that can be used by managers to monitor and assess the impact of
these actions on employee activities implementation. This approach is used to track and control
the overall financial and semi-monetary output of organizations. Such as in the aspect of above
Alpha limited company, this technique can be used in an efficient manner for managing overall
monetary and anti monetary performance. Under it, four types of perspectives are included
which are financial, customer, internal and learning perspective.
M3. Use of planning tools in order to prepare and forecasting of budgets.
It has identified that businesses need to use the planning tool of their company to help
make early gains from the planning methods described above (Amanollah Nejad Kalkhouran,
2017). The organization requires can be defined by applying the planning tool in the company's
manager and a planned budget can be created by reviewing all the information to help to simply
make plans for the future and drive business profits. Like Alpha Ltd applies different planning
tools with an aim of preparing and prediction of budgets in an effective manner.

TASK 4
P5. Role of management accounting in solving financial issues.
Monetary issue - Businesses need to contend with their company without having to face any
difficulties. These financial problems occur in businesses due to a lack of funds to complete
different types of planned projects and activities (Johnstone, 2018). In this context, the
management team's role is crucial as it is their responsibility to create ways to solve the
challenges. Here are some of the major financial problems that are as follows:
 Lack of sales revenues - It can be described as a type of issue that occurred as a result of
lower product sales. Businesses struggle to sell more amounts of goods in this topic in
other terms. As a result, overall sales revenue is beginning to decline and this problem
still exists in companies that face this problem in the sense of Sainsburry and is unable to
generate higher sales.
 Higher expenditure - It is an issue that occurs in companies due to lack of orders over
spending. Broadly, the main reason for this issue is poor leadership and the distribution of
financial resources for different activities. As far as Tesco plc is involved, they are faced
with this issue as their expenditure increases tremendously when revenue falls
Identification of financial issues:
 Ratio analysis - It is a type of methods pertaining to the process by assessing varying
densities to determine monetary problems (Simionescu and Bica, 2016). In the context of
Tesco plc, to find a higher debt problems, they use this method. They calculate the
inventory turn-over ratio with a sales performance aim. In addition, in evaluating the
advantages and disadvantages of multiple departments, they use this approach.
 Activity based costing - This can be defined separately as a method of technique
associated with the process of allocating costs to different varieties of operations. The
key goal of this strategy is to reduce the overall amount of costs as much as possible. In
the Sainsburry company, they are implementing this strategy to find out the real problem
of increased costs.
Key performance indicator- The approach focuses on those elements the performance of which is
below or above the norm. There are measures of financial as well as non-financial performance.
The income, costs etc. of financial KPI are included and included in the employee relationship,

supplier relationship etc. of the non-financial KPI. The method is used to determine the actual
degree of problem in the sense of the above Tesco plc.
Financial governance- It serves as a method for business management to determine the exact
degree of failure (Hemmer and Labro, 2017). It is a sort of approach involving collecting
detailed financial data from organisations to determine the current spending rate. Industries are
using this strategy to resolve monetary issues. It becomes possible because it accurately
documents financial transactions. As a result, financial managers may serve as a monitoring tool
to resolve issues. In the context of above Alpha limited company, this approach is being used in
order to monitor actual financial performance and for finding deviation.
Budgetary targets- These are determined by help of different types of budgets and used to find
out variances. It becomes possible because these budgetary targets are applied for comparing
actual performance. As well as variances are calculated which can be adverse or favourable. If
actual revenues are less then budgeted targets then it will be adverse variance. On the other hand,
if budgeted revenues are less then actual revenues then this will be considered as favourable
variance. These calculated variances play a key role in the context of finding actual level of
deviation and by help of it plans are prepared to sort out monetary issues.
Comparison
Basis Sainsbury Tesco
Financial
issue
With lack of sales performance, this
company faces the problem. For
different activities and services, they
have not enough money to pay. As a
consequence they can't match their
competitors.
The company faces the issue of higher
quantities of expenditure. As a
consequence, they are unable to manage
their overall available resources and
receive lower returns on the funds
allocated.
Accounting
system
The company introduces price
optimization program to address the
problem. This becomes possible
This company provides cost accounting
system to deal with the bigger cost issue It
facilitates them to monitor total spending

when they modified their business
strategies and set them at a point with
the help of this management system
that can generate higher profit.
Following the implementation of this
accounting system, the revenue from
sales enhanced and the problem went
away.
and to minimize costs. A spending has
been reduced by implementing this
control system and the issue has been
successfully fixed.
M4. Management accounting to solve the monetary issues.
There are various types of accounting systems, namely framework of cost accounting,
inventory management system, etc. All of these interventions contribute to very little time and
effort to solve the problems. Like Sainsburry and Tesco, they are using different types of
accounting systems, such as the cost accounting system and the price optimization system, to
solve the problems.
D3. Planning tools to solve financial problems.
There are various types of accounting systems, like system of cost accounting, system of
inventory management etc. All of these interventions contribute to less time and effort to address
the problem (Flamholtz, 2016). In the sense of Alpha limited company, they apply different
management strategies, including cash budget, master budget and many more.
CONCLUSION
Based on the above project document, it was concluded that the position of M A is too
large the degree to which they rely on enterprises to use all accounting systems. The reports
focus on various accounting systems including cost accounting, inventory management and MA
reports such as quality reporting, budget reporting, etc. Therefore, measurement is carried out
according to the data provided, such as income statement, BEP estimation, etc. However, as the
master budget, the position of different planning tools, such as cash budget, is also mentioned in

the report. The main position of the accounting system in operating out problems with Sainsbury
and Tesco plc.

REFERENCES
Books and journals: