Management Accounting and Different Types of Systems

This document provides an introduction to management accounting and different types of systems. It discusses the benefits of management accounting systems and how they integrate with organizational processes. The document also includes a numerical sum to assess costs through techniques/methods of cost analysis for preparing an income statement.

Management
Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................4
LO 1.................................................................................................................................................4
P1. Management accounting and different types of systems.......................................................4
M1. Benefit of MAS....................................................................................................................6
D1. Integration of MAS and MA reports with organisational process........................................7
LO 2.................................................................................................................................................7
P3. Numerical sum to assess costs through techniques/methods of cost analysis for preparing
income statement:........................................................................................................................7
M2. Application of MA techniques and preparation of financial reporting reports:.................15
D2. Interpretation:......................................................................................................................15
LO 3...............................................................................................................................................16
P4.Advantages and downsides of many forms of budgetary control's planning tools:.............16
M3 Use of planning tools to estimate financial plans................................................................18
D3 Planning to solve monetary issues.......................................................................................18
LO 4...............................................................................................................................................18
P5. Compare how organisations are adapting management accounting systems to responds to
financial problems.....................................................................................................................18
M4 MAS to solve the issues......................................................................................................20
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22

INTRODUCTION
In present time the business environment in the context of the management accounting
plays vital role due to companies take important decision that based on the profit maximization
as well as wealth creation (Gray III, 2015).Each company wants to track the performance
information that mainly depends on the cost based information and generate the historical
general ledger system that based on the financial accounting information. The management
accounting is the procedure of the determining of the business costs and operations to produce
the internal report, records and account that supports to business in decision making procedure
and effectively accomplish the goals and objectives. To better understand of the report selected
organisation Alpha Ltd which is medium sized manufacturing company. The company have only
50 employees and turn over about 50000 per annum. The company manufacturing of the local
made Pizzas and franchising the business. In this report consist of various kind of the
management accounting system as well as report that produce by the company to analysis overall
information. Along with analysis the different types of cost techniques that apply by the
organisation to sort out the numerical. Apart from the report, discuss several budget that produce
by the companies to determine the accurate situation and how to take well step and identify
different financial problem that sort out through management tool. For this implement
management accounting system and compare with other organisation to adopt strategy.
LO 1
P1. Management accounting and different types of systems.
Management accounting- Management accounting is the method for assessing the business and
economic costs of producing an internal report, documents and account that endorses business in
the judgment-making process and efficiently achieves the goals and targets.
Types of MAS:
 Cost accounting system- It is an accounting system that is connected to the mechanism of
projecting forward-looking expenses of businesses in an effective way (Smith, 2015).The
function of this accounting is not restricted to prediction; this also helps to identify
variations in expenditure. For businesses, this accounting is necessary for proper
management of economic operations, so that the sum of spending can be reduced. Under
the corporation listed above, Alpha limited company this accounting system is

implemented with the intention of keeping the price of producing beer lighter from the
estimate.
 Price optimisation system- In conjunction with the title, this accounting system is related
to the process of establishing prices for products and services on the basis of the
requirement and value of each commodity. This is feasible since, according to this,
information is collected on customer requirements and the value is established. As in the
above-mentioned company dimension, on the basis of this value, their sales department
uses key information on the demand for their product in different market sectors.
 Inventory management system- This is a type of accounting system that is affiliated with
the system of keeping a close eye on those products that are bought and sold by firms
over a certain length of time. Under this accounting system, stock value is carried out in
compliance with different methods, such as the last in the first out method, the first in the
first out method and the weighted average cost method. All of these strategies play an
important role for businesses in monitoring the exact quantity of product at a time when it
is required. Such as in the aspect of above chosen business entity, their research
department uses information on processed raw materials for production purposes.
 Job costing system- It can be defined as a form of accounting system which relates to the
method of calculating costs of each unit generated in an accurate way. The goal of this
accounting system is to reduce total labour costs in a better manner. The goal of this
accounting system is to reduce total labour costs in a better manner. Due to the small
product range, this management system is not ideal for small companies. It is ideal for
businesses with a larger product line. In the context of above company, this accounting
system is used to determine the value of each unit generated.
Various methods of MA reports:
The term MA reports can be described as those detailed notes that comprise of
information on monetary and non-monetary segments in a systematic way. Such reported data
are commonly used by the management department of businesses in order to take effective and
prompt response.
 Cost report- This report is being planned through the implementation of the cost
accounting system. The report comprises of details on the costs incurred in carrying out a

critical range of business transactions and operations. In addition to this study, it
categorizes activities as per their rate of expenditure. The aim of generating this
document is to concentrate on those components and facets that consume increased costs.
In the context of above company, , their accounting department uses essential information
through such report, which helps them reduce the overall cost.
 Stock report- It can be described as a type of report that comprises of information on the
measured quantities of the product stored in the store (Harrison and Lock, 2017). As with
the above-mentioned accounting report, this document is also primed by means of an
inventory control system. The primary objective of this document is to help the
manufacturing ministry to take appropriate action on how many units are required to be
generated. In the context of the above mentioned corporation, their production
department produces products in an expense-effective manner by consuming crucial
information via this document.
 Accounts receivable report- This is a type of document that gives information on the
amount of borrowers who are responsible to entities along with the period of the payment
in an appropriate way. In the context of the above-mentioned corporation, their
accounting department uses key information by means of this document, which helps to
figure out ways to raise the debt from specific borrowers.
M1. Benefit of MAS
Name of MAS Benefit
Cost accounting system It is associated with the dimension of monitoring the overall costs
of various operations by measuring the reliability of the
fluctuations. In the sense of the above-mentioned business, they
use this accounting system for tracking the true costs of
production and control certain operations, the value of which is
beyond estimated.
Price optimisation system This is advantageous for businesses in order to set the price of
goods and services in line with the recent economic phenomenon.
In the context of the above mentioned company, their sales team

sets the price of product on the basis of the customer's demand.
As well as the policies of their rivals.
Inventory management
system
The value of the allocated stock is assessed in an effective way in
accordance with this accounting. The aim of this accounting
system is to maintain cost of storage low. In the context of the
above mentioned business, their production department
incorporates this accounting system in their activities so that their
production costs can be reduced.
Job costing system It is helpful for corporate entities to calculate the cost of each
production number generated. In the sense of the above-
mentioned business, they use this accounting to measure the value
of each manufactured product by assigning and evaluating the
cost of employment.
D1. Integration of MAS and MA reports with organisational process.
There is a wide range of accounting systems and reporting in the MA that are aligned with
business processes and activities (Kure and Raffnsøe-Møller, 2017). As far as in above company,
their different divisions are connected to the critical sectors of the government. For example, the
price management process is incorporated into the sales department in order to improve sales
turnover. As well as the cost accounting system ties to the financial department for regulate cost
of various kinds of activities. In addition, MA reports are also consistent with business processes.
LO 2
P3. Numerical sum to assess costs through techniques/methods of cost analysis for preparing
income statement:
Cost refers to sum expensed for conducting business operations. In business there are
different costs or expenses which are classified as per their importance, role, nature and extent of
relevance in business. Controlling various costs in business is complicated task which is essential
for achievement of targeted profit and gain competitive advantages. For gaining control over
costs management generally conducts CVP analysis which most widely applied technique.

CVP analysis: A CVP or Cost-Volume-Profit analysis recognised as MA technique/method that
mainly includes evaluation of effects of sales-volume and produced items costs on organisation's
operating profit (Cooper, 2017). Such analysis exhibits how and what extent operating profits of
corporation is affected due to modification/fluctuation in various costs like variable, fixed costs
and SP of single unit.
Absorption Costing: It is cost accounting method which primarily emphasises on accumulation
of costs/expenses which are concerned with business's production procedures and segregation of
these costs to single manufactured unit. This method is also relevant as per accounting standards
for valuation of inventories. In this method variable and fixed both costs which are related to
production and manufacturing of goods are classified as cost of goods sold.
Marginal Costing: This method simply focus on assigning variable cost to each unit produced.
This is simple method in which costs are classified as fixed/variable and separately shown in
balance sheet (Arnaboldi, Lapsley and Steccolini, 2015).
Absorption Costing Statement calculator
Unit Selling Price 8
Unit Cost (FC+VC) 5
Fixed Manufac 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 75 0 0 75
Add: Variable Cost[Prod.] 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 Manufac Cost 50 50 50 50 50 50
Net Profits 175 130 220 175 180 180
Marginal Costing Statement calculator
Unit Selling Price 8
Unit Variable Cost 3
Fixed Manufac 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[Prodn.] 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 Manufac Cost 150 150 150 150 150 150
Less:Non Manufac 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:
After installation of the new machine
Contribution Margin Per Unit = 40-14 = 26 Per unit
Break even point in units =
(180000+236000)/
26
Ans. 16000
Break even point in Pounds = 40x16000

Ans. 640000
P/V Ratio = (Contribution Margin per unit/ Sales Price per
unit)*100 65
BEP from P/V Ratio 640000
2 c
Scenario 1. Machine is not installed:
Without installation
Sales £5,40,000.00
(-) variable cost -£3,78,000.00
Contribution £1,62,000.00
(-) Fixed cost -£1,80,000.00
BEP -£18,000.00
Current
Sales £6,00,000.00
(-) variable cost -£4,20,000.00
Contribution £1,80,000.00
(-) Fixed cost -£1,80,000.00
BEP £0.00
Scenario 2. If machine is installed:
After installation
Sales £8,00,000.00

(-) variable cost -£2,80,000.00
Contribution £5,20,000.00
(-) Fixed cost -£4,16,000.00
Profit £1,04,000.00
Installed
Sales £6,40,000.00
(-) variable cost -£2,24,000.00
Contribution £4,16,000.00
(-) Fixed cost -£4,16,000.00
BEP £0.00
M2. Application of MA techniques and preparation of financial reporting reports:
In line with their criteria, Alpha Ltd adopts marginal and absorption approaches. Here,
the company carries out business operations in allocated budget to minimize costs (Hoque,
2017). This helps to make company financially sound in general, which ultimately leads to
achieve competitive edge and advantages over competitiveness. All such techniques addressed
above support in procedures of financials reporting by delivering meaningful results.
D2. Interpretation:
There is applied the absorption and marginal costing method to calculate the net profit of
the company. Such as in the absorption costing method, value of net profit is of 175000, 220000,
130000, 175000, 180000 and 180000 for month of April, May, June, July, August and
September. On the other hand, in the marginal costing its profit is of 175000, 100000, 250000,
175000, 150000 and 200000 for similar time period.

LO 3
P4.Advantages and downsides of many forms of budgetary control's planning tools:
Budget: Budgets are integral component for businesses in this restrictive environment to
stay profitable (Gullberg, 2016). This allows to create some rough/quick figures regarding
different costs incurred while carrying out distinct commercial activities. Corporation prepares
budgets by reviewing market trends so that there is no irregularity of monies.
Budgetary control: It is applied in sort of an measure that allows corporations to
monitor and regulate a bunch of expenses properly, together with overall activities over a
specified time-frame. This is also a tool used to reconcile the estimation as well as results. This
makes the requisite revisions to improve the operational efficiency of business.
Advantage: The advantage of budgetary management is to maximize the company's profits. A
thorough planning and management of various activities is done under it, in order to accomplish
the targeted profit and other figures. Multiple capital and profit spending are closely tracked. The
funds are used to the best advantage.
Disadvantages: This approach can lead to disputes between functional divisions. Without
thinking about business targets, that departmental heads worries about his departmental
objectives. That branch seeks to achieve maximum funds/resources allocations and this creates
conflicts between the various branches.
Types of planning tools:
Cash budget: It is very relevant and significant planning tools which enables managing
personnel to maintain adequate cash balance in business as to operate business smoothly
(Monden, 2019). This budget generally similar to company's cash-flow statement, as it also
shows real-time movement of cash funds within business enterprise. Management in Alpha Ltd
can apply this budget to ensure adequate liquidity in business.
Advantages Disadvantages
 It is beneficial of company as to
monitor actual usage of cash funds and
also to stop overspending of cash on
 Cash budgets can be manipulated. It
could be ambiguous, for example, to
make a massive lump sum a day or two

least significant business tasks.
 It enables to ascertain whether cash
holdings are sufficient to meet routine
commitments or whether minimum
criteria for liquidity or cash balance set
by financial institutions or internal
corporate rules are preserved.
prior to year ending, rather than a day or
two after beginning of next period. It
prevents one time span of cash-flows
and deflates other period's cash-flows.
 This budget ignores accrual accounting
so sometime provide misleading
outcomes and affect decision-making.
Master budget: Master budget is report that summarizes all different budgets within
organization drafted by various departments/divisions. It allows to coordinate revenues, buying,
selling, manufacturing, and other unit's activities, and provides assistance to senior managers in
order to track the progression in performance and implement corrective steps in case required.
Advantages Disadvantages
 All meaningful information are
accumulated at single particular place
that enables to save valuable time and
resources effectively.
 Managing officials can cut costs by
looking throughout all facets. It allows
new or reduced sums to be utilized
further in business's growth and
development.
 As this summarises different
department's budgets so any subsequent
modification is too difficult here.
 Creation of a master budget with annual
financial budget is time-consuming task.
Sales budget- It can be defined as a kinds of budget that is linked with those activities that are
related to estimated sales revenues and cost during a particular time period (Fleischman and
Parker, 2017). This budget plays a key role for sales department of business entities. In the
aspect of above chosen company their sales department gather key information by help of this
budget. Herein, below some advantages and disadvantages are mentioned that are as follows:
Advantages Disadvantages
 This budget is beneficial for companies
in order to make proper estimation of
 One of the drawbacks of this budget is
that it consumes too much cost and

those activities that are regards to sales
outputs.
 It helps in order to keep a better control
over total sales expenses.
time.
 As well as some times in the case of
wrong estimation of sales activities may
lead to huge monetary lose for
businesses.
M3 Use of planning tools to estimate financial plans.
There are various types of budgets used by manufacturers to make better economic
decisions (Busco and Quattrone, 2015). All these budgets play a key role in the effective
governance of their financial resources, as well as in the reliable estimation of various operations
and practices. In the sense of the above-mentioned company, their bookkeepers are planning a
vital variety of budgets, such as the cash spending plan, the manufacturing schedule and the
marketing schedule. All these budgets play an important role in the precise assessment of income
and spending. This is made possible by the fact that managers of the above-noted company
analyze past years budgeted data for the predicting for further operations
D3 Planning to solve monetary issues.
There are wide ranges of planning tools in order to make proper projection of monetary
resources in an effective manner. Some common examples of planning tools are master budget,
sales budget and many more. In the aspect of above company vital range of planning tools
implemented in order to manage financial resources! These all are helping them to overcome
from any monetary resources. It becomes possible because there financial department utilize key
information through help of these planning tools in the case of any financial issue.
LO 4
P5. Compare how organisations are adapting management accounting systems to responds to
financial problems
Financial issues refer to a situation when the company’s expenses are more than their
actual income due to which they can’t able to pay dues to their respective shareholders

(Roslender and Monk, 2017). This will damage the reputation of an organisation in market which
brings difficulties for management to raise funds from different sources such as banks. Due to
this, the management is required to identify the causes first which arise financial issues after
which corrective actions should be taken. Here are the causes or reasons behind arising financial
issues:
Sudden expenses: Financial issue faced by Tesco plc due to inefficient planning which
incurs more cost and less income. This is the major reason of arising financial issue in an
organisation. Under this situation, the company spends more than actual income generated by
them during certain period of time. This can be due to retaining loyal clients by providing them
products and services on credit.
Late payments by customers: Sainsburry company also face financial issue due to
receiving late payments by its clients. This will reduce their financial situation. This is another
reason of arising financial issue as under this situation, the company fails to receive due
payments on time due to having default of their clients. This can harm their overall financial
position due to which they may find difficulties in competing with their rivals in competitive
market.
Tools to resolve above financial issues:
KPI- It is a technique which is applicable on an organisation who suffer from lack of
performance level of employees due to which desired objectives cannot be achieved within given
time frame. KPI is a tool which measures the performance level of employees by making
comparison between actual with standard that enable managers to identify any deviation, which
can increase the possibilities of delaying expected outcomes. This will ease Alpha Ltd. in making
corrective decisions for the betterment of employees as well as an organisation.
Benchmarking- It is a tool which is applicable on an organisation who is continuously
facing defeat from their rivals in terms of maintaining financial stability in competitive market
(Ruch and Taylor, 2015). Benchmarking is a technique which allows managers to make
comparison of their financial performance with their rivals through analysing their existing
strategies and policies. This will ensure managers of Alpha Ltd. to make a corrective decision by
updating their current policies as per their rivals existing plans and decision.
Financial governance: It is more useful for large sized organisation whose management
frames rules and regulations with the purpose of directing business activities in profitable way.

Using such tool by Alpha Ltd. help in reducing errors made by employees while recording
transactions under financial statements such as profit and loss account, balance sheet, cash flow
statement etc. as per the guideline given under accounting standards. This will bring accurate
information towards stakeholders of an organisation about current financial performance due to
which their loyalty can be retained for longer period of time.
Comparison of organisation to solve issues:
Basis Tesco Sainsbury
Monetary issues Under this business, their financial
division is faced with the sudden
expenses. As a result, they are
unable to cover their investment
cost. In addition, because of this
financial issue their cost of
operations is increasing in a
significant manner.
The issue facing this organization is
regards to late payment receiving
from customers. Due to this their
efficiency of paying short term debts
has been decreased. As well as they
are facing problem of lack of funds in
order to meet their daily expenses.
Way to solve
issue
The management of this company
are applying the cost accounting
system. With the aid of this
accounting system, their accounting
department has been able to
concentrate on those activities that
result in far more cost compared to
the cost estimates. As a
consequence, they are in a position
to reduce the costs of the various
functions and the problem has been
resolved.
The manager of this company
prepares accounts receivable ageing
report that is helping them in tracking
those customers who are not making
payment on time. In addition, by
gathering key information this report,
it became easy for their finance
department to focus on those
receivables whose payment is due for
long time. As a result, their issue has
been sorted out.
M4 MAS to solve the issues.
There's only a way to sort out financial issues in less period and that is to introduce the
MAS. Like the dimension of the above-mentioned limited company Alpha, their problem has

been effectively sorted out by means of the value optimizer process (Hoque, 2018). In view of
the shortage of sales revenue and the introduction of the above cost scheme, they have revised
their pricing structure and as a resurrection.
CONCLUSION
To be concluded that management accounting important part of every organisation to
conduct different activities of the business and provide help to management. On the basis of
these systems and reports the management take appropriate decision that help in further
investment. The company apply the different types of system like cost accounting, job order
costing, price optimization etc. these are utilising to discuss various strategy of the company. On
the basis of these system produce different report in order to get detailed information about the
company activities. Company apply the absorption and marginal costing method to calculate net
profit of the company. In the company have the financial problem of the sudden expenses and
late payment by customers that identify through KPI and benchmarking.

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