Management Accounting Systems and Reporting

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management Accounting Systems........................................................................................1
P2: Management Accounting Reporting......................................................................................3
M1: Benefits of Management accounting systems......................................................................5
D1: Critical evaluation of Management accounting systems......................................................5
TASK 2............................................................................................................................................5
P3: Management accounting techniques......................................................................................5
M2: Accurate application of management accounting techniques..............................................7
D2: Producing of financial reports...............................................................................................7
TASK 3............................................................................................................................................7
P4: Advantages and Disadvantages of Planning Tools................................................................7
M3: Analysis of planning tools..................................................................................................10
TASK 4..........................................................................................................................................11
P5: Comparison of organizations...............................................................................................11
M4: Analysis of response to financial problems........................................................................12
D3: Evaluation of planning tools...............................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting refers to a process through which a proper analysis and
interpretation of the financial data, facts and information of the organization is done so that
proper short-term, medium-term and long-term decisions can be taken effectively and efficiently
(Bakke and et.al., 2016). Using it, the firms will be able to ensure that they manage their funds in
a proper manner and therefore achieve the different types of goals and objectives which are set
for the future effectively and efficiently. This will help them in targeting the maximization of
profits. For this report, Rio Tinto has been chosen. It is an Anglo-Australian multinational
company which deals in finding, mining and processing of Earth's mineral resources. It has its
headquarters in London, United Kingdom. In this report, detailed focus will be made on
demonstration of understanding of management accounting systems, application of a range of its
various techniques, explanation of the use of planning tools. Additionally, focus on comparison
of ways in which organizations can make the use of management accounting to solve financial
problems will be discussed as a part of this project.
TASK 1
P1: Management Accounting Systems
Management Accounting is also known as managerial accounting that helps the manger
to take decision within the organisation, it provide the information of accounting and internal
report to manager that enable him to take long term and short term decision (Heinzelmann,
2017).
Types of Management accounting system -
Cost Accounting system – This Managerial accounting system aids in estimating the the
value of product to for profitability analysis of company (KASHANIPOOR and et.al., 2018).
This essential part of any management accounting and it consist of many cost like fixed cost,
variable cost and semi- variable cost.
Requirements-
 In company Rio Tinto, this accounting system helps in transforming the raw data into
useful date and helps the manager to take conscious and rational decision for company.
1

 For company, cost analysis assist in preparation of budget and analysis of profitability of
different department. It also helps in deciding in setting the price of product to attain
profit margin to cover the cost.
Inventory management system – This tool helps in checking the status of product
produce by company throughout the supply chain and ensure safe delivery of goods to the
vendors (Khlif and Achek, 2017). It focuses on minimising the loss of goods during its process
and check the availability of stocks in warehouses to reduce the risk of any uncertainty during its
delivery time.
Requirements -
 In Rio Tinto, managing the inventory is necessary as it ensure the sufficient availability
of stocks in warehouse and inventory manger can monitor the under stocks and
overstocks which will be able to prompt decision on that situation.
 Through this inventory system, manager can reduce the risk of wastage that occur while
deliver the stock to vendor and maintain the quality of stock is also important at same
time.
Job costing system – It refers to determining the cost of each job that has been incurred
during the process of manufacturing to shipping of product (Kocsis, 2019). It include many
different cost such as Direct cost, Labour cost, Manufacturing cost and overhead cost.
 In the big company like Rio Tinto, manager trace the expense of each job that occurred
that and evaluate how it can be minimised to certain level to achieve desired profit
margin.
 Job Costing system is used in determining the cost of each project from calculating the
expenses of each department. It helps in ascertaining the profit and loss of each job after
its completion.
Price optimising System – This is mathematical model that is used by company to
determine the fair price that satisfied the behaviour of costumer and with that also maintain
operating profit of company (Kokina, Mancha and Pachamanova, 2017). It analysis the data and
segmenting the costumer and according to scenario of market.
Requirements -
 In Rio Tinto, this system helps in analysing the market price of product and provide the
data how much price needs to set to attain profit.
2

This system assist the manager in decision making process and also consider the behaviour of
costumer which gives competitive advantage to company.
There are different types of role of Management accounting. These roles are explained in
the following manner-
 Planning- Management accounting is quite useful for the organizations in order to make
proper plans. Thus by making its use the companies can make sure that they are able to
create short-term, medium-term and long-term plans which can be useful in the future.
Therefore In the context of Rio Tinto it can be said that it must be used for the purpose of
creating proper plans which are useful for the future.
 Control- Management accounting is very useful for the firms so that they are able to
create proper controls effectively and efficiently. For Rio Tinto it can be useful for the
purpose of ensuring that deviations and variations can be identified effectively and
efficiently. For Rio Tinto it can be useful so that the achievement of financial goals and
objectives can be done.
 Decision-Making- In Management accounting, decisions can be taken without problems
and issues. In the context of Rio Tinto, it can be useful so that short-term, medium-term
and long-term decisions can be taken highly effectively and efficiently.
Difference between Management Accounting and Financial Accounting
Basis Management Accounting Financial Accounting
Usage It is useful for internal
management of the
organization so that it is able
to take decisions in a proper
manner.
It is useful for external
management because by
making its use can be made for
the proper analysis of different
stakeholders.
Measurement of
performance
It can be used for the
measurement of financial as
well as operational
performance.
It can be used for the purpose
of measurement of financial
performance.
Focus area In it, specific focus has to be
put on specific areas within the
In it, the report on the entire
organization can be prepared
3

business. effectively and efficiently.
There are different types of benefits of Management accounting systems when they are
applied in the organizations. The advantages of these systems can be explained in the following
manner-
 Assessment of the system- The use of Management accounting systems can create
benefits for the organizations because it helps a lot in assessing the system. In this way it
can be said that the use of these systems can help the firms in ensuring that they are able
to raise the overall efficiency and effectiveness. Thus In this way Rio Tinto will be able
to assess its system in the right manner.
 Raising the overall bar of efficiency and effectiveness- Management accounting
systems can help a lot in raising the overall bar of efficiency and effectiveness. Rio Tinto
can be helped by the application of these systems as they can help it in raising the overall
bar of efficiency and effectiveness without facing problems and issues.
P2: Management Accounting Reporting
Management Accounting Reports are a summarized form of the financial data, facts and
information which can be used by the organizations so that they are able to present their results
and findings in a proper manner effectively and efficiently (Bebbington, Russell and Thomson,
2017). Their use can be made by Rio Tinto so that the managers are able to achieve their goals
and objectives in the future. The following types of reports can be used by the management of
Rio Tinto-
Job costing reports- In these reports there is an assessment of the various types of job
costs which are being incurred within an organization (Chung and Cho, 2018). By making their
use, the firms are able to find out the way they can assess the job costs and thus use methods and
techniques to reduce them. For a manufacturing company there is a particular importance which
is associated with these reports because through them an accurate identification of the job costs
can be made. As a manufacturing company indulges in the inflows and outflows of job orders
this can be really helpful for it in managing the orders correctly. Also in the tracking and
managing of the job orders the use of these reports is very useful. As Rio Tinto is a
manufacturing company it has to use these reports so that it is able to manage the inflows and
outflows of job orders accurately. This will help it in reducing the job costs and thus targeting the
maximization of profits.
4