Management Accounting

Please find attached Assignment brief and Module Handbook

Management Accounting

Table of Contents

INTRODUCTION
MA means an application of the concepts and techniques in processing projected and
historical monetary data of an entity for enabling management in creating the plan for sensible
economic purpose & making logical decisions in view to accomplish the goals. The present
study is based on ABC Ltd. Medium sized firm operating in the production sector. Furthermore,
the study involves significance of MA systems and use of the different planning tools. Moreover,
it also highlights the system that helps the firm in resolving the financial problems.
LO1.
P1. Explaining the meaning of MA and providing essential need of different MA systems
MA refers to presentation of accounting information for the purpose of formulating
policies that is to be adopted by management and enable in running the routine operations of the
company (Hariyati, Tjahjadi and Soewarno, 2019). It means as describing an accounting
systems, methods and the techniques that with ability and the special knowledge helps the
administration in its respective job for maximize the profits & minimizing the losses.
Importance of MA systems are as follows-
Cost accounting system- This system that is utilized by ABC Ltd for anticipating cost of
their goods in analysing the profits, valuing inventory and controlling the cost. It helps in
estimate correct products cost that is crucial for achieving profits in the business operations. It
also enables the managers in analyzing profitable & non-profitable goods through anticipating
correct product cost. Further, this system helps in anticipating closing value of an inventory,
finished goods, WIP for preparing true and fair final reports.
Price optimization system-It means the use of statistical or mathematical tool for
determining the way in which the customer would respond towards different pricing of the
products and services (Rozhkova, Blinova and Rozhkova, 2017). This system plays an important
role in setting up the most suitable price at which the company can attract large customers and it
results to increase in its sales and profitability levels.
Inventory management system- This system that traces flow of goods in an entire supply
chain starting from transit to delivering the customers. It assists the managers in analysing the
need and availability of an inventory within the workplace. This MA system also helps in
maintaining centralized record of each and every asset and the item in control of an enterprise by

facilitating single source of the truth for locating all the items, supplier & vendor information,
total number of the specific items present in stock and the specifications.
Job costing system- It involves process of accumulates information about costs
associated with specific production unit. Such information might be required for the purpose of
submit cost in order to customer under agreement where the costs are been reimbursed (Hopper
and Bui, 2016). This information is crucial for ABC Ltd in identifying accuracy of the firm's
estimating systems that should be able in quoting the prices that allows for the adequate profits.
The information facilitated by such system can also be use for transmission inventory costs to the
manufactured goods.
P2. Explaining different MA reports
While conducting MA, managers depend on the standard final reports containing
earnings statement, balance sheet, and cash flow statement. In addition to this, they too make use
of the additional reports for analysing information of an entity with regard to its budgets, cost
report and the performance report. There are several methods that are been used by the managers
for the purpose of reporting that are as follows-
Cost report- In these report managers includes complete information relating to
product’s price, labour expense, overhead & the other price into account in charge to identify the
price of all items adequately (Phan, Baird and Su, 2017). The overall costs is been separated by
total of items created under this report. In this type of report, overall data is presented in succinct
& the final cost related statement helps the managers to ensure proper control on the price of the
goods against selling costs. It also enables managers of ABC Ltd in proper planning and in
managing the income limits.
Performance report- Accountant in MA uses the spending plans for contrasting the
genuine use & the income with the deliberate sums. After identifying the new budget, change
projected are assessed and overall facts about such amount are been planned on this report. This
report plays a crucial role for firm in keeping appropriate gauge of their scheme towards their
mission.
Budget report- The principal element of MA is making a plan of the expenditure plans
where the budget are prepared by using previous period financial policy & acclimating to the
future prospect anticipation (Ionescu and Bigioi, 2016). In this the manager lists down all sources
of an proceeds and the disbursements where the company try for accomplishing its goals &

objectives by remaining within budgeted amounts. Thus, this method of reporting helps in
discovering the approaches for expanding the deals at the time of diminishing the costs.
M1. Evaluating advantages of MA systems
Systems Benefits
System of price optimization It helps the fixing the price in such a manner
that is affordable to customers and is profitable
for the company (Yigitbasioglu, 2016). It is the
mots suitable strategy by using of which
company can ascertain defined profitability
levels.
CA system It provides a periodical examination of the
profit and losses along with ensuring complete
control over supplies & material.
It also provides the guidance for the future
production policies and in discovery out the
proper cause of an increase or decrease in the
profits. This system also enables in enhancing
the relative efficiency of the different workers.
Job costing system It helps in computing profitability for each job
and provides the basis for anticipating cost of
the similar jobs that are counted in the future.
It facilitates in depth scrutiny of material cost,
expenses and labour for each and every job
when needed.
Inventory management software It helps in organizing and streamlining the
placing of inventory and acquisition for the
better fulfilment (Wang, Wang and Wang,
2019). It is counted as useful system for the
managers of ABC Ltd in preventing the stock

outs or the excess stock conditions with this
system or software.
D1. Critically evaluating the ways in which MA systems and reporting are been integrated in
organizational process
The MA reports and methods are integrated to one another as based on the report the
systems within an internal management of the company can be applied in effective way. This
would help in evaluating the systems and the processes in appropriate way and also helps the
managers in making the task performed as per the standards set or the budget prepared so that the
goals could be achieved effectively and efficiently. Thus, there is integration between the reports
and the methods of MA.
LO2.
P2. Computing profit by applying absorption and marginal costing technique
Budgeted profit statement as per Absorption
costing for January 2020
Particulars Units
Per unit
(£)
Total
(£)
Sales 16000 50 800000
Cost of production :
Direct mat 18000 10 180000
Direct labour 18000 20 360000
Variable
overhead 18000 5 90000
Fixed
overhead 18000 5 90000
40 720000
Add: Opening inventory 0
Less: Closing inventory 80000
Cost of sales 40 640000
Standard profit 10 160000
less: Adjustment for under absorption 10000
Budgeted profit 150000
Actual profit statement as per Absorption costing
for January 2020

Particulars Units
Per unit
(£)
Total
(£)
Sales 16000 50 800000
Cost of production :
Direct mat 19000 10 190000
Direct labor 19000 20 380000
Variable
overhead 19000 5 95000
Fixed
overhead 19000 5 95000
40 760000
Add: Opening inventory 0
Less: Closing inventory 120000
Cost of sales 40 640000
Standard profit 10 160000
less: Adjustment for under absorption 5000
Actual profit 155000
Budgeted profit statement as per variable costing
for January 2020
Particulars Units
Per unit
(£)
Total
(£)
Sales 16000 50 800000
Cost of production :
Direct mat 18000 10 180000
Direct labor 18000 20 360000
Variable
overhead 18000 5 90000
35 630000
Add: Opening inventory 0
Less: Closing inventory 70000
Cost of sales 35 560000
Contribution 15 240000
less: fixed overhead 100000
Budgeted profit 140000

Actual profit statement as per marginal costing
for January 2020
Particulars Units
Per unit
(£)
Total
(£)
Sales 16000 50 800000
Cost of production :
Direct mat 19000 10 190000
Direct labor 19000 20 380000
Variable
overhead 19000 5 95000
35 665000
Add: Opening inventory 0
Less: Closing inventory 105000
Cost of sales 35 560000
Contribution 15 240000
less: fixed overhead 100000
Actual profit 140000
Interpretation- The above analysis it has been stated that absorption costing is the
suitable tool as compared to marginal costing as it givers accurate evaluation of profits by
considering both fixed and variable cost as its production part.
LO3.
P3. Explaining benefits and limitation of different budgetary control tools
ABB- It referred as the technique in which the activities that incurs the cost are recorded,
researched & assessed (Manyaeva, Piskunov and Fomin, 2016). It seems as more rigorous than
the traditional budgeting process which merely adjusts the past budgets to accounting for
inflation and the business development.
Advantages Disadvantages
It allows ABC Ltd in calculating the cost
attached for every operational activity.
This budget is seen as time-consuming and
costly as it includes tracking of all the cost
attached with business activity which is
lengthy task.
This budget enables in further breaking down In handling the accounts by applying ABB,

such costs for determining the thing that could
affect profitability of an enterprise.
managers need to give the deep knowledge of
business processes (Nespeca and Chiucchi,
2018). This seems as difficult and complex
task on part of the managers.
It looks at cost of the inputs for performing an
activities and views the outputs that would
drive the costs.
It focuses on the short term business goals and
ignores the long term situation of the business.
This could be found as fatal for an organization
in terms of achieving stability and success in
overall industry or the market.
This planning tool helps in evaluating the
business units in a better way in relation to
each other and allocating the capital where it
seems to be more profitable.
Capital budget- It comprises capital receipts and the payments relating to each and every
transaction of the business (Maas, Schaltegger and Crutzen, 2016). It is the budget that allocates
money for acquiring or maintaining fixed assets like equipment, land and building.
Advantages Disadvantages
It helps in understanding several risks
associated in investment opportunity and the
way in which these risk could affect company's
returns.
The decisions made under this budget are for
long term and are counted as irreversible in the
nature.
This budget assist ABC Ltd in estimating an
investment option that would yield the
maximum return.
The evaluation made are based on assumptions
and the estimations as future will always
remain as uncertain.
It helps in making the long run strategic
investments and in making informed decisions
in relation to choosing the most profitable
It still remains as introspective as discounting
and risk factor remains as subjective to
manager's perception.

project.
It assists in choosing the investments wisely
for attaining competitive edge in the market.
Wrong decision could impact long run
durability of ABC Ltd and thus it is required to
be done by the professional which incurs high
cost.
Zero based budget- It is an approach to prepare and plan budget from Zero base or
scratch. It starts from zero by justifying the expenses for all periods.
Advantages Disadvantages
It enables the business in allocating the
resources in efficient way and does not
consider the past budget numbers rather looks
at actual numbers.
It requires involvement of large number of the
employees where many of the departments
may not have an adequate human resources
and the time for same.
This planning tool helps the department in re-
looking towards each item of cash flow and
computing their operational costs (Tenhunen,
2018). This in turn helps in reducing cost to
certain extent as it provides clear picture of the
costs against the desired performance.
This approach is seen as highly time-
consuming for an entity as it requires providing
training to the employees and needs skilful
staff for preparing this budget.
It provides better communication and the
coordination within department and motivation
to the employees by including them in the
decision-making process.
It involves providing an explanation for each
and every line item and all types of cost which
is considered as the problematic task and needs
training for managers.
It is the approach that leads to determining
optimum opportunities and more cost-efficient
in doing the things by way of eliminating all
unproductive activities.

M3. Analysing uses and application of planning tools
Planning tools Uses
Activity based budget This technique is most suitable for ABC Ltd
for evaluating their each and every cost driver
and helps in viewing the firm as a single unit.
Zero based budget It is used for re-evaluating and re-examining
all the items from scratch or grounds with
proper justification (Alexey, 2018).
Capital budget This tool is seen as useful for ABC Ltd in
selecting most desirable, feasible and viable
project from various alternatives so that higher
returns could be generated.
LO4.
Comparing the ways organizations are adapting management accounting systems
With the increase in competition, there are increase in the business complexity which has
caused various financial problems. Few ways through which business can tackle can financial
problems are stated below.
Benchmarking: In this, the actual performance of the business organization is compared
with the performance of its competitors (Hopper and Bui, 2016). This helps in evaluating the
strength and weaknesses of the organization in terms of process and cost so that remedial actions
can be taken to reduce it. This approach will be helpful for ABC Ltd meeting with its financial
problems.
KPI: The organization can set certain performance parameters which can be both
financial and non-financial and based on which the performance can be evaluated. It can be
department wise or for individual employee performance evaluation. It will assist ABC Ltd in
identifying the areas where it is lacking so that timely actions can be taken.
Budgetary targets: It refers to target which is being set by the management which is
being required to be achieved by the employees in a specific period (Yigitbasioglu, 2016). These

targets are required to be achieved within the set budget. This will help ABC Ltd in working
within the budget and managing the financial resources.
Financial governance: It can be referred as the way through which the companies
collect, monitors and analyses their financial transactions and other information (Tenhunen,
2018). It provides assistance to the organization in tracking their financial resources and other
important financial aspects along with complying with the relevant regulations.
ABC Ltd Starbucks
The ABC limited is using cost accounting
system which helps it in effective managing
the cost and also assists in taking effective
steps in for exercising control over the
activities which are unnecessary.
On this side, Starbucks is using inventory
management system which helps it in
effectively managing the inventory. It provides
assistance in respect to when the new order is
required to be placed which helps in avoiding
the situation of over stock or under stock and
reduction in unnecessary expenses.
CONCLUSION
It can be summed up from the above that management account (MA) has a crucial role to
play in an organization. The various techniques and systems such as cost and inventory
management system help in dealing with various challenges of the organization. The techniques
like absorption costing and marginal costing is used by the organization for the purpose of
analysing the cost based on step can be taken for exercising cost control. The different forms
planning tools that can be put into practice which results into implementation of budgetary
control. The various types of costing methods and a comparative analysis of the two organization
based on the management accounting system being used is analysed. There are number of ways
through which an organization can effectively face the challenges being caused by the financial
problems, for instance, benchmarking, key performance indicators, budgetary targets and so
forth. Therefore, it can be said that MA is very essential for achieving sustainable success.

REFERENCES
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