Management Accounting and Reporting

This document provides an introduction to management accounting and its essential requirements. It explains the methods used for management accounting reporting and the benefits of management accounting systems. It also discusses the calculation of costs and the integration of management accounting systems and reporting in organizational processes.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
P1: Explanation of management accounting and the essential requirements of its systems..................3
P2: Methods used for Management Accounting Reporting....................................................................5
M1: Benefits of Management Accounting Systems.................................................................................6
D1: Integration of Management Accounting Systems and Management Accounting Reporting in
organizational processes.........................................................................................................................6
TASK 2..........................................................................................................................................................7
P3: Calculation of costs............................................................................................................................7
M2: Accurate application of management accounting techniques and producing of appropriate
financial documents................................................................................................................................9
D2: Producing of financial reports.........................................................................................................11
TASK 3........................................................................................................................................................11
P4: Advantages and Disadvantages for different types of planning tools used for budgetary control. .11
M3: Analysis of use of planning tools and their application..................................................................13
TASK 4........................................................................................................................................................13
P5: Comparison of organizations...........................................................................................................13
M4: Analysis of organization’s response to financial problems.............................................................15
D3: Evaluation of planning tools for accounting....................................................................................15
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................16

INTRODUCTION
Management Accounting refers to the use of financial data and provisions in such a
manner so that the right conclusions can be drawn and recommendations can be made effectively
and efficiently (Armitage, Webb and Glynn, 2016). This helps the managers a lot to take the
right decisions in the context of the situation and therefore helps in taking the right action.
Therefore, the management accountants are required to focus a lot on analysis and interpretation.
Thus using it they can compare the results of current year with the previous year and the industry
standards to find out the deviations and variances if any so that rectifying action can be taken
quickly to resolve these deviations and variances. For this report, City Technology Ltd. has been
chosen. It is a manufacturing firm is. In this assignment, specific analysis will be made on
understanding of management accounting systems, application of techniques, and explanation of
the use of planning tools. Additionally, comparison of ways in which organizations can make use
of management accounting to solve their financial problems will be discussed as a part of this
project.
TASK 1
P1: Explanation of management accounting and the essential requirements of its
systems
Management Accounting- Management Accounting refers to the use of right techniques
for analysis and interpretation of data in such a manner so that the decisions can be taken
effectively and efficiently by the company without any problems and issues. It can be used by
the managers of City Technology so that the right decisions can be taken which can help in
achievement of goals and objectives as well as maximization of the profits in the future time
period.
Management Accounting Systems-
Cost Accounting System- Cost Accounting System is a system in which the
management accountants analyze the overall costs incurring in an organization (Azudin and
Mansor, 2018). This helps them in making sure that they are able to use different types of
techniques for reducing the costs and therefore maximizing the available level of profits without
any problems and issues. Thus this will lead towards maximization of profits and achievement of
goals and objectives. Therefore the managers of City Technology can make use of it so that they
are able to reduce the costs and maximize the profits.
Essential requirements-
 Cost Accounting System should be able to help the management accountants in
identification as well as segregation of the costs.

 Cost Accounting System should be able to make sure that the right techniques are used in
order to reduce the costs and maximize the level of profits.
Inventory Management System- Inventory Management System should be able to help
the management accountants in making sure that the stock is valued in the right manner
and the right techniques are used effectively and efficiently (Bromwich and Scapens,
2016). Thus this helps in making sure that the inventory is valued and managed correctly.
Therefore the managers of City Technology can make use of it so that they are able to
manage the inventory properly.
Essential requirements-
 Inventory Management System should be able to manage the stock levels using the right
techniques effectively and efficiently.
 Inventory Management System should be able to identify the deviations and variances if
any in the stock valuation so that the right action can be taken to reduce them as soon as
possible.
Job Costing System- Job Costing System can be used by the organizations so that they
are able to make sure that they are able to manage their orders properly without facing
issues and problems. Thus efficiency and effectiveness can be brought in the order
management by the right use of this system (Bui and De Villiers, 2017). As City
Technology is a manufacturing company it can make the right use of this system
effectively and efficiently so it is able to bring the required efficiency and effectiveness in
its order management.
Essential requirements-
 Job Costing System should be able to make sure that the job orders are managed
effectively and efficiently. This makes sure that the organization is able to manage them
without facing any kind of issues and problems.
 Job Costing System should be able to make sure that the cost of completing job orders is
reduced so that the level of profits can be maximized. Thus in this way the company can
achieve higher level of efficiency as well as effectiveness in its operations.
Price Optimization System- Price Optimization System can be used by the companies
so that the right price can be set by the companies which will make sure that the firms are
able to earn higher level of profits in the future time period without facing issues and
problems.
Essential requirements-
 Price Optimization System should be able to manage the prices according to the demand
levels.

 Price Optimization System should be able to make sure that the right prices are set to earn
higher level of profits.
P2: Methods used for Management Accounting Reporting
Different types of methods are used for the purpose of Management Accounting
Reporting. These are explained as follows-
 Budget Reports- Budget Reports are prepared so that the right forecasts can be made
about the revenues and the expenses can be regulated effectively and efficiently (Christ
and Burritt, 2017). The managers of City Technology can use these reports so that they
are able to make a right estimate about the revenues and the level of expenditures. Thus it
is required from the managers that they should prepare a report using them and must use
them in the right manner. If they are able to frame a right budget report then this will
naturally lead the company towards achievement of sustainable success in the future time
period. These reports are prepared on the basis of various types of budgets such as cash
budget, sales budget, master budget etc. Thus the right conclusions and recommendations
can be made through these reports using the correct techniques of analysis and
interpretation.
 Performance Reports- Performance Reports can be prepared so that the performance
can be gauged (Cooper, Ezzamel and Qu, 2017). In City Technology, there are different
departments which are operating such as Finance, HR, Production, Sales, and Marketing.
Therefore it is required from the managers that they must assess the performance of these
departments. This will make sure that the deviations and variations are addressed quickly
so that the required rectifying actions can be taken. The techniques through which the
performance can be increased in the different departments can be used so that higher
level of efficiency as well as effectiveness can be brought in the operations.
 Accounts Receivables aging reports- Accounts Receivables Aging Reports can be
prepared in a company to make a list of the debtors who have to do the payment to the
firm (Fiondella and et.al., 2016). In the context of City Technology, it is highly essential
that the organizations are able to make sure that they make a list of the debtors and also
identify those have not paid their dues since a long period of time and thus this will help
in identifying the potential bad debts. Therefore through these reports a high-level of
efficiency as well as effectiveness is required to be brought into the system which h will
make sure that the goals and objectives are achieved without facing any kind of issues
and problems in the future time period. Identification of those debtors who have not paid
dues since a long-period of time can be made easily by using these reports. Further, the
receivables can be segregated as well so that the companies can take the correct action.
 Cost Accounting Reports- Cost Accounting Reports can be used to analyze the costs in
an organization (Honggowati and et.al., 2017). The managers of City Technology can use
them to make sure that the excessive costs and unnecessary overheads are identified
quickly so that an action can be taken at the right time which will lead towards

achievement of higher level of efficiency as well as effectiveness. This will lead to
reduction in the overall costs and thus the firm can target the maximization of profits in
the future time period in order to achieve a strategic edge over its rivals. If the overheads
in a particular department are increasing then the reasons can be quickly identified and
immediate steps can also be taken so as to make sure that the firm is reduce them.
Therefore in this manner the required level of productivity can be achieved and thus
short-term and long-term goals and objectives can be attained in the future time period.
M1: Benefits of Management Accounting Systems
There are various types of benefits which the management accounting systems offer to an
organization. Cost Accounting System helps in reducing costs. Also it makes sure that the
required efficiency and effectiveness is achieved. Inventory Management System helps in proper
valuation of inventory. Also, it makes sure that the right management of stock is done. Job
Costing System helps a lot in management of job orders. Also, it can make sure that it is able to
track the job orders without issues and problems. Price Optimization System helps in optimizing
the price and making sure that the right price is charged so that profits can be maximized. Also, it
can help in making sure that prices are changed according to demand levels.
D1: Integration of Management Accounting Systems and Management Accounting
Reporting in organizational processes
Management Accounting Systems can help a lot in making sure that the productivity
level can be increased. They can be integrated in the organizational processes by making use of
right system whenever required. Also, Management Accounting Reporting helps in preparing
reports for the purpose of high-level analysis and interpretation. These reports can be integrated
in the organizational processes by doing proper analysis and interpretation whenever required.
Thus in this manner both the systems as well as reporting methods can be integrated according to
the needs and requirements of the organization. Therefore it is required from the firms that they
analyze whenever required to do so.

TASK 2
P3: Calculation of costs
The costs can be calculated through the use of various types of methods in an
organization (Hopper and Bui, 2016). City Technology can make use of the following methods-
Marginal Costing-

Marginal Costing is a technique which is used so that the variable cost is charged to the
units of production and the fixed cost is written off against the contribution level. This technique
is highly effective for the organization so that it can compute its costs. City Technology’s
managers make use of this technique so that they are able to get the work done without
encountering any kind of issues and problems in the future time period.
Advantages-
 Marginal Costing system helps a lot in order to take the right decisions on the basis of
consideration made for various types of factors (Järvenpää and Länsiluoto, 2016). Thus
the managers of City Technology can make use of this system so that they are able to
take the right decisions.
 In Marginal Costing system, the cost of sales can be calculated easily and therefore this
makes it quite easier to understand. Thus it is beneficial for the management of City
Technology so that they are able to make sure that they can calculate the right cost of
sales.
Disadvantages-
 Marginal Costing System makes an assumption that all the expenses are either fixed or
variable in nature. This does not hold true for some of the expenses. Therefore this
creates a disadvantage for the managers of City Technology.
 Marginal Costing System makes it quite difficult to segregate the costs and sometimes
the results which are obtained can be inaccurate. Thus this is a disadvantage which is
created for the managers of City Technology.
Absorption Costing-
Absorption costing technique can be used effectively for the purpose of calculation of the
total cost which is involved in the manufacturing of a product or providing a service by
an organization (Järvinen, 2016). By using it, a company can make sure that it is able to
calculate the right costs without problems and issues. Therefore the managers of City
Technology can make use of this technique so that they are able to get the accurate
estimate of costs which are likely to be incurred in the organization.
Advantages-
 Fair pricing- Absorption Costing Technique helps a lot to the organizations in making
sure that they set a right price for their products and services (Kumarasiri and Jubb,
2016). Thus it is advantageous for the managers of City Technology. This is so because
they can set the right price and can earn higher level of profits.

 Importance of fixed cost- Absorption Costing Technique is quite helpful for the
companies so that they understand the importance of fixed cost. Therefore it is
advantageous for the managers of City Technology.
Disadvantages-
 Not suitable for decision-making- Absorption Costing Technique is not suitable for the
purpose of decision-making. The managers are not able to take the right decisions by
using this technique. Thus for the managers of City Technology this creates a
disadvantage.
 Not suitable for flexible budget- Absorption Costing Technique is not suitable for
flexible budget. The managers are not able to prepare a flexible budget for different
departments by using this technique. Therefore for the managers of City Technology this
can create a disadvantage as this can lead towards problems.
M2: Accurate application of management accounting techniques and producing of
appropriate financial documents

Management Accounting Techniques of Marginal and Absorption Costing can be used in
the right manner in the organization. This is so because both of them have to be used correctly so
that the accurate picture of financial position of the company can be obtained. Thus the managers
of City Technology should make sure that they use them correctly so that they can accurately
determine the costs and can also make sure to draw the right conclusions and recommendations
from the results obtained by using these techniques.

D2: Producing of financial reports
Interpretation- By analyzing the Cash Flow Statement of City Technology, it can be
interpreted that surplus cash is available for the firm all throughout the year. Thus it can be said
that firm manages its cash resources effectively and efficiently and makes sure that it is able to
have surplus cash available with it for day-to-day activities at any time whenever the need
occurs. From the Balance Sheet, it can be interpreted that the financial position of the company is
quite strong. Thus it can be said that the firm is making the right use of techniques of
management accounting in its operations.
Financial reports can be used by the managers of a particular organization so that they are
able to make the right judgments from the financial position obtained from them. In the context
of City Technology, it becomes highly essential that they are able to get the right work done
without the creation of problems and issues. Thus this helps the managers to take the right
decisions after analyzing the various types of aspects and thus by doing so they can make sure
that the level of efficiency and effectiveness in the company rises and thus it will be able to
maximize the level of profits by taking correct judgments.
TASK 3
P4: Advantages and Disadvantages for different types of planning tools used for
budgetary control
There are different types of planning tools which can be used for the purpose of
budgetary control by the organizations. These are explained as follows-
Cash Budget-
Cash Budget can be used by the organizations to forecast cash receipts and set a limit for
cash expenditures for a particular period of time mostly a year (Lachmann, Trapp and Trapp,
2017). This can be used by management of City Technology so that they are able to effectively
forecast and make assumptions using the right techniques.
Advantages-
 Cash Budget can be used by the organizations so that they are able to take the right route
for planning for cash operations. Thus in this way it is advantageous for City
Technology’s managers.
 Cash Budget can be used by the firms so that they are able to make sure that they can
manage the cash and liquid assets well. Therefore in this way it creates advantage for the
managers of City Technology.
Disadvantages-

 Use of Cash Budget can result in the creation of problems related to flexibility in the
organizations. Thus in this way it is disadvantageous for City Technology’s managers.
 Preparation of Cash Budget is quite time-consuming and costly in nature. Thus this
creates a disadvantage for the managers of City Technology.
Sales Budget-
A Sales Budget can be used by the organizations so that they are able to keep a track
record of their sales operations and manage them effectively (Maas, Schaltegger and
Crutzen, 2016). Thus in this way the managers of City Technology can make use of it.
Advantages-
 A Sales Budget can be quite advantageous for the organizations so that they are able to
get the estimate of sales for a particular period of time. Thus this creates an advantage for
City Technology.
 A Sales Budget can be very helpful for the companies to compare the sales of current
year with previous year. In this way this creates an advantage for the management of City
Technology.
Disadvantages-
 Creation of a Sales Budget can also be disadvantageous for the organization as if the
forecasts made are wrong then wrong conclusions can be drawn. This create disadvantage
for the managers of City Technology.
 Sales Budget relies a lot on various types of assumptions and if any of them is wrong
then it will provide wrong results. Thus this is a disadvantage for the managers of City
Technology.
Master Budget-
A Master Budget refers to an aggregation of the different types of lower-level budgets
used in an organization (Mokhtar, Jusoh and Zulkifli, 2016). Thus it is a comprehensive
budget framed by the management. In this way it can be used by the managers of City
Technology.
Advantages-
 Master Budget helps a lot in identification of problems and planning ahead (Nitzl, 2016).
Therefore this makes sure that the managers of the company are able to resolve their
problems effectively. This is advantageous for City Technology’s managers.
 Master Budget is also helpful for the organizations so that they are able to make sure that
the different departments are performing effectively and efficiently (Novas, Alves and
Sousa, 2017). Thus this creates advantage for the managers of City Technology.

Disadvantages-
 The preparation of Master Budget is time-consuming in nature and thus a lot of time is
involved in preparing it. Therefore this creates a disadvantage for the managers of City
Technology.
 The preparation of Master Budget is expensive and thus this can lead towards increase in
the overall expenses of the managers of City Technology. Thus this creates a
disadvantage for them.
M3: Analysis of use of planning tools and their application
The different planning tools can be analyzed effectively and efficiently and their
application can be done within the context of the organization. Therefore in this manner the
managers of City Technology can make sure that they are able to use these tools without the
creation of problems and issues in the organization. This will help them in increasing the overall
productivity and thus they will be able to achieve the goals and objectives which are set by the
company for the future period of time.
TASK 4
P5: Comparison of organizations
Financial problem refers to the situation which is created within an organization which
leads towards problems and issues (Otley, 2016). Like all other organizations, City Technology
also faces financial problems. The financial problems which it is facing are as follows-
 Excessive overheads- Excessive overheads have been created in the various departments
of the organization. This is creating problems and issues for the managers of the
organizations as it leads to an increase in the overall costs and thus the profits are
affected.
 Mismanagement of job orders- There is a mismanagement of job orders which is
happening within the organization. This issue is taking place because the job orders are
not maintained properly which is leading towards this problem.
Techniques used by the company for solving financial problems-
 KPIs- KPIs refers to the Key Performance Indicators (Qian, Hörisch and Schaltegger,
2018). They are of two types- Financial and Non-Financial. Financial KPIs are used in
order to track the financial performance and Non-Financial KPIs are used for tracking of
non-financial performance. Thus using them, the organizations can make sure that they
are able to optimize their performance effectively. The managers of City Technology can
use them so that they are able to solve the financial problem of excessive overheads as by
using financial KPIs they can find out techniques of reducing excessive overheads.
 Benchmarking- Benchmarking is a process which involves looking outwards for
examining how performance levels can be achieved and the understanding of processes

which are required to be used (What is Benchmarking?, 2015). For the managers of City
Technology, it is essential that they make use of this technique so that they are able to
solve the financial problem of mismanagement of job orders as by setting a benchmark
time for the completion of job orders the problem can be easily resolved.
Financial Governance- Financial Governance refers to the ways which the company
uses to collect, manage and organize the financial information effectively and efficiently
(Quattrone, 2016). Therefore the managers of City Technology can make use of it so that
they are able to solve the financial problems of excessive overheads and mismanagement
of job orders. This is so because by using it in the right manner the problems can be
solved and thus the required level of efficiency and effectiveness can be maintained. Thus
this makes sure that the firm is able to meet its short-term and long-term goals and
objectives.
Comparison between organizations-
Basis Tesco Sainsbury’s
Financial Problem Tesco is facing a financial
problem of excessive costs
in its multiple departments
which is leading towards an
increase in its overall costs
thus leading to a decrease in
the overall profits. This has
created a specific issue for
the managers of the
organization which they
have to deal with.
Sainsbury’s is facing a
financial problem of
lowering of profits because
of setting of wrong price in
the market which is creating
problems for it as it is
getting behind its
competitors in the market
and thus is affecting its
goodwill in the market.
Management Accounting
System Used
Tesco can use Cost
Accounting System to solve
this financial problem.
Sainsbury’s can use Price
Optimization System to
solve the financial problem.
Application of the system By using Cost Accounting
System the company can
make sure that it is able to
reduce the excessive costs
and can increase the profits.
By using Price
Optimization System the
company can make sure that
it is able to set a right price
after analyzing the demand
levels and thus enhance its
level of profits in the future
time period and can get a
strategic edge over its
competitors.

M4: Analysis of organization’s response to financial problems
An organization is required to make sure that it is able to identify where its financial
problem lie and thus the right techniques have to be used by the managers to solve the financial
problems which will make sure that the organization is able to achieve its goals and objectives in
the future time period. Therefore the managers of City Technology are required to make sure that
they can respond properly to these problems.
D3: Evaluation of planning tools for accounting
The planning tools for accounting can be quite helpful for the organizations as they can
help it in identification as well as solving the financial problem in the future time period. Thus it
becomes highly important for the managers of City Technology to make sure that they are able to
use them in the right manner so that they can eradicate the problems and bring the required
efficiency and effectiveness in the overall operations. Thus in this way the companies can make
sure that they achieve the required goals and objectives and can target profit maximization in the
long run in the market.
CONCLUSION
From the above report, it can be said that management accounting helps the managers in
taking of right decisions in the future time period. It is quite helpful for them as it makes sure
that they take the right decisions in the context of the situation. There are various systems of
management accounting. Its reports are very helpful for the management. The costs in a
company can be calculated using the right techniques. The planning tools for budgetary control
ensure that the firm is able to achieve the goals and objectives. Also, the organizations can make
use of management accounting systems to respond to their financial issues and problems.

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Online
What is Benchmarking?. 2015. [Online]. Available through:
<https://www.tutor2u.net/business/reference/what-is-benchmarking>