Analysis of Management Accounting Systems

The assignment provides a comprehensive overview of management accounting systems, discussing the role of cost and management accounting in addressing financial problems. It also examines the impact of total quality management adoption on small and medium enterprises' financial performance and reviews public sector budgeting practices. The document includes references to various books and journals that support the analysis.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Different type of management accounting system................................................................3
P2 Different type of management accounting reports.................................................................5
TASK 2............................................................................................................................................6
P3. Range of management accounting techniques.......................................................................6
TASK 3............................................................................................................................................9
P4.Planning tools used in management accounting.....................................................................9
P5. Comparison of organisations adapting management accounting to respond to financial
problems. ...................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
In the today's present business scenario, there is an essential need of appropriate a skilled
management system that help to control the valuable operation of company in order to increase
the efficiency of business (Collis and Hussey, 2017). Management accounting is a procedure
related with analysing, controlling, managing useful financial information within a business firm
in order to make meaningful decision by the top level manager for growing and developing
profitability in specific period of time. The entire process of cost or managerial accounting start
by gathering, reporting, calculating, measuring, analysing and transferring valuable financial
information of company that are helpful to accomplish the desired goals in predefined time
period. To better understand the importance of management accounting KEF LTD is selected
that is a manufacturing company.
In this report, understanding of various system and reports are demonstrated, by applying
valuable accounting techniques production cost per unit, budgeted P&L statements etc. are
calculated. In addition, report also discuss the use of different planning tool that are used in
management accounting and the ways different system help to respond financial problems.
TASK 1
P1. Different type of management accounting system
In the business context, the concept of management accounting is consider to be an
internal befitting system that support to calculate or measure the overall performance of assorted
units within business firm. Manager usually set standard for evaluating performance, examining
various strategies which support in accomplishing defined goals also aid to make out actual
reasons in deviations for current objective (Schaltegger, Burritt and Petersen, 2017). In business
term, management accounting usually deliver the non-financial and financial data to the manager
and other employees of firm that help to make best effective decision in order to increase the
profitability, productivity and attain goals. There are various useful system of management
accounting that help the management of KEF Ltd that are defined below:
Inventory management system: This system helps to manage inventory of business firm
in form of raw material, goods in transact and finished goods. There are various methods for
controlling stock of company like FIFO, LIFO and Average method that provide the strength to
supply chain of company. In KEF Ltd FIFO method is applied as with this method they are able

to remove old goods and also reduces losses due to obsolescence. First in First out help KEF Ltd
to produced product as per the trends in market and customer preferences this help to grow
profit.
Cost accounting system: It is used to determine the cost of total production of various
goods manufacture by company. It basically includes total cost at several level and also include
fixed cost that help to determine the profit. There are useful method of accounting cost such as,
marginal and absorption costing, lean costing, activity and standard costing method. In
respective company Activity based costing method is used that basically assigns total cost to
goods which are related with producing goods (Humphrey, C. and Miller, 2012).
Job Coasting system: This method mainly record the cost which are related with
producing good job within an organisation. It assist to delegate manufacturing cost to each good
and product director and accountant have evidence of cost of each product. This system also
support in calculating cost of various product that are manufacture by company in same period of
time. Thus, in KEF Ltd this system help to evaluate and measure the cost of various useful
product that are produced by company in order to meet the customer needs.
Price optimisation system: This is considered to be most important system for company
as it help to determine the customer reaction on prices set by company for manufacture product.
Manager use to fix decent price of goods that will make customer happy and profit can be
maximised. So in KEF Ltd this system support to get the best prices for produced goods in order
to reduce the chances of overpricing and attain the desired profit by satisfying customer.
Benefits of different system
Different accounting
systems
Benefits
Inventory management
system
 It aid company in utilising available goods and raw
material so that desired goals can be attained.
 This system support to keep a proper track of entire stock
and of any request from supplier so that profit can be
increased ( Holsapple, 2013).
Job Costing system  This system assist to provide decent steadiness in
examining and decreasing cost relevant to specific job

within KEF Ltd.
 With the aid of this system management are able to keep
record of employees performances in order to make any
possible improvement.
Cost accounting system  Cost system chiefly aid in evaluating cost related with raw
material, direct labour and overhead costs so that actual
cost of goods can be determined.
 The main importance of this system is to provide proper
help in formulating of business policies and other effective
methods in order to increase profit.
Price optimization system  By using this system effective help is provided in order to
give a brief idea in relation with KEF Ltd products.
 The main benefits of price system is to provide a
framework that support to set the best price of product.
Methods used for presenting financial information.
In Morden business world there are different manner used by internal management to
display the valuable financial information (Takeda and Boyns, 2014). In KEF Ltd some method
used to preset the annually prepared financial information are:
Balance sheet: It help to display the entire financial position of KEF Ltd during an
accounting year. The useful financial information is presented in Horizontal form that gives the
detail information about company happing.
Income statements: This financial documents use to defined the total expenses and
income for company in accounting year that is presented in “T” shape.
Profit and loss Appropriate accounts: This statements helps to explain the overall
profit of KEF earned during a specific period.
P2 Different type of management accounting reports.
There are various types of management accounting reports that help to analyse the
valuable performance and trends of business within company during a specific time frame. These
are defined below:

Budget Report: This report help to make a better prediction about the upcoming income
and revenues from total business operation of company. In context of KEF Ltd the report support
manager to determine the future and present issues that can impact the income and budgets
exceeds its prediction. With the aid of Budget report, manager are able to develop valuable
reserve and relevant funds that can be used to meet contingencies (Zoni, Dossi and Morelli,
2012).
Performance Report: These reports are mainly prepared for the purpose to record and
measure the performance of employees and business process within an organisation. Manager
basically set target and measure the performance that help in making any possible improvement.
In respective company, management use to assign task and set the deadline for completing
specific work in order to measure the performance of employees and in case if any shortage are
found than necessary steps are taken to increase performance level.
Account receivable report: This reports help to display the present financial position of
KEF Ltd and it holds the detail information about the net inflows and outflows of cash during a
year. It also support to improve the credit policy of company as company have proper record of
each customer from whom money is to be collected on specific date. As per this report the KEF
Ltd are able to make effective decision so the financial status, profitability and market share can
be increased.
TASK 2
P3. Range of management accounting techniques.
Absorption costing: This simply means, to acquire or absorb something relevant to a
specific objective. It mainly includes all those cost that are involved in producing a specific unit
of good. The main drawback of this system is that is gives the total cost of production but do not
support in decision making process (Grabner and Moers, 2013).
Marginal costing: It is defined as the extra cost implemented by companies in order to
get an extra unit of output that help to increase production level. This system of costing only
includes variable cost because fixed cost are already treated against contribution.
1.Production cost per unit.
Amount Details
Direct Material 12
Direct Labor 20

Variable production overheads 8
Total fixed production overhead cost = £120000
Use standard volume of 20000 units to absorb
the fixed production overhead cost
Selling price = £60
Absorption cost = £46
Absorption Costing = £46/unit {12+20+8+120000/20000=46}
2.Total production cost
Budget: Absorption Costing
technique Sep 2018
Production Cost
Per Unit Total
£ £
Direct Material 12 18000*12 216000
Direct Labor 20 18000*20 360000
Variable production overheads 8 18000*8 144000
Fixed overheads 6 18000*6 108000
46 18000*46 828000
3.Cost of sales for June.
BUDGETED COST Amount
£
Cost of production 828000
Opening Inventory 0
Closing inventory -92000
COST OF SALES 736000
4. Profit and loss statement by using techniques
ABSORPTION COSTING: BUDGETED PROFIT
OR LOSS STATEMENT
PER UNIT TOTAL
£ £ £ £
SALES 60 10800000
COST OF PRODUCTION
DM 12 216000
DL 20 360000
VOH 8 144000
FOH 6 108000
46 828000
OPENING INVENTORY 0

CLOSING INVENTORY -92000
COST OF SALES -736000
STANDARD PROFIT 344000
ADJ. FOR UNDERABSORPTION -10000
BUDGETED PROFIT 3340000
MARGINAL COSTING: BUDGETED
PROFIT OR LOSS STATEMENT.
PER UNIT TOTAL
£ £ £ £
SALES 60 10800000
COST OF PRODUCTION
DM 12 216000
DL 20 360000
VOH 8 108000
FOH 40 684000
OPENING INVENTORY 0
CLOSING INVENTORY -80000
COST OF SALES 35 604000
CONTRIBUTION 15 (240000)
FOH PRODUCTION -100000
BUDGETED PROFIT 264000
5. Preparation of final account after June.
Actual cost by using absorption costing methods:
ABSORPTION COSTING: ACTUAL PROFIT
OR LOSS STATEMENT SEP 2018
PER UNIT TOTAL
£ £ £ £
SALES 60 1140000
COST OF PRODUCTION
DM 12 228000
DL 20 380000
VOH 8 152000
FOH 6 114000
46 874000
OPENING INVENTORY 0
CLOSING INVENTORY -138000
COST OF SALES 40 -736000
STANDARD PROFIT 10 404000

ADJ. FOR UNDERABSORPTION -5000
BUDGETED PROFIT 399000
Difference among budgeted and actual cost:
PARTICULAR BUDGET ACTUAL
£ £
FOH CHARGED TO PRODUCTION COST 108000 114000
under FOH charged to Profit or Loss account 10000 5000
FOH CHARGED IN THE MONTH 100000 100000
FOH TRANSFERRED THROUGH CLOSING
INVENTORY TO NEXT MONTH OCT 2018 10000 15000
FOH CHARGED 90000 85000
6. Other costing techniques:
The above two mention method are helpful for KEF Ltd in order to determine the Profit
within specific period of time. There are few other methods that are be more benefit for company
like:
Process costing: This is suitable for KEF Ltd because the production is the main function
and the finished good of one process is consider as raw material for other product until the
desired product in not produced (Process costing, 2019).
TASK 3
P4.Planning tools used in management accounting.
In business term, the budgets are defined as the legal and useful document that is usually
prepared by an organisation to make valuable prediction about total income and expenses within
specific time frame. The are is a systematic method of preparing a budgets that support in
decision making in KEF Ltd such as:
 The first step is related with masking of assumption depending upon the nature of
business environment.
 The next is to review the issues that can hinder performance and impact growth.
 Appropriate time frame is fixed such as annually, monthly etc.
 Each type of costs such as fixed and variable costs are determined.
 Total income are recorded for the time period and actual results are compared with
budgeted (Morden, 2016).

 In order to make more authentic future budgets analysis are made to fix the issues and
drawbacks.
It is stated that main reason for preparing budgets is to reduce the possibilities of risks for
company that may arises due to differences in results of actual and standard budgets. There are
various types of budgets that are used as planning tool in KEF Ltd to ease the process of
budgetary control. These are defined below:
Flexible Budgets: This budget are helpful in modifying the actual budgets of company
due to some emergency or uncertainty that unable to work according to old budgets. In KEF Ltd
this budget helps to involve new expenditure that can be generated by any future situation and
also help to make a systematic record of new ways for increasing revenue during an accounting
year. Flexible budget of KEF Ltd is founded on modification that arises with the changes in
semi-variable, variable cost and fixed cost There are different advantages and disadvantage of
this budget that are defined below:
Advantages:
 It enable internal mangers to make best cost control measures because it is basically
prepared with latests trends of market (Siverbo, 2014).
 This budget support the management of KEF Ltd to make possible adjustment and
changes in the total cost and so that profit margin can be increased.
Disadvantage:
 This type of budgets are confusing and complex in nature that require skilled labour.
 It requires extra efforts and time, it also lacks discipline and can be altered at any time.
Zero based budgeting: It is consider to be most effective management accounting tool
that ease the procedure of making new budgets without considering previous budgets. The
process of ZBB mainly includes re evaluation of each product within cash flow and also justify
the different expenses that are spent by various units. In KEF Ltd this budget is helpful in
estimating the entire cost used in producing valuable goods that is incurred depending upon the
actual expenses in-fact of old data. There are various advantages and disadvantage that are
defined below:
Advantages:
 Helps to give efficiency and accuracy and in results because it re-evaluate each elements
of cash flow.

 ZBB basically provides better coordination communication between various departments
so that decision are made more accurately (Booth, 2018).
 The main important this budget helps in reducing the extra activities of KEF Ltd in order
to increase profit.
Disadvantage:
 The major disadvantage is that it requires skilled manpower and used more time in
predicting results.
 This Budgets also lack the expertise required in preparing a budget.
P5. Comparison of organisations adapting management accounting to respond to financial
problems.
In business world, each type of organisation faces different types of problems due to
which entire functioning and business operation can be reduced. The situation of financial issues
gives various drawbacks such as they are not able to generate enough funds, increase production,
satisfy employees and so on. There are few financial problem that are faced by KEF Ltd that are
defined below:
Lack of Money Management: This financial problem impact the business operation of
respective company in greater manner as they do not have skilled person to manage the funds in
proper manner. There is more spending on different promotion activity and company is not able
to increase sales due to which there is requirement of skilled management (Lachmann, Knauer
and Trapp, 2013).
Special order: Basically company is lacking in producing extra special unit of goods on
customer demands due to which overall profitability is increasing day by day. In case if
management are taking initiative to produce special order than actual production for day is
reducing due to which employees are not happy. This reduces the customer base and gives
advantage to competitors.
In order to determine the different financial problem management of KEF Ltd uses
various crucial management accounting tool that help to deliver the best results. Basic
accounting tool that support to determine the provide solution to financial problem are defined
underneath:
KPI: This support to measure the overall performance of worker within company and
make valuable decision for improving profitability. Hence, performance indicator aids in

characteristic the entire expenditure and total return from investment made on specific project. In
context of KEF Ltd, key performance indicator is implemented to find out the financial issues
related with lack of money management. As it consider all those business operation that are
helpful to get best possible results in future.
Benchmarking: It is one of the most beneficial management tool that support company
to fix standard in order to measure the performance against competition. This tool is used in KEF
Ltd to resolve the issue of special order due to which customer demands are not satisfying and
they are losing their interest day by day (Kober, Subraamanniam and Watson, 2012).
Financial governance:
The concept of financial governance is defined as the best management tool that help to
develop the best resolution of various problems that are faced by company and due to which
performance get reduced. It is a descriptive method related with collecting useful information,
controlling and managing financial resources and workforce in order to get best authentic results.
It help to resolve the problem of misuse of money has it enable management of KEF Ltd to keep
a systematic record of each financial dealing incurred in company in order to increase sales. Thus
it help to reduce the mismanagement of money and increase profitability of business. In KEF Ltd
this tool also aid managers in determining the trends in market and hire skilled workforce to
produce the special order on demand of customer.
Comparison:
ABC Ltd KEF LTD
The company use to manufacture car and thus
faces financial problem related with pricing.
Therefore customer are not satisfied with
company policies.
This respective company aspect various
financial issues like lack of money
management and special order.
In order to develop solutions for financial
problem manager of respective company uses
price optimization system to fix the best price of
their product in order to increase the
profitability.
In order to overcome the issue of special
order company uses inventory management
system so that supply of special goods are
meet with the demands.

CONCLUSION
The above project report concluded that, management is consider to be valuable
components for an organisation that support in systematic analysing, interpretation and decision
making at managerial level. Different system and reports aid an accountant to record every
business transaction in order to attain the predetermined goals. Moreover it also conclude, use of
costing method to calculate total net profit and determine the cost of production per unit.
Planning tools and its advantage and disadvantage that help in controlling budgets are analyzed
in good order to reach at definite solution. Measure of different financial issues that are happen
inside a firm and management accounting system reposed to these problems are shown. It will be
deciding to get over those problem to maintain entire growth and sustainability in future time
frame.

REFERENCES
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management: Striving for sustainability. Routledge.
Humphrey, C. and Miller, P., 2012. Rethinking impact and redefining responsibility: The
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Holsapple, C. ed., 2013. Handbook on knowledge management 1: Knowledge matters (Vol. 1).
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Takeda, H. and Boyns, T., 2014. Management, accounting and philosophy: The development of
management accounting at Kyocera, 1959-2013. Accounting, Auditing & Accountability
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Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS) change: field
evidence. Asia-Pacific Journal of Accounting & Economics. 19(1). pp.119-138.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual and
empirical issues. Accounting, Organizations and Society. 38(6-7). pp.407-419.
Morden, T., 2016. Principles of strategic management. Routledge.
Siverbo, S., 2014. The implementation and use of benchmarking in local government: a case
study of the translation of a management accounting innovation. Financial
Accountability & Management. 30(2). pp.121-149.
Booth, P., 2018. Management control in a voluntary organization: accounting and accountants
in organizational context. Routledge.
Lachmann, M., Knauer, T. and Trapp, R., 2013. Strategic management accounting practices in
hospitals: Empirical evidence on their dissemination under competitive market
environments. Journal of Accounting & Organizational Change. 9(3). pp.336-369.
Kober, R., Subraamanniam, T. and Watson, J., 2012. The impact of total quality management
adoption on small and medium enterprises’ financial performance. Accounting &
Finance. 52(2). pp.421-438.
Anessi-Pessina and et.al., 2016. Public sector budgeting: a European review of accounting and
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Online
Process costing. 2019. [Online] Available Through: <https://www.edupristine.com/blog/costing-
methods>.