Management Accounting [PDF]

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. MAS and its types.................................................................................................................3
P2. Various methods of management accounting reporting. .....................................................5
M1. Benefits of management accounting systems......................................................................6
D1. Management accounting system and reporting are integrated within the organisational
process.........................................................................................................................................7
TASK 2............................................................................................................................................7
P3. Income statement with the use of costing techniques...........................................................7
M2. Management accounting techniques for producing the financial reports............................9
D2. Interpretation of financial reports.........................................................................................9
TASK 3..........................................................................................................................................10
P4. Benefits and drawback of planning tools............................................................................10
M3. Planning tools for preparation of budgets..........................................................................11
TASK 4..........................................................................................................................................12
P5. Difference between the companies to overcome from the financial issues with use of
management accounting systems..............................................................................................12
M4. Management accounting to overcome from the financial issues.......................................14
D3. Planning tools to response against the financial problems.................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a part of accounting that is associated to systematic
arrangement of qualitative and quantitative information of the companies in the form of internal
reports (Songini, Gnan and Malmi, 2013). These reports are very crucial for internal stakeholders
of the companies, specially for managers and board of directors. This is so because on the basis
of it, they make further plans and policies. One of the key feature of management accounting that
makes it different from other accounting is that it consists both kind of information including
financial and non financial. For the purpose of understanding the management accounting
“James & Juices Ltd.” company has been chosen. This company is engaged in the production of
JOJO juice. In the project report, MAS is defined along with its essential requirement of different
systems. As well as management accounting reports are also included with the preparation of
income statements under absorption & marginal costing methods on the basis of given data.
Additionally, planning tools of budgetary control and role of MAS in overcoming from financial
issues is also mentioned in a descriptive manner.
TASK 1.
P1. MAS and its types.
The management accounting is a system of gathering, analysing and interpreting the
financial and non financial information to produce the internal reports (Myers, 2013). It consists
various kind of reports such as:
 Cost accounting system: Cost accounting system used by the managerial accountants in
order to calculated the cost of production, cost analysis and reduction in cost. Usually
people think that cost accounting is management accounting but it is just a part of
managerial accounting which is only related to cost of production and evaluation of profit
margin. This system helps in ensuring co-operation in building cost accounting
statements which helps the management in ascertaining appropriate cost of production.
Management team of James & Juices Ltd adopt this accounting system so that it may be
capable to evaluate the cost of its products and fix its profit margin. This system also
helps in improving the quality of the product according to the customer requirements and
avoiding ineffective costs which reduces cost and increase profit margin.

 Price optimisation system: Price optimisation system is a tool that analyse the customer
behaviour and reaction regarding different prices of different products (Campanale and
Cinquini, 2016). This system helps in analysing the fluctuation of demand with different
levels of prices. In this system, a cost model and price model is created for a particular
product and it presented to customers. After studying the customers reaction on different
prices, the best price which is suitable for the company as well as customers is fixed as
the product price. This system is used by the respective firm so that it can opt out the
optimum price set for its juice products with maximum profitability and customers can
be satisfied as well by classifying the consumers in different groups. Product quality and
its life cycle can be increased with the help of price optimisation system.
 Job costing system: Job costing system is used by the management in order to find out the
cost of a specific job, task or unit. This costing method is mostly used when each
produced unit has specific significance from other units. This costing method is similar to
the contract costing technique but has minor differences. The inventory produced under
job order, can not be calculated under cost accounting or inventory management system
therefore this costing system has been evolved. The administration of James & Juices Ltd
adopted job costing system to analyse and examine the cost of its products which are
manufactured for different age groups. This system is also helpful in measuring the
efforts of the employees in order to achieve the job order objectives.
 Inventory management system: For a manufacturing company like James & Juices Ltd,
inventory is the major source of its revenue hence proper record and management of
inventory is very crucial. Inventory management system helps in order to get this
objective (Bradbard, Alvis and Morris, 2014). This system helps the management in
tracking each and every movement of goods presented within the firm. It has a detailed
knowledge from purchase of raw material to goods available in the warehouses and
showrooms. It also includes the information of goods that is shipped to delivery, on
consignment or returned from the customers. With the use of this system, managers are
capable to choose the best valuation method for the inventory available in the warehouse.
This management system aids the management team in solving the queries of the
customers regarding products and also aware in context with shortage of inventory with

the help of inventory management software which alternatively helps in creating happy
customer base.
P2. Various methods of management accounting reporting.
The term management accounting reporting can be defined as a process of preparing the
reports on the basis of available information. The James & Juices Ltd company, prepares
different kind of reports such as:
 Cost accounting reports- This is a kind of report which is related to the including detailed
information about cost of various activities of a particular time period (Edwards, 2014).
With the use of this report companies can get broad information about their overall cost
of various operations. Same as in the above respective company, they are producing this
report with an objective to get information about cost of material purchased, labour cost
and many other expenditures. Additionally, this report is also important for predicting the
cost of upcoming time period.
 Inventory management report- Under this report various kind of information is included
such as cost of purchasing the material, ordering cost, carrying cost etc. Along with
detailed information about quantity of raw material, finished goods as well as goods
which is in process of manufacturing. It helps to the companies in making buying
decisions of raw material as well as production decisions. Same as in the James & Juices
Ltd company, they are preparing this report which is helping them in providing
information about quantity of fruits, sugar and other materials quantity. As well as with
the help of information regarding to the quantity of packed juice, they take decision of
producing the new products.
 Account receivable ageing report- This is a type of report which is linked with providing
information about total collective amount in the market and on the basis of it they make
further decisions (Spraakman and Jackling, 2014). Additionally, the account receivable
ageing report is not limited till the providing information related to the debtors' due
amount but also it consist information regarding to the total time on transaction is done
by the debtors. With the help of this report companies can calculate total receivable
amount from the debtors. For example the above respective company James & Juices Ltd
is preparing this report and it is helping them in providing information about total due

amount by various debtors. As well as due to this they can make further plans and
policies about fund management.
 Budget report- Under this report different kind of information related to the estimated
income & expenditure and actual income & expenditure is included. With the help of this
report companies can aware about the aspects in which they need the improvement. Same
as in the above respective company they produce this report that contains information
about their various activities such as estimated cost and income. Due to this they can
evaluate about the performance of different aspects of manufacturing.
 Performance report- It is a kind of report which is related to the providing information
about performance of different activities of companies. Under this report, performance of
different activities and individuals is evaluated. Along with due to this companies can
assess about need of improvement into various activities. Herein, the project report the
James & Juices Ltd company is preparing this report for managing the performance such
as information about total sells, profits in a particular time period.
So these are the reports which are being prepared by the above mentioned company James &
Juices Ltd. As well as these reports are helping them in managing the overall performance.
M1. Benefits of management accounting systems.
Accounting system Benefits
Cost accounting system This accounting system is beneficial in minimising the cost of
various activities. Same as in the above company, this
accounting system is helping them in overcoming from the
issues higher cost of various activities.
Price optimisation system It is useful for determining the price of products and services.
Same as in the context of above mentioned company, they are
using this accounting system and on the basis of it assigning the
price.
Job costing system This is associated to finding the cost of job (Alyousef and
Mickan, 2016). Due to this accounting system the James &

Juices Ltd company, get the information about cost of job.
Inventory management system Same as the above accounting systems, this accounting system
is also beneficial for companies. This is why because it helps in
keeping record of inventories up to date. The James & Juices
Ltd company, applies this accounting system for managing the
raw material and finished goods.
D1. Management accounting system and reporting are integrated within the organisational
process.
The management accounting systems and reporting are aligned with the procedure of
companies (Järvinen, 2016). Same as in above respective company, James & Juices Ltd they
are using the accounting systems like cost accounting system, job costing system, inventory
management system and price optimisation system. These types of MA are linked with above
manufacturing company. Like the inventory management system is linked with their production
department and as accordance they produce their products. On the other hand, the MA reports
are also aligned with the manufacturing process of James & Juices Ltd company. Such as the
cost accounting reports and account receivable ageing report is linked with the finance
department.
TASK 2.
P3. Income statement with the use of costing techniques.
There are majorly two types of techniques to prepare the income statements which are as
follows:
 Marginal costing- This is a kind of technique which is related to prepare income
statement by considering fixed cost as period cost (Hodges, 2012). As well as variable
cost is taken as cost of per unit.
 Absorption costing- It is a type of costing technique that is linked with the preparation of
income statement wherein, fixed & variable costs are taken as product cost.
Income statement under absorption method for month of November:

Particular November (in £)
Sale 50 500000
Less: Cost of good sold -340000
G.P. 160000
Variable selling expenses (@10% of sales) 10000x5 -50000
Fixed selling overheads -14000
Fixed Administration cost -26000
Under/over absorbed production costs 9000
Net Profit 79000
Income statement under absorption method for month of December:
Particular December (in £)
Sale 50 600000
Less: Cost of good sold -408000
G.P. 192000
Under/over absorbed production costs -9000
Variable selling overheads (@ 10% sale) 12000x5 -60000
Fixed selling costs -14000
Fixed Administration expenses -26000
Net Profit 83000
Working Note:
Under/ over absorption fixed production:
Per unit fixed cost(99000/11000) - 9 per unit
Production cost in November(12000x9)- 108000
So over absorption for November(99000-108000)- (9000)
In December,
Production cost(10000*9)- 90000
Under absorption for December(99000-90000)- 9000
Income statement under marginal method for month of November:

Particular November (in £)
Sale 50 500000
Less: Cost of good sold
Direct Material cost 18 -180000
Direct Labour cost 4 -40000
Variable Production Overhead 3 -30000
Contribution 250000
Less:
Variable selling overhead (@10% of sale value) 10000x5 -50000
Fixed selling expense -14000
Fixed Administration Overheads -26000
Fixed production overhead -99000
Net Profit 61000
Income statement under marginal method for month of December:
Particular December (in £)
Sale 50 600000
Less: cost of good sold
Direct Material Cost 18 -216000
Direct Labour cost 4 -48000
Variable Production Overhead 3 -36000
Contribution 300000
Less:
Variable selling overhead(@10% of sale value) 12000x5 -60000
Fixed selling expense -14000
Fixed Administration Overhead -26000
Fixed production overhead -99000
Net Profit 101000

M2. Management accounting techniques for producing the financial reports.
The MA techniques provide a framework to produce the financial statements (Flamholtz,
2012). In the project report, absorption and marginal costing techniques have been used to
prepare the income statements of two months. Both the techniques calculate the net profit in a
different manner. Like the marginal costing technique considers fixed cost as a period cost and
variable cost as unit cost. On the other hand, in absorption costing fixed & variable costs are
taken as product cost. Apart from these techniques are some other techniques such as standard
costing, activity based costing techniques.
D2. Interpretation of financial reports.
Herein, the project reports four income statements are prepared with the use of absorption
and marginal costing techniques for month of November and December. In the absorption
costing technique, net profit is of £79000 in month of November as well as in the month of
December the net profit is of £83000. Apart from it, by marginal costing technique, the net
profit is of £61000 in month of November as well as in December it is of £101000. Hence it can
be interpreted that company's financial condition is better and company is getting highest profit
of £101000 in month of December under marginal costing technique.
TASK 3.
P4. Benefits and drawback of planning tools.
Budgetary control- It can be defined as a controlling technique that is aligned with
preparation of various kind of budgets for managing the qualitative and quantitative
performance. The “James & Juices Ltd” company is using various kind of planning tools of
budgetary control and some of them are as follows:
 Capital budget- This can be defined as a kind of budget that is associated to the allocating
the financial sources for taking decisions about buying of fixed assets (Mclellan and
Moustafa, 2013). Overall, this budget helps in guiding to the companies in making long
term investments like machinery, buildings etc. The above respective company, “James
& Juices Ltd” prepares this budget with an objective to make future decisions about

purchasing of large and expensive equipments. Some advantages and disadvantages of
this budget are as follows:
Advantage- It is helpful in understanding the risk and its impact and as accordance this budget
guides to make investment decisions. As well as the capital budget is important for selecting the
investments wisely.
Disadvantage- The common drawback of this budget is that it is expensive as well as any wrong
estimation can be cause of huge financial lose for companies.
 Cash budget- It may be defined as a type of budget that is linked with making estimation
of future cash inflows and outflows of any organisation for a particular time period. Main
objective of this budget is that it is essential for determining the need of cash or liquidity
to operate day to day activities. Like the above mentioned company “James & Juices
Ltd” prepare this budget for better cash management and for assessing the future need of
cash. Apart from it, this budget has below mentioned advantages and disadvantages such
as:
Advantage- This budget makes able to the companies in assessing the actual financial condition.
This is why because it helps in provide information about how much cash or fund a company
have. As well as it defines about needed cash by the companies to pay the debts.
Disadvantage- Apart from the benefits the cash budget has some drawbacks like it is based on
the estimating the future need of an organisation on the basis of previous year's information. Due
to this, sometime it predicts wrongly about needed cash.
 ZBB- It is a type of budget that is aligned with the preparation of budget by not
considering past year budget's activities (Assaf and Magnini, 2012). Along with in this
budget, each activity which is going to be entered in the budget is justified. It removes the
dependencies from the previous year's activities. Same as the above mentioned company,
“James & Juices Ltd” they prepare this budget for those activities which have significant
impact on their profitability.
Advantage- This budget is beneficial in providing accurate result and on the basis of it
companies can take better risk free decisions.
Disadvantage- Its main disadvantage is that it takes too much time as well as cost in the process
of preparation of budget.

 Variance analysis- This is a type of technique which is related to measuring the actual
performance by analysing the variance. In other words, under it companies compare the
actual output (income & expenses) with the estimation(standard of future income &
expenses). With the help of this technique “James & Juices Ltd” company evaluate the
actual performance by comparing actual sells with estimated sells for a particular time
period.
Advantage- It is helpful in finding the cause of difference in the income and expenditures of a
current year with the budgeted value.
Disadvantage- The drawback of this technique is that it requires complete and detailed
information for setting the budgeted values which becomes a basis of comparison.
M3. Planning tools for preparation of budgets.
The planning tools are important for preparing and forecasting the budgets. With the use
of these planning tools companies can make the budget for future activities and can estimates
upcoming income & expenditures accurately (Boyns, Edwards and Nikitin, 2013). For example
in the project report, the James & Juices Ltd company produce their budgets with the help of a
wide range of planning tools such as cash budget, capital budget, ZBB etc. Apart from it, these
planning tools help in providing monetary and non monetary information to the managers which
becomes a basis for analysing about future income and expenditure. Thus the planning tools of
budgetary control plays an crucial and significant role in the aspect of producing the budgets in
an effective manner.
TASK 4.
P5. Difference between the companies to overcome from the financial issues with use of
management accounting systems.
This is essential for organisations to resolve the financial issues as soon as possible
otherwise it may become a huge financial crises for companies and can impact to other functions.
Financial problem- It may be defined as a kind of problem that is associated with lack of
monetary sources. Due to this other functions of organisation get effected because finance is key

to run a business. There are various kind of financial issues and some of them are mentioned
below:
 Higher storage cost- This is a kind of financial issue in which companies face the
problem of increased cost of storage (Bandy, 2014). Due to this company face the issue
of increasing in the expenses. Apart from it this financial issue arises because of
mismanagement of the stored raw material and finished goods.
 Lower sales- It is a type of financial issue in that organisations' sells decreases due to
effective price determination. This financial issue arises because of lower sales and with
encompasses of time this becomes a financial crises.
Financial governance- This is a type of technique which is related to the systematic arrangement
of financial transactions of companies. The objective of this is to helping the companies to
overcoming from the financial issues. As well as it is beneficial in keeping an extra sight of eye
on the monetary transactions of companies.
Techniques to identify the financial issues:
 Ratio analysis- Under this technique, financial issues are identified with the help of
different kind of ratios such as return on equity ratio, debt equity ratio, liquidity ratios etc.
All these ratios make aware to companies in finding the actual financial issue. For
example if a company is calculating debt to equity ratio which defines about how much
equity a company has to pay their debts. If a company does not have enough equity to
pay their debts then their financial condition is being considered weak.
 KPI- It is a type of technique in which companies assess about effectiveness by which
companies are achieving their goals and objectives (Lanen, Anderson and Maher, 2013).
This also defines about activities to evaluate which activities are beneficial and which
ones are not. Due to this companies find about the exact financial issues in their
operations.
Difference between the organisations to solve the financial issues:
Basis of difference James & Juices Ltd Innocent drinks limited
Financial problem This company is facing the
financial issue of increased cost of
They are facing the problem of lack
of sells and lower profitability. As

storage. Due to this they are unable
to manage their raw material such
as fruits, sugar and other materials.
They are unable to know about how
much quantity of goods are stored
in the warehouses as well as they
are making wrong purchasing
decisions which is resulting in the
financial problem.
well as due to this their liquidity
position is also weak to operate
daily transactions. As time is
passing their financial issue is
becoming a serious issue because
their basis of financial source is
becoming weak.
Technique to find the
financial issue
This company is using Ratio
analysis technique to deduct the
exact financial problem. For this
purpose they are calculating stock
turn over ratio which is showing
aspect of financial issue.
To find out their financial issue,
they may use KPI (key performance
indicator). This is why because it
can help them in assessing those
activities which are not profitable.
Management
accounting system
To overcome from the financial
issues, this company is using the
inventory management system. It is
a kind of system which is related to
managing the inventories in a
manner by which cost of storage
can be reduced as well as
companies can make effective
decisions for purchasing. If above
respective company will implement
this accounting system then it will
be beneficial for them in
overcoming from the financial
issue of higher storage cost.
As per their financial issue, they are
needed to apply a suitable
accounting system and that is price
optimisation system. With the help
of this accounting system the above
company can decide the price of
their products at an effective level.
As well as it can be suitable for
them in determination of prices
which can be useful in increasing
the sales of products and services.

M4. Management accounting to overcome from the financial issues.
The management accounting plays an important role in solving the financial problem.
The above companies use different techniques such as ratio analysis and KPI to deduct the
financial problem. As well as they are using inventory management system and price
optimisation system to overcome from the financial problems. Such as the James & Juices Ltd
company is using the inventory management system to decrease the cost of storage. Same as the
competitor company, innocent drinks limited is also using price optimisation system to increase
their sells and overcoming from the financial issues.
D3. Planning tools to response against the financial problems.
The planning tools are also important for resolving the financial issues same as the
different types of management accounting (Basel, 2012). For example the above company,
James & Juices Ltd is applying different planning tools like cash budget, capital budget, ZBB
and variance analysis etc. Due to this they are able to find and resolve the financial issues. This is
why because these planning tools consists detailed information about all the future and current
financial transactions and on the basis of it they resolve their financial issues.
CONCLUSION
As per the above project report it can be concluded that role of MA is too much wider in
the context of all kind of organisations. In the project report, different types of MA such as cost
accounting system, price optimisation system etc. are concluded along with various accounting
reports are also concluded which are linked with the organisational process. Apart from it,
income statements are produced with the help of absorption and marginal costing technique. In
the end of report, role of planning tools and MAS accounting systems is concluded to overcome
from various financial issues.

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