Analysis of Management Accounting Systems

This assignment requires the student to analyze the role of management accounting systems in organizations. The student is expected to discuss the importance of management accounting systems, their advantages and disadvantages, and how they impact financial decision-making. The student should also provide examples from various sources, including books, journals, and online resources.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Management accounting and requirements of different types of accounting system............1
B. Different types of accounting reporting systems....................................................................2
C. Benefits of management accounting system..........................................................................4
D. Analysis of integration of reports and accounting system.....................................................4
TASK 2............................................................................................................................................5
1. Calculation by various costing methods.................................................................................5
2. Preparation of profit and loss statement by using tools..........................................................7
TASK 3............................................................................................................................................8
A Different budget with examples..............................................................................................8
B. Advantage and Disadvantage of planning tools to control budget.........................................9
Analysis of use of different planning tools and their application.............................................10
TASK 4..........................................................................................................................................11
A. Comparison with other organisation to adopt management accounting to deal with
financial issues..........................................................................................................................11
B. Analysis of ways to respond financial issues.......................................................................12
C. Evaluation of planning tools for accounting respond for solving financial issues...............12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a process of evaluating business costs and operations in order
to make internal financial reports, accounts and records which helps managers in decision
making process. As main focus of every company is to plan and manage their operation in
systematic way so that goals of organisation can be achieved. Management accounting is very
helpful for internal stakeholders on order to take better decisions for company. To better
understand concept of management accounting, Jupiter Plc a medium sized organisation is being
selected. The essential requirements of different type of management accounting systems is
being discussed in this report. There are various management accounting reports which helps
companies is being explained in this report. As management accounting has various benefits to
the companies which is also discussed in this project report. Apart from this, comparison among
other organisation for utilise of management accounting to deal with various financial problems.
TASK 1
A. Management accounting and requirements of different types of accounting system.
Management accounting is a method that is used to prepare accounts and reports of
management which gives actual and on time financial and non-financial data needed by manager
and accountants. It presents accounting data so that they explicate the plans and policies follow
by management to operate regular activities to make short term and long term decisions. It is a
internal process help firm to execute the overall functions of management. Junior management
accountant of Jupiter Plc used this system to improve accounts and finance of organisation. And
also measure and assess the business process and risk efficiently and effectively to achieve goals
and objectives of company. The different types of management of accounting system that is
required by junior accountant are mentioned below:
Inventory Management System: Inventory management is a continuous process to move
products into and out of a firms location. This system is used to accumulate technology with
operation and process that monitor and manage the maintenance of furnished inventory like
finished raw materials or goods and supplies. This system used by Junior management
accountant of Jupiter Plc to trace inventory continuously and optimise process of business by
financing in cloud based software package. That assist them to maximize sales, productivity and
get good investment returns (Moorthy and Yacob, 2013). And also help company to enhance
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transparency, improve relationship of employees, vendors and suppliers, reduce cost of
overheads, labour and dead inventory and improve capabilities of forecasting and reporting.
Price optimization: price optimization is the method used to identify price structures that
consumers pay willingly. Junior management accountant of Jupiter Plc are using this system to
modify the price of consumer system by assuming their response at various levels of price. It is
useful for organisation that is based on their products manufacturing cost, demand of every
products and levels of competitors. It assist them to balance the profit and cost of goods. So, that
they sales their product quickly into market and maximize profitability (Masztalerz, 2013).
Cost System: Cost system is a structure used by company to attain cost of goods and their
activities by various manufacturing process. It records cost that is occurred during business. It
evaluates the stock according to manufacturing price of products and services. This system is
essential for Junior management accountant of Jupiter PLC as it determine their cost of product
to examine stocks, control cost and analyse profitability. The data collected from this system for
different purpose such as developing tactical and strategical plans for future operations and
matching actual cost with budgeted cost levels to controlling function.
Job Costing System: Job costing system is a method used to gather data related to
manufacturing cost of each product and services. It is a information of accounts that is used to
record expenditure of producing product. Junior management accountant of Jupiter Plc used this
system so that they ascertain the standard of computing system from collected data. This system
collect information from direct materials, direct labour and overhead cost which assist them to
allot product cost that acceptable to achieve profitability. Process of job costing system follow
by company are receive enquiry, estimate job price, order receiving, production order and cost
recording (Kaplan, 2012).
B. Different types of accounting reporting systems
Management accounting reports are crucial database for the companies as which
determines effective and efficient decision making within organisation. These reports assist
companies in order to achieve their goals with proper efficiency. The reports plays crucial role in
planning, regulation, measuring of performance and decision making. As reports are being
prepared and generated through out the financial year because important decisions are being
made in organisation after evaluating these reports. Managers evaluate reports and highlight the
key points from reports and convert them into important information for company. There are
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various sources like balance sheet, income statement and cash flows, in order to prepare these
reports. Reports helps to identify deviations and than take corrective actions to remove or
overcome from these deviations. The reports are very beneficial for getting investments from
various financial institution. Financial institution examines the reports first and on basis of this
they give loans to organisation like Jupiter Plc. As to attract various capital investors, it is
important to have proper accounting report as they evaluate these reports and examines financial
stability, growth and performance of company. For sustainability and to explore new
opportunities it is important to prepare these reports. There are various accounting reports which
are prepared by organisations, these are discussed below:
Performance Report:
Performance reports are those reports which are prepared for analysing and reviewing of
performance of company as well as employees of company. As there are different departments in
the Jupiter Plc like marketing, finance and operations etc., so the reports are generated
departmental wise also in order to know the performance of individual departments. The
managers of company use and evaluate these reports and make important strategic decisions for
company. On basis of these reports individuals are rewarded for their contribution to company.
This performance reports shows that whether activities of organisations are done according to
pre set plan or not. The reports make clear regarding performance of individual employee and
their capacity (Juras, 2014).
Budget Report:
Budget is an estimation of expenses and revenues of a company for a specific future time
period. This is an internal tool of organisation which assist companies to set their goals and
objectives according to finance available with business. The budget managerial reports are very
critical in assessing performance of company as whole and also departmental wise. Each
company prepare an overall budget for smooth functioning of its operations. As management
accounting report related to budgeting assist manager of company to provide bonus to their
employees or cut cost where needed. It helps manager of Jupiter Plc to maintain their expenses
and revenues accordingly so that future activities can be performed in better way. A company's
budget includes different source of earnings and expenditures and with help of this organisation
determine their goals and objectives (Pavlatos, 2012).
Account receivable aging reports:
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The account receivable aging report is mainly crucial for those businesses which are
heavily depend on credit. This reports assist managers of company to find out the debtors and
their remaining balance with company. The aging report is a tool which evaluate overall
collection of personnel to investigate all invoices which are kept for so many time. As with help
of this report, manager of Jupiter Plc make tighter credit policy in order to smooth cash flow of
company.
Job cost report:
The job cost report is very helpful in order to determine accurate costing for the various
jobs. This report is produced and generated through the various use of resources of Jupiter Plc.
As report is based on individual units and made on overall list of total cost which are incurred on
previous period. Report displays that cost assigned to each overhead of company like material,
labour and other etc.
Inventory management report:
This report is particularly related with inventory of company which is opening and
closing stock of company. As there are various method of determining inventory which is used
by Jupiter Plc like Economic order quantity, ABC costing and inventory turnover ratio. It helps
manager of company to recognise actual value of inventory which is lying with company. This
also improve efficiency of employees of company by measuring performance and rewarding
them according to their work (GrosuA, lmăşan and Circa, 2014).
C. Benefits of management accounting system
There are several benefits of management accounting system as it assist company in
making effective decision within organisation. This provides information related to profit and
loss statement and other financial statement of company to management in order to set
objectives and goals accordingly. With the help of this system manager of Jupiter Plc can predict
about future results of various activities by considering past data. As management accounting
system is flexible in nature so it reports can be prepared anytime when required one does not
need to wait for quarter ending or year ending (Schaltegger and Csutora, 2012).
D. Analysis of integration of reports and accounting system.
As the reports of company and accounting systems both are interrelated with each other.
The accounting is recording of all financial activities and transaction which are done during a
financial year. While reporting helps company to make statement of company and report this to
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management so that they can make effective decisions. As budget report of Jupiter Ltd can help
company to provide incentive to employees according to available fund.
TASK 2
Cost is the value which is incurred by the companies in order to produce goods and
services for customers. This assist Jupiter Plc to plan their future resources accordingly. As
costing is very helpful in attainment of overall profitability of business. There are different types
of costing techniques which can be helpful for analysing the net profitability of organisation.
These are mentioned below:
Absorption Costing:
Absorption costing is a managerial costing method which is also known as full costing. It
is a traditional techniques of determining cost. Under this costing, it includes all cost whether it
is variable or fixed to operations, processes and products. In this technique the cost is made up of
direct cost plus overhead costs absorbed on some suitable basis. As in this while calculating
gross profit some of cost gets absorbed.
Marginal Costing:
Marginal costing is the technique of costing which refers that the cost gets increases or
decreases with each extra unit is being produced. This consist of fixed and variable cost which
gets written off by help of this they can get contribution for per unit. This contribution concept
helps in company to take decision like whether to produce or discontinue any product. The main
benefit of this costing is that it is constant nature and helps in pricing decisions to companies.
This also allows the for determination of profit to companies (Evans, Burritt and Guthrie, 2013).
As marginal costing allows the managers of Jupiter Plc to identify and determine the break even
point for organisation.
1. Calculation by various costing methods.
Production cost Amount Details
Direct material 10
Direct labour 20
Variable overhead 5
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Total fixed production
overhead cost
Standard volume of 20000
units in order to absorb the
fixed production overhead cost
Selling price = 50 GBP
Absorption cost = 40 GBP
Absorption costing = 40 GBP
per unit
10+20+5+100000/20000 = 40
Total Production Cost:
Budget: Absorption
costing technique Sep
2018
- -
Production cost - -
Per Unit - Total
GBP - GBP
Direct material 1
0
18000*10 180000
Direct labour 2
0
18000*20 360000
Variable overhead 5 18000*5 90000
Fixed overhead 4
0
18000*40 72000
Cost of Sales:
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Budgeted Cost of Sales Amount
In GBP
Cost of production w1 720000
Opening inventory -
Closing inventory -80000
Cost of Sales 640000
2. Preparation of profit and loss statement by using tools
Absorption costing: Budgeted Profit
or loss Statement Sep 2018
Per unit Total
Sales - 50 800000
Cost of Production - - - -
Direct Material 1
0
- 180000
Direct Labour 2
0
- 360000
Variable Overhead 5 - 90000
Fixed Overhead 5 - 90000
4
0
720000
Opening stock - - 0
Closing Stock - - -80000
Cost of Sales - - -640000
Standard Profit - - - 160000
Adjustment for Under-absorption - - - -10000
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Budgeted Profit - - - 150000
Marginal costing: Budgeted
profit and loss statement
Sep 2018
- - - -
- Per Unit Total
- - - - -
SALES - 50 800000
COST OF PRODUCTION -
DM 10 - 190000 -
DL 20 - 380000 -
VOH 5 - 95000 -
FOH 5 - 95000 -
- 40 - 760000 -
OPENING INVENTORY - 0 -
CLOSING INVENTORY - -120000 -
COST OF SALES 40 -640000
STANDARD PROFIT 10 160000
ADJ. FOR
UNDERABSORPTION
-5000
BUDGETED PROFIT 155000
Difference between budgeted and actual cost
PARTICULAR BUDGET ACTUAL
GBP GBP
FOH CHARGED TO PRODUCTION COST 90000 95000
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
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TASK 3
A Different budget with examples
Budget:
As simply budget is an estimation of income and expenses of company for a particular
financial year. The budget is prepared by everyone whether its an individual, government and
business. There are various budget which can be prepared by the Jupiter Plc. These are described
as below:
Master Budget:
The master budget is final budget which incorporate all functional budget. This displays a
comprehensive picture of proposed activities and anticipated result during the budget period. For
example the Jupiter Plc want to know the sum of total of all division than they can prepare
master budget (Debreceny, 2013).
Sales Budget:
The sales budget shows number of units is being sold is derived from this. This budget
clearly shows the sales figure which company is expecting for the particular financial year. For
example the company wants to know the sales figure than they should prepare sales budget.
Production Budget:
This is related with the manufacturing of goods and services. This budget includes the
different cost like material cost, labour cost, overheads of business and other cost which is
related with cost of production of company. These cost are being shown separately in the budget
in order to know cost of each job of business. For example in Jupiter Plc wants to know their cost
of production than they can prepare production budget (Siverbo, 2014).
B. Advantage and Disadvantage of planning tools to control budget.
There are different planning tools which assist companies to control their budget
accordingly. Budget is also known as estimation of expenditure and revenues of Jupiter Plc for
the financial year. This can assist manager of company to use their resources efficiently and
effectively so that goals can be achieved on time. As there can be various kind of mistake can be
occur so these tools helps to minimise these mistakes and maximise the efficiency of employees
as well as company also.
Tools Particular Advantage Disadvantage
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Forecasting Tools: The forecasting tools
are used for future
prediction and
estimation which are
done by Jupiter
company. The
financial forecasting is
a business function
which is obliged for
the evaluating current
internal business
information and
external economic
information with help
of financial calculation
(Cleary, 2015).
As it is based on past
data so it makes
forecasting reliable for
Jupiter Plc.
It can not be said that
these provide complete
authentic data.
Scenario Tools This is used for
making the long term
plans more flexible.
As this assist manager
to adapt situation due
to its flexible nature.
This tool is very
helpful in making
effective decision for
company.
The managers could
have to face different
issues which could be
beyond control.
Contingency Tools This tool is helpful in
dealing with uncertain
situations which can
occur.
With help of this tool
one can overcome the
unpredictable
situation. As there can
be unpredictable
situation in company
like restructuring so
It is a time consuming
tool and more rigid
also.
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this tool can be very
helpful for dealing and
overcoming situations
(Smith, Brännström
and Jansson, 2015).
Analysis of use of different planning tools and their application.
As it can be seen from the above discussed planning tools that these tools are very helpful
in the generating more revenues for company by controlling budget of Jupiter Plc. The planning
tools like forecasting helps companies to estimate or forecast the future data with help of past
data. The contingency tools are helpful in dealing with unpredictable situation in company.
These tools are helpful in controlling and eliminating risk which can occur in near future. As tool
make sure that mistake occurring can be reduced.
TASK 4
A. Comparison with other organisation to adopt management accounting to deal with financial
issues.
There are various problems which is being faced by the organisation and these issues are
related with different department of organisation like Human Resource, Marketing and Finance
department also. Basically all department issues are concerned for business but major concern is
related with the finance department of company. As finance department is the one which funds
the other department also in order to perform their activities. So the issues related to finance
department will affect the all department whether its Marketing or HRM. These issues affect the
overall profitability of business and growth also. As some important issues are being discussed
which is related with the various types of organisation. These are as follows:
For Companies:
Cash flow issues:
Cash flow is a major activity of every organisation. It is very important to have smooth
cash flow in the business in order to get effective growth. As it has been observed that Jupiter Plc
is also facing uneven cash flow problem same like other companies. The main reason for uneven
cash flow in business is late payment from customer or debtors. Apart from this due heavy
capital expenditure this problem can be arise.
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Paying too much tax:
The tax is an expense for business and companies paid the direct and indirect taxes to
government of country. This can be a major financial issue for business so it is compulsory to
maintain their tax level by investing in policies which comes under the tax exemption. So these
can Jupiter Plc to maintain their tax expenditures (Boučková, 2015).
Declining Profit:
Due to high competition the companies profits are reducing continuously and this affect
overall profitability of company. The company can use Activity base costing in order to examine
profitable and less profitable products for customers.
Charities and Non profit organisation:
These organisations are those which does not have profit earning motive, they just serve
to society without any profit earning. They also do face various issues which can affect their
overall business operations. These are as follows:
Profitability Analysis:
As these organisation adopt the management accounting tools in order to measure total
loss which they occurred during a particular financial year. The cost benefit analysis can be a
better tool to deal with certain issues. These kind of organisations are bound to make some
donation to economy also (Wickramasinghe, 2015).
B. Analysis of ways to respond financial issues
With the help of management accounting, one can identify variables in definitive project.
As these key variables can be cause for some financial issues if it is not tackled early. To identify
and overcome these variables, there are some techniques which can be used by the organisations.
These are as follows:
Sensitivity analysis:
There are two variables independent and dependent so to identify independent variable
values this analysis can be used. As these independent values creates impact on dependent
variables also. This analysis will help the to evaluate how sensitive the results are by creating
changes in one output.
Scenario analysis:
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It is an important process which can be used to evaluate future event of Jupiter Plc
through considering best alternative possible results. Therefore this is considered as primary
forms of projections.
Simulation:
As this tool helps companies like Jupiter Plc to analyse various risks in capital budgeting.
For the formulating a probability portfolio in regards of criterion of merits with the help of
aggregating variables values those are similar to chosen factors, this tool can be helpful.
C. Evaluation of planning tools for accounting respond for solving financial issues.
There are various financial issues for companies and similarly these issues can be
resolved with help of financial tools. These issues are barrier for sustainable success of
organisation. If company does not face these issues than they can lead to sustainable success. As
forecasting tools can be helpful for company to forecast and analyse the future outcomes and
than accordingly make plans to overcome these issues. As contingency tools are kept for facing
the tough or unpredictable situation in organisation. These different kind of financial issues can
be resolved by help of effective tools at right time in organisation (Ajibolade, 2013.).
CONCLUSION
In the conclusion it can be said that management accounting plays an important role in
organisation for making effective decisions in organisation. There are various type of
management accounting reports which are being prepared by organisation. As there costing
methods also which is used in calculating net profit. The planning tools plays an important role
in organisation and it has its advantage and disadvantages also. It is important for companies to
evaluate various financial issues in organisation which occur in organisation.
REFERENCES
Books and Journal
Ajibolade, S. O., 2013. Drivers of choice of management accounting system designs in Nigerian
manufacturing companies. International Journal of Business and Social Research. 3(9).
pp.45-57.
Boučková, M., 2015. Management accounting and agency theory. Procedia Economics and
Finance. 25. pp.5-13.
Cleary, P., 2015. An empirical investigation of the impact of management accounting on
structural capital and business performance. Journal of Intellectual Capital. 16(3).
pp.566-586.
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Debreceny, R. S., 2013. Research on IT governance, risk, and value: Challenges and
opportunities. Journal of Information Systems. 27(1). pp.129-135.
Evans, E. E., Burritt, R. and Guthrie, J., 2013. The Virtual University: Impact on Australian
Accounting and Business Education.
Grosu, C., Almăşan, A. and Circa, C., 2014. The current status of management accounting in
Romania: the accountants’ perception. AMIS 2014. p.15.
Juras, A., 2014. Strategic Management Accounting-What Is the Current State of the Concept?.
Economy Transdisciplinarity Cognition. 17(2). p.76.
Kaplan, R. S., 2012. The balanced scorecard: comments on balanced scorecard commentaries.
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Masztalerz, M., 2013. Interparadigmatic dialogue in management accounting. Zeszyty
Teoretyczne Rachunkowosci. 72(128).
Moorthy, K. and Yacob, P., 2013. Green accounting: Cost measures. Open Journal of
Accounting. 2(01). p.4.
Pavlatos, O., 2012. The impact of CFOs' characteristics and information technology on cost
management systems. Journal of Applied Accounting Research. 13(3). pp.242-254.
Schaltegger, S. and Csutora, M., 2012. Carbon accounting for sustainability and management.
Status quo and challenges. Journal of Cleaner Production. 36. pp.1-16.
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.
Smith, D., Brännström, D. and Jansson, A., 2015. Redovisningens språk. Studentlitteratur.
Wickramasinghe, D., 2015. Getting management accounting off the ground: post-colonial
neoliberalism in healthcare budgets. Accounting and Business Research. 45(3). pp.323-
355.
Online
Absorption costing. 2018.[Online]. Available through:
<http://www.businessdictionary.com/definition/absorption-costing.html>.
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