Management Accounting: Techniques, Systems, and Analysis

This report provides an insight into the different types of management accounting techniques and reporting systems, along with the costing techniques for cost analysis. It also includes various types of budgetary control tools and a comparative analysis among two companies.

Management Accounting

Declaration
I certify that the work submitted for this unit is my own and the research sources are fully
acknowledged.
Learners Name: Date:

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
Part 1..........................................................................................................................................3
LO1............................................................................................................................................3
P1. Describing the meaning of MA and importance of its systems.......................................3
P2. Explaining different methods used for reporting under MA...........................................4
M1. Evaluating merits of different MA systems....................................................................5
Part 2..........................................................................................................................................6
Application of different types of MA techniques..................................................................6
Part 3........................................................................................................................................10
Different type of planning tool to construct budget in organization....................................10
Management accounting for resolving the financial issues.................................................12
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................14

INTRODUCTION
Management accounting (MA) is the procedure which is utilized with the aim of meeting
with the changing requirements of the business. This report provides an insight about eth
different types of MA techniques and reporting system along with the costing techniques for
cost analysis. It also includes various types of budgetary control tools which can be
implemented for exercising control over cost and at last a comparative analysis among two
companies is carried out in regard to MA techniques used by it for resolving tehri problems.
Part 1
LO1.
P1. Describing the meaning of MA and importance of its systems
MA refers to practice of assessing & communicating the financial information to the
managers who makes use of such information in making suitable business decisions. The
main purpose or objective of MA is to help the management of an entity in performing their
business operations in efficient manner. It helps in getting out maximum results through
minimum efforts by making optimum use of available resources within the work
environment. Moreover, it enables in providing improved & better services to the customers
that is been assured by such accounting systems. It helps in maintaining the higher degree of
the morale among employees which in turn helps in improving the productivity and financial
state of Tesco.
MA differs from financial accounting ion several different bases that are as follows-
Basis MA FA
Meaning It means as providing relevant
information to managers in
making strategies, plans and
policies for running the
enterprise in an effective way.
It refers to system that
emphasize on framing final
report of an entity in facilitating
financial information to
interested users.
Information It includes both types of
information that is monetary &
non-monetary.
However, it involves only the
monetary information which is
expressed in numbers.
Users It is been mainly used by
internal management.
It is used by internal as well as
external parties.

Essentials of MA systems
Cost accounting system- It referred as the framework that is been used by an
enterprise for estimating cost of its product for the profitability assessment, controlling cost
and valuing inventory (Zarzycka and et.al., 2017). This system is considered as critical as it
allows the management in checking raw material at every production stage and helps the
managers in controlling cost within the operations.
Price optimization system- It means as the mathematical program that compute the
way in which demand varies at various price levels, then combining data with an information
on the inventory levels and the costs for recommending the prices that would improve profits.
This system plays a vital role in an entity in terms of setting most suitable price that would be
providing large amount of profits and is affordable to customers.
Inventory management system- This MA system is indicated as combination of the
technology and the procedures which oversees maintenance & monitoring of the products
that are stocked and the assets which is to be sent to ultimate consumers & vendors (Joshi and
Li, 2016). It plays an essential role in improving the management of warehouse through
providing efficiency and transparency to the complex system.
Job costing system- It includes procedure of accumulating information regarding the
costs attached with particular production or the job service. Such type of information is
needed for the purpose of submitting cost related information to customer under the contract
where the costs are been reimbursed. This information is found as useful in identifying
accuracy in estimating system of firm that must be able in quoting suitable or optimal price
which allows for the reasonable amount of profit. It could also be utilized for assigning
inventory cost towards manufacturing the goods.
P2. Explaining different methods used for reporting under MA
There are several MA reports that helps in formulation of adequate management
reports that counts on forecasts in order to make critical or crucial decision making. They
facilitate with reliable & accurate financial relation data. The different types of the reports are
as follows-
Job costing report- This report is concerned with determining cost, disbursements and
the profitability of every specific job. With the help of this report, an evaluation could be

made relating to earning aspect of projects so that the firm could introduce an effort on such
concerned at the time of reducing their efforts on the business activities that is less profitable
(Hasyim and Jabid, 2019). It enables in evaluation of cost during the period in which the
project is in the progress so that the wastage areas could be taken care and proposals could be
made as workable & profitable.
Performance report- It is prepared for comparing budgeted with that of actual
performance are assessed & information relating to this is been presented in the performance
reports. It is been framed on annual basis, however they could be prepared on quarterly and
monthly basis. This reports helps tin reviewing entire performance of both employees and
Tesco so that appropriate measures can be executed for filling the gap.
Inventory report- This MA report is prepared for maintaining the data relating to
inventory or stock item in the organization. It comprises of labor cost, wages, per unit cost of
overhead with the inventory that provides the managers for making comparison between the
different assembly lines & in seeing for improvement opportunities that could be exploited
through several departments and their respective staff.
Debtors aging report- It relates to managing the receivables for the firm that
facilitates credit to its customers. It helps in tracing remaining balances of the debtors that are
due for the Tesco to collect (Soderstrom, Soderstrom and Stewart, 2017). It points out any
kind of problem in association with collection process of an enterprise. An assessment could
be made regarding the credit policy and the requirement for tightening the policy which helps
in reducing debt and enhancing liquidity of an entity.
M1. Evaluating merits of different MA systems
systems Benefits
Inventory system This system helps in tracking the flow of
inventory in overall supply chain starting from
transit to delivering for end consumers.
Costing system It is the system helps in insurance affective
control on the cost of manufacturing the product.
It helps in computing closing value of an
inventory which in turn act as the basis for
preparing final statements of an enterprise.

Job cost system This system allows the Tesco in assigning the
cost on separate basis towards performance of an
individual and in calculating the return that will
be generated on every job.
It also enables the firm in accessing performance
of its employees with regard to productivity, cost
and efficiency.
Price optimization This tool provides an opportunity to emphasize
on several goals like sells margin & no of
conversations. It in turn could make the finance
related benefit for the business that adds to
expansion and growth.
It helps an entity in understanding buying
behavior of customer and their need for pricing.
This could further assist in taking quick decisions
relating to pricing of the product.
Part 2
Application of different types of MA techniques
The implication of various MA techniques helps in effectively carrying out the cost
analysis process which assist in adequately assessing the cost involved in the activity which
supports in exercising cost saving initiative. Few of the techniques are explained below.
Marginal costing
It is the powerful tool which provides assistance in decision making process. It establishes the
true relation among the cost, volume and profit which provides support in effectively planning the
profit and selling price along with determining the level of production (Taschner and Charifzadeh,
2016). It mainly puts focus on the variability in respect to the cost and ignores the overhead
expenditure.
Absorption costing
It is mainly the practice under which all the cost is charged to the production cost of the
product. It is most widely used technique for the purpose of ascertaining the cost (Kalkhouran,

Nedaei and Rasid, 2017). The cost is the combination of the direct and overhead cost. It is
beneficial in case of one product and overhead recovery rate is based upon the normal capacity.
Cost profit volume analysis
It is the extended part of the break even analysis. By breaking cost into fixed and variable,
this analysis provides a useful insight to the profitability associated with the product or service. It
helps in depicting how the variation in the cost and volume will have an impact over the operating and
net income of the organization.
Income statement as per Marginal Costing
Particulars April May
Sales Revenue (4000*14) 5600
0 (5000*14) 7000
0
Marginal Cost of Sales
(MCOS)
Variable Production cost (6000*5) 3000
0 (6000*5) 3000
0
3000
0
3000
0
Add:
Opening Stock 0 (2000/6000*3000
0)
1000
0
Less:
Closing Stock (2000/6000*3000
0)
1000
0
(3000/6000*3000
0)
1500
0
2000
0
2500
0
Contribution 3600
0
4500
0
Fixed manufacturing
overheads
1800
0
1800
0
Fixed Non-Manufacturing
Cost 5000 5000
Net Income (NI) 1300
0
2200
0
Income statement as per Absorption Costing
Particulars Januar
y
Februar
y

Sales Revenue (4000*14) 56000 (5000*14) 70000
Cost of Sales (COS)
Variable Production cost (6000*5) 30000 (6000*5) 30000
Fixed manufacturing
overheads 18000 18000
48000 48000
Add:
Opening Stock 0 16000
Less:
Closing Stock (2000/6000*4800
0) 16000 (3000/6000*4800
0) 24000
32000 40000
Gross profit (GP) 24000 30000
Fixed Non-Manufacturing
Cost 5000 5000
Net Income (NI) 19000 25000
Reconciliation statement
April May
Profit as under marginal costing 13000 22000
Add: closing stock 6000 3000
Profit as under absorption costing 19000 25000
Analysis:
The profit determined as per the marginal technique is comparatively less than the absorption
technique as it only takes into review only the variable cost which is not so in case of absorption
costing. Along with that, the absorption costing method is most popular and widely used method as it
is preferred for the reporting purpose as well.
Break even point and margin of safety analysis
Budgeted production 20000 packs
Sales revenue (20000*60) 1200000

Less: Variable costs
Materials (20000*20) 400000
Labour (20000*14) 280000
Other variable cost (20000*12) 240000
Variable administration and selling (20000*3) 60000
980000
Contribution 220000
Less: Fixed cost
Fixed cost 80000
Fixed administration and selling 60000
140000
Net profit 80000
Contribution margin per unit 60-(20+14+12+3) 11
Contribution margin (11/60) 18%
Total fixed cost 140000
Break even point (in units) 12727
Break even point (in amount) 763636
Current sales in units 20000
Break even sales in units 12727
Margin of safety (in units) (20000-12727) 7273
Current sales 1200000
Break even sales 763636
Margin of safety (in amount) (1200000-763636) 436364

Units Sold
Sales
Revenues
Variable
Costs Fixed Costs Total Cost
Operating
Profit
0 0 0 1,40,000 1,40,000 -1,40,000
3181 1,90,909 1,55,909 1,40,000 2,95,909 -1,05,000
6363 3,81,818 3,11,818 1,40,000 4,51,818 -70,000
9545 5,72,727 4,67,727 1,40,000 6,07,727 -35,000
12727 7,63,636 6,23,636 1,40,000 7,63,636 0
15909 9,54,545 7,79,545 1,40,000 9,19,545 35,000
19090 11,45,455 9,35,455 1,40,000 10,75,455 70,000
22272 13,36,364 10,91,364 1,40,000 12,31,364 1,05,000
25454 15,27,273 12,47,273 1,40,000 13,87,273 1,40,000
28636 17,18,182 14,03,182 1,40,000 15,43,182 1,75,000
Part 3
Different type of planning tool to construct budget in organization
Budgetary control is regarded as a process through which budget are prepared for
future period and on the basis of the same it is compare with the actual performance to find
out the variance in between the same. Budgetary tool in the organization used to help the
Tesco in managing the different work in a way that it used to help the Tesco in bringing all
0 3 1 8 1 6 3 6 3 9 5 4 5 1 2 7 2 7 1 5 9 0 9 1 9 0 9 0 2 2 2 7 2 2 5 4 5 4 2 8 6 3 6
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
Unit sales break even analysis
Units Sold Sales Revenues Total Cost
Break even point (in units) 12727
Break even point (in amount) 763636

the work on correct path in the organization (Colares and et.al., 2019). Another relevance of
using different planning tool in the budgetary control is to optimize the usage of variety of
different resources in the market.
Flexible budget tool: Flexible budget is the type of the budget which generally flexes
with change in the volume of different activity. This sort of budgetary tool used to monitor
variety of different change and on the basis of same budget is constructed in the organization.
These sorts of tool ultimately assist in measuring the efficiency of manager performance.
Advantages
Flexible budget generally used to reflects current position or the financial status of
Tesco in market. Flexible budget in the organization also used to help the Tesco in
performance analysis at the workplace also. As flexibility to adapt the change help the
manager or owner to understand the performance of different individual in the market.
Disadvantage
This type of budget planning tool in the organization used to consume a good sort of
time for the organization to construct the budget. Any wrong understanding of change at the
time of planning a budget in the organization can create the issue of inaccuracy at the
workplace as well (Sponem and Lambert, 2016).
Incremental budgetary tool generally regarded as a budget which is generally
prepared on the basis of previous year budget of the organization. All the resources which are
generally allotted in the incremental budget are generally prepared on the basis of previous
period budget in the market. This type of budgetary tool is generally define as traditional
form of budgeting.
Advantage
It is one of the easiest budgeting approach as this type of budgeting tool used to
consume less amount of time to prepare the budget in the organization. As current budget is
prepared on the basis of previous year budget as no complex calculation are require in the
organization. Also it used to give the manager the option of having more secured information.
Disadvantage
Incremental budgetary in the organization can create the situation in which organization can
see unnecessary spending in the market. As all the spending are done on the previous year

condition. Also these sort of budgetary tool used to discourages the amount of innovation in
the market.
Zero based budgeting (ZBB) is a method of budgeting in which all the element of
budget and preparation of the budget will be started from the Zero. All the function and
element of budget is generally analyzed for its need and costs. It is very much important for
the organization to justify all the expenses for every new period in the market (Tamaș and
et.al., 2020).
Advantage
These sort of budget in the organization used to help the organization in copping up with the
variety of different sort of changes which might be brought in the organization. These sort of
the budget in the organization also used to help the organization in seeing more accurate
result, reason behind the same is because it used to consider the current situation prevailing.
Also this sort of budget in the organization used to help the Tesco in optimum utilization of
variety of different spending which is done by the individual in market.
Disadvantage
Looking at the disadvantage of these sort of budgetary tool it has been identified that Zero
based budgeting in the organization used to consume a good amount of the time to carry out
different activity in the organization. Another disadvantage of using Zero based budgeting in
the organization is that these sort of the budget used to also creates the issue of investing the
better amount of the resources to carry out variety of different activity to plan the budget in
the market (Arnold and Artz, 2019).
Balance Scorecard is a type of the framework which is generally used in the
organization to manage implement and manage strategy in the organization. This generally
used to link the vision to strategic objective and measure in the organization.
Advantage
Balance score card in the organization will help the Tesco in managing the different
strategic planning in the better way at the workplace. It will also help Tesco in improving
strategy communication at the workplace.
Disadvantage

One of the biggest drawback of using these sort of technique in the organization is
that it used to require a strong set of leadership supports in the organization. It may also
appear as a rigid for the way to manage the same as well.
M3
Appling this sort of planning tool used to provide variety of different importance in
forecasting the budget. It has been identified that Flexible budgetary control in the
organization help in understanding the current condition in the market. At the same time Zero
based budgeting help the Tesco in taking variety of the decision on the basis of future
situation which can occur this help Tesco in forecasting the budget in better way.
Management accounting for resolving the financial issues
Identifying Financial problems
Today, businesses face various types of financial problems but by the time the
emergence of right business models and implementation of strategies at the right time has
helped in effectively managing the problems. With the help of certain tools, the companies
can identify the problem in its system so that actions can be taken on time.
Benchmarking
It is the procedure which is being used by the business for the purpose of evaluating
the performance and position of the organization by comparing it with the competitors in the
industry (Omoregie, 2019). It will help AJ and Sons in implementing remedial steps for improving
its performance and achieve the desired goals.
Key performance indicators
This instrument is useful in analysing the performance on the basis of the certain
established targets which are set by the organization (Kaganski and et.al, 2017). Through this,
the business entity can measure the performance at various organizational levels which will
help in determining the pitfalls in the targets set so that changes can be made into it for
improving the performance.
Variance analysis
This tool will support in having a comparison between the actual and standard
performance level in order to determine the changes that hascaused problem in achieving the
desired result (Hout, 2017). It will help AJ and Sons in reducing the deviation so that desired
objectives can be achieved on time.

Tesco Unilever
 The major problem which was being
faced by Tesco was in respect to
effectively managing the inventory
of the various products(Biondi and
et.al, 2017). The organization was
having trouble in handling it’s stock
which sometimes even lead to
occurrence of unnecessary expenses.
In order to overcome this, problem,
the organization make the use of
inventory management system
which results into effective resultsas
everything was automated which
reduced the chances of error. This
has helped it in managing its
financial problems.
 The remain low price producer, it
used price optimization technique
for determining the price of its
product with respect to the
customers willingness and demand
(Sparks, 2019). On account of
demand of the product in the market
the price is determined which has
assisted it in grabbing more
customer and increasing its revenue
and maximising the profitability.
This helped it in meeting with the
problem that caused high
prices.Thus, another problem of the
Tesco resolved.
 The Tesco was affected by the
increase in the cost of production
which forced it to increase its prices.
For mitigating this problem, the
organization made use of the cost
accounting system which provided
assistance to it in determining the
areas of profits and losses and the
activities which are no longer
required to carried out (Mishler,
2017).This system has supported the
organization in managing its cost
effectively and in resolving its
financial issues like higher cost of
production.
 The Unilever was also facing the
problem of stock management which
lead to increase in the inventory
management costwhich could have
been ignored (Higham and Visser,
2018). Therefore, it implemented the
inventory management system
(IMS) for conducting the effective
management of its inventory.This
helped it in reducing the cost
relatedto inventory resulting in
higher profits.

CONCLUSION
It can be summed up that MA is relevant for every business type in one or the other
aspect which makes it indispensable part of it. The implication of different MA system such
as CAS, IMS and so forth results in meeting with the various business needs and in resolving
the financial problems being faced by the businesses. The various forms of reporting system
which makesit important for the companies to determine the performance of it and based on
which crucial business decisions can be taken.The MA techniques and budgetary control
tools provides assistance to the organization in effective meeting with the financial problems
that arises along the ways through which cost can be analysed and control system can eb
implemented.

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