Management Accounting: Approaches, Reporting Methods, and Integration with Organizational Processes

This study explores the different approaches and reporting methods in management accounting, as well as how they integrate with organizational processes. It discusses the benefits of management accounting systems and provides examples of cost cards and their preparation using absorption costing and marginal costing. The study also highlights the potential merits and demerits of absorption costing and marginal costing.

MANAGEMENT
ACCOUNTING

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
SECTION 1.....................................................................................................................................3
1.1................................................................................................................................................3
2.2................................................................................................................................................5
1.3................................................................................................................................................5
1.4................................................................................................................................................6
2.1................................................................................................................................................7
(a).................................................................................................................................................7
(b).................................................................................................................................................9
2.2..............................................................................................................................................10
2.3..............................................................................................................................................11
(a)...............................................................................................................................................12
(b.)..............................................................................................................................................13
SECTION 2...................................................................................................................................14
3.1..............................................................................................................................................14
4.1..............................................................................................................................................18
4.2..............................................................................................................................................20
4.3..............................................................................................................................................21
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................23

INTRODUCTION
There are multiple accounting approaches in finance field that are used by organisations
and one of them is managerial accounting. It can be comprehended as a sort of accounting and
reporting in which accounting personnel evaluate fiscal and budgetary information for internal
management decision making. This is systematically designed framework which generally used
by corporations and business entities to collect key information and data to facilitate effective
managerial decision-making. This comprehensive approach which involve key techniques and
system to assist managing staff in managerial and financial task (Christ., 2014).
This study contains explanations about different aspects associated with management
accounting along with practical sum in context of UCK Furniture. This also discuss about some
core reporting methods of MA which help personnel within organisation to report major
information to top management.
MAIN BODY
SECTION 1
1.1.
Management Accounting: This is defined as a sort of accounting and managerial framework
method which generates quantitative and fiscal information for developing a base for managers
with aim to assist them in decision making. That leads to successful organization management.
Managers utilize accounting information by managers to select a method for communicating it,
and to decide how effectively to execute it (Bennett and James, 2017). They employ accounting
information from managers to organize their choices about design, development and promotion
of a good or service. This also consists of some systems which are employed and adapted by
managing personnel to generate information and ensure availability of meaningful information
which are lastly used by them in taking efficient and effective decisions.
Management accounting systems are utilized to track costs attributable to the different
products and services being produced. s There are distinct forms of MA systems which
are below:
 Price optimisation system: This system displays the connection between supply as well
as demands and is how pricing influences every item's demands and then integrates all
related data with stock levels and rates to determine the correct prices which can help

company to boost its income levels. This may also be utilized to check the consumers
'reaction to the actual pricing increases that arise if the commodity quality increases then
how the buyers will respond to it as well as that markets will be drawn in order to allow
potential choices on which demand to adjust in order to gain full profitability. This
system requires detailed analysis of cost, price and demand aspects and evaluation of
relation or trend between them.
 Inventory management system: This is a system where orders are managed, processed,
and then used to manufacture the products. This also controls the rate of saleable items. It
will assist with making correct quantity inventory decisions as well as with respect to
storage centres. This system is consistent with the cycle of maintaining control of all
products bought and shipped out by businesses over a given period/time frame (Hall, M.,
2016). In this, inventory valuation is performed in conjunction with specific techniques,
like the LIFO approach, the FIFO approach and weighted average costs methodology. All
of these strategies play a substantial role for corporations in monitoring precise amounts
of materials at the moment it is required. This system requires use of specific method or
technique for valuing stock, assumption used and information about process adopted by
entity regarding inventories.
 Job costing system: This is a method or system, in which all
crucial knowledge/information are to be collected in regard to the expense connected
with the manufacture of the particular commodity that is chargers. It can be tested with
the aid of corporations estimating framework. Accumulating direct content, labour, and
overhead costs in this information. The firm can quote rates that would help business gain
sustainable profits. Perquisites of this system involve detailed cost sheet which describes
cost related to each job and basis for identification of specific process as job and
allocation of costs to such job.
 Cost accounting systems: This is a method used by a company in which manufacturing
operations are to be documented using continuous inventory systems. There are
essentially five components of this device that are an input estimation base, an inventory
valuation process in which product calculation is made, then for aggregation of all cost
structure, the fourth is output flow inference, and the last is capacity at some stages of

product cost flow reporting. Knowledge provided by this program in the allocation
decision-making process and also in productivity review of the various agencies.
2.2.
Various method of MA reporting:
MA reports can be interpreted systematically as those reported reports consisting of
information on financial and organisational parts. Such reported data is commonly utilized by
business organizations 'management team in order to carry effective measures at the right time.
Cost reporting- This report is being produced by incorporation of the framework of cost
accounting. This kind of report provides detail on costs that result in the execution of critical
business and management tasks. Activities are classified according to their amount of
expenditures together with such report. The intention of this report is to concentrate on certain
components and factors that absorb higher cost quantities (Jacobs, 2012).
Stock report- This could be described as a form of report providing details on priced volume of
material contained in warehouses. The sole purpose of this sort of report is to assist the
production division in taking the appropriate measures on how many units are needed to be
produced. Within the background of the aforementioned business, their production department
produces drinks by absorbing essential information via this report in cost-effective manner.
Accounts receivable report- This report sets up in a reasonable manner details about amount of
debtors who are liable for business enterprises with settlement date. The purpose of drafting this
report is to assist the division of finance in keeping the reforms and policies effective. Their
finance team uses crucial details helps to create strategies to raise debts from different debtors.
1.3.
Benefits of management accounting systems:
Name of MAS Benefit
Price optimisation system This is helpful for undertakings to fix product prices in accordance
with the latest industry pattern. This system enables managers to
set a most efficient price at which company can enjoy maximum
profit at optimum cost.
Inventory management
system
The value of retained stock under this accounting system is
measured in an appropriate way. the main benefit of this

accounting system is optimizing aggregate inventory costs.
Job costing system It is helpful for business organizations to effectively allocate costs
to each specified job-process. This offer effective accountability
within organisational processes as due to this system it is easy to
allocate any cost creating process.
Cost accounting system By measuring correct degree of variances, it is combined with the
dimension of managing total costs of specific
operations. Company can employ this accounting system to
control the actual manufacturing costs and handle certain tasks
whose expense is beyond forecast.
1.4.
Integration of MAS and MA reports with organisational process.
Management accounting systems/frameworks & management accounting reports are typically
incorporated into the company's operations, because reports would include the necessary details
on the grounds of which appropriate documentation will be performed and related information
can be collected by management accounting systems. Because separate management accounting
systems supply information on multiple factors that are needed in the reporting process, it can
support reporting by offering advice and steps to address any problems that occur in the
organization in separate divisions and thus incorporating them for advantage of the organization
(Lavia López and Hiebl, 2014).

2.1
(a).
Descriptions Descriptions Amount
(Pound) Descriptions Amount
(Pound)
a) Units produced 11000 9500
b) Direct Material
(4kilo-
gramx3Pound
/kilo-
gramx11000)
132000
(4kilo-
gramx3Pound/kilo-
gramx9500)
114000
c) Direct Labour
(4 hoursx
2pound/hours
x11000)
88000
(4 hoursx
2pound/hours
x9500)
76000
d) Variable Overhead (5pound/desk
x11000) 55000 (5pound/deskx950
0) 47500
e) Prime Cost 275000 237500
f) Production overhead 20000 20000
g) Cost of goods
produced 295000 257500
h) Variable revenues cost (1Pound/des
kx11000) 11000 (1Pound/deskx95
00) 9500
i) fixed selling cost 2000 2000
j) Cost of Goods sold 308000 269000
k) Profit= l-j 77000 63500
l) Revenues
(35
POUND/des
kx11000)
385000
(35
POUND/deskx95
00)
332500
Cost Card under Absorption costing:
Month: January Month: February

Descriptions Descriptions Amount
(POUND) Descriptions
Amount
(POUND
)
a) units produced 11000 9500
b) Revenues price per
desk 35 35
c) Variable cost per
desk:
Direct material
(4kilo-
gramx3Pound
/desk)
12
(4kilo-
gramx3Pound/des
k)
12
Direct Labour
(4 hoursx
2Pound/hour
s
8 (4 hoursx
2Pound/hours 8
Variable overhead 5 5
Variable revenues
overhead 1 1
d) Contribution 9 9
Total contribution 99000 85500
e) Fixed costs
Production overhead NOTE1 22000 19000
Revenues overhead 2000 2000
Profit (d-e) 75000 64500
January February
NOTE1
Production overhead are regarded as average production for every month that is 10000 units.
Thus, for January, the overhead amount= (20000/10000)x11000
Thus, for February, the overhead amount= (20000/10000)x9500
Cost Card prepared Applying Marginal costing

(b).
Potential merits and demerits of absorption costing and marginal costing:
Marginal Costing:
Merits:
 The strategy is straightforward to comprehend and easier to execute as it removes the
complications of fixed costs distribution that is, in fact, subjective.
 This also prohibits the forwarding of a part of fixed overheads of the current cycle
to subsequent time. Thus, it does not vitiate expense and benefit. Comparisons of costs
have become quite meaningful (Ward, 2012).
 It displays relative contributions to income that each of a variety of items produces, and
indicates where sales initiative should be centred.
Demerits:
 For the cases of contract costs where value of work-in-progress is often substantial, this
method can't be enforced.
 Eliminating fixed costs makes it unfeasible to compare costs of jobs.
 The differentiation between fixed expenses and variable expenses only looks valid
in short term. Nevertheless, all expenses are variable in long-term.
Absorption Costing:
Merits:
 It eliminates cost separating into fixed and variability aspects that can't seem be done
conveniently and reliably.
 It tends to assist in adhering to accrual concepts and match concepts that encompass for a
given duration matching costs with income.
 It aids in separately measuring gross profits and net profit on income statement which
provide more clear presentation.
Demerits:
 Absorption costs may make a corporation's profitability level look quite better than it
really is over a set period. That's because, when manufactured goods of the corporation
are sold, fixed costs/expenses are not excluded from income. Besides distorting a
statement of profits and losses, this may potentially confuse both the managers of the
organization and the investors (Renz, 2016).

 Absorption costing allows it unfeasible to assess cost volume benefit (CVP), since the
fluctuations in product's variable costs are challenging to evaluate with introduction of
fixed expenses.
2.2.
For the period ending February
Revenue
Revenues for January 385000
Revenues for February 332500
Total revenue (A) 717500
Cost of goods sold
Cost for January 308000
Cost for February 269000
Total Cost of goods sold (B) 577000
Net income(C= A-B) 140500
Workings- Cost of
Goods sold
January February
Descriptions Descriptions Amount Descriptions Amount

(GBP) (GBP)
Units produced 11000 9500
a) Direct Material (4kilo-gramx3pound/
kilo-gramx11000)
132000 (4kilo-gramx3pound/
kilo-gramx9500)
114000
b) Direct Labour (4 hours x 2pound/hours
x11000)
88000 (4 hours x
2pound/hours x9500)
76000
c) Variable
Overhead
(5GBP/deskx11000) 55000 (5GBP/deskx9500) 47500
d) Prime Cost 275000 237500
e) Production
overhead
20000 20000
f) Cost of goods
produced
295000 257500
g) Variable
revenues cost
(1pound/deskx11000) 11000 (1pound/deskx9500) 9500
h) fixed selling cost 2000 2000
i) Cost of Goods
sold
308000 269000
2.3.
Interpretation and Analysis: compared to the aforementioned income statements as well as costs
reports gathered utilizing absorption and marginal methods, it's been determined that net profits
through marginal model are 75000 pounds and 64500 pounds during period of Jan and Feb
respectively, while net profits figures are 77000 pounds and 63500 pounds respectively
throughout Jan and Feb through absorption technique. There are variances in the reports for net
profits due to over/under fixed-costs.
(a)
Month Hours
Spent Expenses

January 630 7960
February 505 7410
Mar 705 8285
April 555 7535
May 780 9110
June 795 9820
Highest number of hours = June =
795
Lowest number of hours = February
= 505
Variable cost= (9820-7410)/(795-
505)
Variable cost= 8.310345 GBP per
unit
fixed cost= 9820 - (795x8.31)
fixed cost= 3213.55 GBP
expenses for july= 3213.55 +
(650x8.31)
expenses for july= 8615.05 GBP
expenses for august= 3213.55 +
(750x8.31)
expenses for august= 9446.05 GBP

(b.)
Opening
Inventories
0
Purchase 100
Units
10 1000
200
Units
11 2200
130
Units
13.84615 1800
LIFO
130 13.84615 143.85
200 11 2200
70 10 700
Cost of Goods Sold 3043.85
Value of closing stock (30 x 10) 300
FIFO
100 10 110
200 11 2200
100 13.84615 1384.615
Cost of Goods Sold 3694.615
Value of closing stock (30 x
13.84615)
415.3845
AVCO 100 10 1000
200 11 2200
130 13.84615 1800
Average Cost (13.84615 + 11 +10)/3 11.6153
8
Cost of goods
sold
4646.154
(400x11.61538)
Closing Stock 348.4615

SECTION 2
3.1.
Define and explain the purpose of budget:
A financial budget defined as fiscal plan developed to include estimates of an entity's
spending and income on short- and long-term schedules. In addition to managing tax collections,
the budget defines the outflows of expenditures on a weekly, quasi-annual or yearly basis.
Budget purposes are for assigning, planning, arranging, managing and controlling flow of funds.
This is also significant method for decision-making, organisation efficiency reporting and
revenue and expense modelling. Limited resources are handled effectively, through clear
budgeting (Otley and Emmanuel, 2013).
Preparation of Budgets:
1) schedule of
expected cash
collections for
September
Descriptions September
(GBP)
Cash Sale 39000

Collection for
revenues on
account:
July 392
August 4416
September 840
Total
collections
44648
2) Schedule of expended cash disbursements for merchandise inventory purchases in
September
Descriptions September
(GBP)
Payment for
inventory
purchased in
September
4800
(24000x.2)

Payment for
inventory
purchased in
August
15000
Total
disbursement
for inventory
purchase
19800
3) Cash
Budget
Descriptions September
(GBP)
opening
balance
(A) 20000
Collections
Cash Sale 39000
Collection for
revenues on
account:
July 392
August 4416

September 840
Total
collections
(B) 44648 64648
Disbursements
Payment for
inventory
purchased in
September
4800
(24000x.2)
Payment for
inventory
purchased in
August
15000
Selling and
administration
expenses
9000
(excluding
depreciation of
4000)

Purchase of
equipment
18000
Dividend to be
paid
3000
Total
disbursements
(C) 49800
Balance (A+B
-C)
14848
Financing
Activity:
Loan Taken 1152
Closing
Balance
16000
4.1.
Compare how entities adjust MA system to handle financial problems:
Enterprises like UCK are implementing MA frameworks/system such as price optimization,
inventory management etc. to support in tackling financial challenges/concerns. It is tough to
acknowledge financial difficulties by employing the management accounting systems
or techniques. Logically, it's not easy to arrive up with responses to financial hurdles when
challenges could not be recognized (Kotas, 2014). Through management accounting systems, a
corporation is prepared to acknowledge points of risk owing to which fiscal issues occur
efficiently and precisely.

i) Return on capital employed(ROCE)
Return on capital employed = Operating Profit/ Capital
employed x 100
UCK Furniture Design Division
ROCE= 25.49784 %
UCK Furniture GearBox Division
ROCE= 11.27466 %
UCK Woodworks
ROCE= 8.562108 %
ii) Assets Turnover
due to absence of information relating to net assets,
capital employed has been assumed as net assets
Assets turnover = Revenues/Total assets
UCK Furniture Design Division
Assets turnover = 0.562771
UCK Furniture GearBox Division
Assets turnover = 0.779831
UCK Woodworks

Assets turnover = 0.191801
iii) Operating profit margin
Operating profit margin = Operating Profit/ Total
revenues x 100
UCK Furniture Design Division
Operating profit margin= 45.30769 %
UCK Furniture GearBox Division
Operating profit margin= 14.45783 %
UCK Woodworks
Operating profit margin= 44.64056 %
4.2.
How MA can aid to improve overall financial performance of both corporations to attain
sustainable success:
MA help top develop a framework which allow managing staff in enhancing total
financial performance with aim to accomplish sustainable success. It also involves use of ratios
to compare financial performance of two corporation. In this regard following is compression of
UCK furniture and UCK woodwork through above computed ratios, as follows:
ROCE: ROCE contrasts the enterprise's effectiveness with regard to aggregate capital
invested/employed in the enterprise. This illustrates the enterprise's profits as in comparison of
capital funds employed (DRURY, 2013). The significantly larger the proportion, the best it is
for business. Here, the UCK's Furniture Design Segment and the GearBox Segment respectively
have ratio of about 25.49% and about 11.27% , whilst also UCK's Woodworks
segment has ratio of 8.56%. This signifies that UCK's Furniture-Design Segment produces the

most profits per penny of money invested, preceded by GearBox Segment of UCK Furniture and
Woodworks.
Assets turnover ratio: It relates to proportion of sales an enterprise may yield per unit of
cumulative assets. As per above ratios, the UCK's GearBox Segment has the maximum asset
turnover percentage around 0.7798, the UCK Furniture-Design Segment about 0.5627
and Woodworks at around 0.1918 respectively. It demonstrates that GearBox segment of UCK
can achieve full profits per unit of assets.
Operating profit margin: It implies percent of profit enterprise receives from revenues. The
significantly larger this figure, the safer for the entity (Herzig and et.al. 2012). The maximum
operating profit ratio for Woodworks segment is 44.64%, while OP margin of Furniture Design
Segment is 45.30 and GearBox Segment is 14.46 percent, which indicates UCK Woodworks
segment will gain the highest profit against its revenues.
4.3.
Evaluation of planning tools utilized to attain success in management accounting to
minimize financial issues.
Tools for planning entail forecasting, financial planning, output assessment, decision taking,
drawing maps and diagrams for a visual examination, to mention a handful out of exhaustive list.
Budgeting as well as budgetary measures are actions taken to establish an appropriate fiscal and
management strategy. The methods used for budgetary planning and management aid in
organizational performance assessment, and its opportunity for development (Cazier, Rego, Tian
and Wilson, 2015). The application of these forecasting methods used in budgeting are used for
fundamental business analysis. Following is discussion on several planning tools as follows:
Budgeting: It is a mechanism whereby organisation build a strategy to invest funds. The
expenditure plan is named as budget. Developing budget plan gives manager the freedom to
decide in advance whether company will have enough funds to do things they need or want to
accomplish. Budgeting is basically measuring costs against company's sales.
Budgetary control: It implies to mechanism through which forecasts are planned for the
upcoming timeframe and are contrasted, if any, against actual results to assess variances.
Comparing budgeted estimates with real statistics can help managers point out deviations and
take effective corrective steps.

Project appraisal: It implies to a general concept that corresponds to the method of reviewing and
challenging case for continuing with a particular project, in a formal manner including before
resources are allocated. In short, it's the science of measuring the feasibility of project. Appraisal
is a critical method for taking decisions that sets the groundwork for implementation and
supports investing funds on project (Fullerton, Kennedy and Widener, 2014).
Standard costing: This implies to process in financial records of simply
replacing/substituting an estimated expense for actual cost. The differences are then reported to
demonstrate the gap between the estimated versus actual costs.
CONCLUSION
From above study it has been articulated that MA is essential framework or mechanism for
business enterprises Like UCK furniture which enable managers to gather all the key data, facts
and information essential for decision making related to multiple aspects within organisation.
Different planning tools are also used under it to respond to different organisational and financial
issues.

REFERENCES
Books and Journals:
Christ, K. L., 2014. Water management accounting and the wine supply chain: Empirical
evidence from Australia. The British Accounting Review. 46(4). pp.379-396.
Bennett, M. and James, P., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Hall, M., 2016. Realising the richness of psychology theory in contingency-based management
accounting research. Management Accounting Research. 31. pp.63-74.
Jacobs, K., 2012. Making sense of social practice: theoretical pluralism in public sector
accounting research. Financial Accountability & Management. 28(1). pp.1-25.
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of
Management Accounting Research. 27(1). pp.81-119.
Ward, K., 2012. Strategic management accounting. Routledge.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Herzig and et.al. 2012. Environmental management accounting: case studies of South-East Asian
Companies. Routledge.
Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure
requirements and the standardization of accounting practices on earnings management
through the reserve for income taxes. Review of Accounting Studies. 20(1). pp.436-469.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management. 32(7-8). pp.414-428.