Management Accounting System and Reports

This document provides an overview of the management accounting system and their relation to the management accounting reports. It also explores different planning tools for budgetary control that help organizations achieve their goals effectively and efficiently.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
..........................................................................................................................................................2
TASK 1............................................................................................................................................5
TASK 2............................................................................................................................................8
TASK 3..........................................................................................................................................11
TASK 4..........................................................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is basically consisted of the internal system of the organisation'
which is used to measure and evaluate the process for the management of the organisation. It is
the process of analysing and evaluating the cost of running and managing the business. And
includes the preparation of reports which help, organisation in further decision making which
help in achieving organisational goal.
The present study is based on the ABC Ltd a medium sized enterprise in manufacturing
sector. The report will include the study about the management accounting system and their
relation to the management accounting reports.
Furthermore, it will explain about the different planning tools for budgetary control
which helps the organisation in achieving their gaols effectively and efficiently.
TASK 1
Management accounting is basically consisted of the internal system of the organisation'
which is used to measure and evaluating the process for the management of the organisation. It is
the process of preparing the management reports and accounts which provide accurate, reliable,
timely financial and statical information to the mangers of the company to make the useful short
term ad long term decisions (Hall, 2016). It is the process of analysing and evaluating the cost of
running and managing the business. The company's affairs are managed under the management
accounting.
There are different types of management accounting system which helps in effectively managing
the business operations some of them are:
Inventory management system-
This system is used to manage the stock of the company and inflow and outflow of the
stock of the Company (Skouloudis, Malesios and Dimitrakopoulos, 2019). This system is
required by the organisation in order to control and oversee the ordering, use and storing of the
components which business is used in the production of the goods. It also combines the
application of barcode scanners, mobile devices, barcode printers, desktop software so that they
can streamline the inventory management as like consumable goods, stock and supplies. This
system is used to control the quantities of the finished goods' for sale. The objective of the
inventory management is to accurately and appropriate management of the present inventory

levels and minimizing overstock and under stock situations of the company through effective
tracking mangers will lead to know and take the sufficient and effective inventory
decisions(Boiral, 2016).
Job costing systems-
It refers to the system which allocated the manufacturing cost to individual unit or item
of the products. This system is applied when the goods are processed are different from one
another. It basically involves the process of accumulating the data on the cost related to
production job. This information can be sued to submit the cost data to consumer under some
contracts in which costs are refunded (van Helden and Uddin, 2016). The information generated
to this system also help in determining the accuracy of estimating system of the company that in
such a way that they must be in capable of quoting the right prices with permit for a reasonable
income.
Cost accounting systems -Cost accounting system is also called the product costing system or
costing system which is the framework used by the companies to estimate their cost of the
products and services for analysing profitability, inventory valuation and cost control, there are
generally two types of counting systems that is Jo order costing ad process costing (O'Dwyer and
Unerman, 2016)
Job order costing is the system of assigning the cost of individual unity of output whereas
process costing is method which traces and accumulate the direct and indirect cost of
manufacturing the goods. Costing system measure and record the costs and then compare the
input outcome to actual result or output so that they can assist management of the company for
measuring the financial performance of the business.
Price optimization systems
Price optimization is the system in which application of mathematical analysis is applied
on the organisation to determine that how the consumers will react to different price for the
goods and services (Kaplan and Atkinson, 2015). This system is also useful in determining that
price which is best for maximizing the satisfaction of the customers and helps in maximizing the
operating profit of the company's so that they can able to achieve the highest performance in
attracting more and more customers towards the organisation which helps them in achieving
their organisational goal.
Different Methods used for management Accounting reports

There are different types of management accounting reports which are used by the
organisation to manage the transactions effectively and efficiently so that accurate, reliable and
appropriate information can be generated which can be use further for making the useful
decisions. Some essential reports made by the company are:
Budget report-These budgets report re made by the organisation department wise so that these
budgets helps the organisation in estimating their requirements of future and they will able to
arrange the resource to continue the operations of the business (Otley, 2016) The budgets which
are made by the company are completely based on the previous experiences and effective
research which will lead to preparation of the budgets. After completion of the activities the
companies compare the actual with estimated so to ascertain the difference between them and to
eliminate the deviation so that actual and estimated budget can be matched.
Accounts Receivable ageing reports- If the organisation is heavily relies in extending the credit
to the parties or customers than they need to prepare the account receivables ageing report which
specifies the balance of the client with specified tie period which is allowed to them so that
company can able to identify the defaulters as well as find issues and problems in the collection
process (Ismail, Isa and Mia, 2018). If in the case there are many defaulters than company needs
to make tighter credit policies as because cash inflow is very essential in the operation of any
business.
Performance reports -Performance reports are created by the company fort reviewing the
performance of the company as whole and as each individual to ascertain the efficiency and
effectiveness of activities performed by them. Departmental performance' reports are also
generated by the organisation in order to measure that each department is work according to the
direction of achieving goal or not (Schaltegger and Burritt, 2017). If not than corrective measures
are taken for improving the performance as by giving effective training and development
performance of the employees can be improved. The role of the performance report is vital and
essential for the company so that they can keep and accurate measure for their strategies towards
the goal and mission.
Cost managerial accounting reports -A cost report is the report which summarise the
information regarding the various costs associated with the organisation. The cost of the articles
which are manufactured and all the raw materials costs, variable costs, overhead costs, and any

other added cots are taken into consideration and the totals are divided by the total amount of the
products produced. This reports help the mangers to estimate the cost price of items with their
selling price so to ascertain the actual profit earned (Quattrone, 2016().
There are several benefits of the management accounting which help the company in
improving their overall efficiency and lead the organisation in achieving their goals and
missions.
 Management accounting helps in measuring the actual performance with the estimated
budgets to eliminate the deviations.
 By effective budgeting and planning function of the management accounting businesses
activities are managed better and effectively.
 It helps to increase the overall efficiency of the business.
 It helps to improve the relation between the management ad the employees and other
members of the organisation (Bennett and James, 2017).
 This help management for making future plans based on the past results and experiences.
 Through the management accounting effective communication can be take place between
the top and lower level of the organisation
Management accounting system and management accounting report is integrated with
organisation process in way that with the help of systems management accounting reports can be
made say with job costing system, job costing report can be made. And these reports help the
management in taking the corrective and effective decisions which help further in directing their
activities towards the direction of achieving the organisation goal.
Similarly, with cost accounting systems it is possible for the management to made cost
accounting reports which guide the business to decide the sales price and profit margin according
to the actual cost of their units products (Nuhu, Baird and Bala Appuhamilage, 2017). These
systems help in making the reports which ultimately contributed towards the effective and
efficient performance of the complete operational process of the organisation.
TASK 2
Preparing income statement using absorption and marginal costing method
Statement of Profit or Loss for Jan 2019
Absorption Costing

Per
Unit Budget Actual
Particulars £ £ £ £ £ £
Sales Revenue 50
800,00
0
800,00
0
COST OF SALES:
Cost of Production:
Direct Material 10 180,000 190,000
Direct Labor 20 360,000 380,000
Variable Overhead 5 90,000 95,000
Fixed Overhead* 5 90,000 95,000
40 720,000 760,000
+ Opening Inventory 0 0
- Closing Inventory 80,000 120,000
Standard Cost of Sales 40
640,00
0
640,00
0
Standard Profit 10
160,00
0
160,00
0
Adjustment for under
absorption
-
10,000 -5,000
Profit
Budgeted
Profit
150,00
0
Actual
Profit
155,00
0
Marginal costing
Particulars £ (Per Unit)
Selling Price 50
Variable Cost 35
Contribution 15
Statement of Profit or Loss for Jan 2019
Variable Costing
Per
Unit Budget Actual
£ £ £ £ £ £

Sales Revenue 50
800,00
0
800,00
0
COST OF SALES:
Cost of Production:
Direct Material 10 180,000 190,000
Direct Labor 20 360,000 380,000
Variable Overhead 5 90,000 95,000
35 630,000 665,000
+ Opening Inventory 0 0
- Closing Inventory 70,000 105,000
560,00
0
560,00
0
Standard Cost of Sales
Variable 35
240,00
0
240,00
0
Contribution 15
100,00
0
100,00
0
Fixed Overhead Profit
Budgeted
Profit
140,00
0
Actual
Profit
140,00
0
Interpretation: On the basis of the above table it can be interpreted that, in the case of
absorption costing system, actual profit is higher than budgeted figure. Due to the inclusion of
fixed production overhead per unit cost is higher in absorption system over marginal. The above
depicted evaluation clearly exhibits that price per unit in absorption and marginal costing implies
for £40 & £35 respectively. Further, cost assessment presents that actual and budgeted profit is
similar in absorption and marginal costing such as £140000. By doing assessment, it has found
that profitability level is higher under absorption costing system over marginal. Hence, business
unit is advised to follow absorption costing system in comparison to marginal. As such modern
costing system or approach provides clear view of cost and profit by referring both fixed as well
as variable expenses while calculating production cost.
Absorption Costing Reconciliation of Budgeted
Profit and Actual Profit
Budget Actual
Number of Units 16000 units 16000 units

Standard Profit/Unit £ 10 £ 10
Standard profit 160,000 160,000
Fixed Overhead Charged
in Cost of Production 90,000 95,000
Additional Fixed Overhead
in under absorption adjustment
10,000 5,000
100,000 100,000
Fixed Overhead Transferred
to next month (February) via
closing inventory 10,000 15,000
Net Fixed
Overhead Charged 90,000 85,000
TASK 3
Advantage and disadvantages of different types of planning tools which are used in the
budgetary control
Cash budget is the budget which forecast the recipients and payment to measure the actual cash
experience. It plays the essential role in the organisation as it breaks down the incoming and
outgoing cash into the weekly, monthly or daily basis so that organisation is able to make sure
that they are able to meet their obligations(Carlsson-Wall and et.al., 2018)
Advantages
 Cash budget helps the business to estimate the cash in advance which avoid delays in
daily operations
 It leads to optimum utilisation of financial resources
This helps the business to make effective and necessary expenses.
 Eliminate the wastage of the cash resources in unnecessary areas and fields
 Cash budget helps in comparing the actual cost with estimated so to avoid the deviations .
 Chance effective flow of cash in the business organisation.

Disadvantage
 it requires specialised knowledge to maintain the cash budgets
 budgets needs to monitor and observe regularly
 Time consuming process(van Helden and Uddin, 2016)
 Cash budgets are the most important budget and need specialised knowledge to maintain
this budget
 It involves cost for maintaining and preparing the budget.
Operating budget is the budget which helps the business to plan their day to day operations so
that operational activities can run smoothly without any disruption. Operational budget helps in
tracking the actual expenses, estimating the future expenses so that business make sufficient
availability of the funds before the actual expense incurred.
Advantages
 This budget helps in tracking the income and expenses related to the operation of the
business
 It helps in allocating the money
 It builds the budget flexibility that means changes can be made accordingly.
 The budget keeps the information accurate by effective comparison.
Disadvantage
 expensive and costly to prepare and install
 It is time consuming
 It limits the manger to the budget which might lead to avoidance of great opportunity
available.
 Operational budgets contains the strategic rigidity
Zero base budget-

This is the method of budgeting in which all the expense are justified for each new period. The
process of zero base budget starts from the zero base and every function in the organisation is
analysed for their needs and costs(Kaplan and Atkinson, 2015). This is the budget which is step
by step process with zero base and this have nothing to do with the past data or experiences. The
preparation of the budget is doe by scratching the zero base by examining each and every
expense and cost which is essential for the company to ascertain the accurate results.
Advantages
 zero base budget provides the organisation a systematic way of evaluating the operations
of the company
 It allows the management to allocate the resources on basis of the priority of
programmes.
 It ensures with efficient examination of every function.
 Through this budget the long range goals and plans can be linked with the annual budget,
 The departmental head cannot justify the expense on the basis of past expenses or records
which prevents organisation in ascertaining the accurate budget(Quattrone, 2016).
Disadvantage
 It is very time consuming process as organ' needs to start with zero base and they do not
have any base.
 It is tedious to justify all the expenses and non justification may leads to rejection of the
business.
 It has Lack of acceptance
Use of the different planning tools and their applications for preparing and forecasting the
budgets
Planning tools are some tools of budgetary control which focuses on controlling the budget by
comparing the actual budget with estimated budget so that deviations can be found out and
corrective measures can be taken to solve the deviations(Skouloudis, Malesios and
Dimitrakopoulos, 2019). Planning tools are the tools which convert the raw data into some useful
information which helps the organisation in ascertaining the best and effective information so tat

they can make decisions accordingly. The different types of planing tools used by the ABC Ltd
are ;
Zero base budgeting: it is also known as the ZBB. It is the process in which organisation needs
to evaluate every expenses' individuality and have to prepare the budget with zero base that is
they do not have nay base of past expense or budget. This is the technique which examine the
every expense ad costs which is essential for the company. Zero base budgeting is method in
which company needs to start with no base and all the expense are need to justified. This method
is used to control the costs of the organisation. In this method current year budget is prepared
from the scratch that is taking the base as zero.
Operating budgets are the budgets which records the planned operation of the business so that
actual operations can done in the direction of those budget to avoid any issue or problem which
may faced by the organisation while performing their operational activities(Boiral, 2016)
There are different types of operating budget which are classified as under the following:
Sale or revenue budget this budget focuses on the revenue that company is expecting to receive
in the future which helps them in ascertaining their financial performance(Hall, 2016 ).
Expense budget it anticipates the expenses of the organisation during a specified time period
and it also includes the upcoming expense so that sufficient availability of fund can arranges to
avoid the delay in operational activities of the business.
Project budget- It anticipates the difference between the sales or revenue and if the profit
percentage is small than company needs to take necessary steps to eliminate or control the
expense of the organisation.
Fixed and flexible budgets
Fixed budgets are those in which changes cannot be made according to the changes and
requirements of the organisation and situation(Drake, Roulstone and Thornock, 2016). The
budget need to be followed rigidity without making nay changes in it. These kinds of budget are
easier to follow but impracticable to accept. Whereas flexible budgets are those budgets which

can b changed and alter according to the requirements of the organisation and situations so that
any Change in environment and organisation can leads to make alteration in the budget instead
of making the complete new budgets. This is complex to prepare by very logical and practical to
accept(O'Dwyer and Unerman, 2016).
Use planning tools to solve the financial problems
Key performance indicators Balance score card Benchmarking
It is the quantifiable measure
used to evaluate the success of
the organisation and its
employees in meting of the
objective sin context with
performance.
ABC can solve their financial
problems through using the
key performance indicator as a
tool as it helps them to
measure their strategic
objectives, operational
objectives and leads the
organisation to track that their
activities are going into the
direction of the goal or
strategies and if not the
corrective measures needs to
taken so that activities direct
towards the goal.
It is the performance metric
use din the strategic manage so
that organisation can imp rive
and identify the various
internal functions of the
business and their outcomes. It
is basically used to measure
and provide feedback to the
organisation'(Järvenpää and
Länsiluoto, 2016)
Financial problem can be
solved by using the balance
score card as by setting the
targets and results relating to
the finance so that all the
activities and us of resources
being done optimally and
company can prevent
themselves from financial
problems which they may face.
It is the process of measuring
the performance of the
company's product and service
s or process wit the another
businesses. The focus of
benchmarking is to identify the
internal opportunities for the
improvement.
The financial problem to ABC
Ltd may because of low sales
resulting in low profit margin
or no profit. . Benchmarking
helps them to set the standards
till which company needs to
reach and achieve that
standards this will help them to
perform effective and
efficiently and resulting in
attraction of more customers
and hence earn good amount
of profit.(Carlsson-Wall and
et.al., 2018)

TASK 4
Organisation adopting management accounting system to solve and respond the financial
problems
Management accounting system includes complete process of analysing and evaluating
the cost of operations of the business. It includes maintaining the records, reports and financial
accounts through which company is able to ascertain their actual position and can make
necessary changes if needed to reach to the optimum level of performance. It is the process of
analysing and evaluating the cost of running and managing the business. The company's affairs
are managed under the management accounting(Thabet and Alaeddin, 2017).
The most important task of the management accounting system Is the preparation of
different management reports which leads the organisation in right way. There are different types
of management accounting reports which are used by the organisation to mange the transactions
effectively and efficiently so that accurate, reliable and appropriate information can be generated
which can be use further for making the useful decisions some reports are :
 Budget report
 Accounts Receivable ageing reports-
 Performance report
 Cost managerial accounting reports
Management accounting system includes the preparation of the report which helps the
business to ascertain their actual value and position regarding how they ate performing.
Financial problems of the company can because of many reasons that is over expenses, low
profits, increasing liabilities, high creditor, low performance, over budget costs etc. and all this
problem can be solved under the management accounting system which focus on different
category of system say
job costing system- in these costs assigned to each unit or product is identified individually so to
ascertain the cost and sales price` of the product(Nuhu, Baird and Bala Appuhamilage, 2017)
Price optimization - is the another system of management accounting system which focuses on
application of mathematical analysis is applied on the organisation to determine that how the
consumers will react to different price for the goods and services.
Inventory management system- This system is used to managing the stock of the company and
inflow and outflow of the stock of the Company.

This system is required by the organisation in order to control and monitor the ordering,
use and storing of the components which business s used in the production of the goods. This
system is used to control the quantities of the finished goods' for sale which lead in controlling
the addition cot which is unnecessary and hence financial resource of the organisation can be
prevented from wastage and hence company can prevent themselves from any financial
problem(O'Dwyer and Unerman, 2016).
Manage accounting system, helps overall performance of company in increasing the
efficiency of the company and also in measuring the actual performance of the organization so
that it can communicate to their users. In addition to this it helps the business in managing the
activities of the business and to maximize the rate of return on the capital employed which is the
major reason for solving the financial crisis of company if they surfers.
CONCLUSION
From the above report it can be concluded that management accounting system plays a
crucial role in the organisation as it help the business to ascertain their position which guides
them in taking the corrective measure to improve the overall performance of the business
organisation.
It can also conclude that there are different types of reports covered in accounting system which
represents the position of the business. The report also cover different planning tools for
budgetary control which helps the organisation in achieving their gaols effectively and
efficiently.

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