Management Accounting: Systems, Tools, and Financial Problem Solutions

This report provides an overview of management accounting systems and their requirements, different methods of management accounting reporting, uses of planning tools in management accounting, and a comparison of different management accounting systems used to solve financial problems. The report focuses on the case of GSQ Limited, a manufacturing company in the UK.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
Management accounting system and their requirement..............................................................3
Different methods of management accounting reporting............................................................4
LO2..................................................................................................................................................4
LO3..................................................................................................................................................8
Explaining uses of different planning tools that are used in management accounting................8
LO 4...............................................................................................................................................11
Comparing the different management accounting system used in order to meet the financial
problems....................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is defined as analysis and evaluation of the financial information
in order to take the management decisions for the betterment of the company (Otley, 2016). The
present report is based on company GSQ limited which is a manufacturing company located in
UK. The report will discuss about different management accounting system along with their
application and advantages and disadvantages. Further the report will apply some management
accounting tools in order to calculate the cost. Next the discussion will highlight the different
planning tools which the company can use to manage the budgets. In the end some management
accounting system will be discussed and how they help company in dealing with financial
problem will be outlined.
LO 1
Management accounting system and their requirement
The management accounting system are different types of system which help the
company in order to evaluate the performance of the company with help of financial accounting.
There are many different types of accounting system which GSQ Ltd can use in order to attain
their objectives which are as follows-
Cost accounting system- This is a system which is used by GSQ Ltd in order to ascertain
the cost of producing the product or services. This is very necessary for the company to ascertain
the cost because of the fact that in this cost only the profit margin is added and then charged to
consumers. This system is applied in GSQ ltd in order to calculate the cost of per unit production
and this is done with help of different tools like lean accounting, marginal costing and many
other different types.
Job- costing system- This is a system under which cost is charged to every job separately
in order to ascertain cost of every job. The whole production includes different types of job and
every job has its own particular cost which need to be assessed separately. This costing is applied
in GSQ for estimating the individual cost of each and every job separately.
Price optimising system- This is a system which help GSQ Ltd in order to calculate the
demand for the product and services at different price levels and what will be the response of the
consumers at all these different levels of price (Maas, Schaltegger and Crutzen, 2016). This
system is applied in GSQ for estimating its profit at different types of prices in the market.

Inventory management system- The inventory is the most important part in the
manufacturing company like GSQ ltd because without inventory no work can be done. Thus, it is
very necessary for GSQ ltd to manage the inventory on time and this will assist the company in
completing manufacturing process on time (Quattrone, 2016). This include application of some
software which assist the company in managing their inventory on time do that the
manufacturing process can be completed with efficiency and effectiveness and on time as well.
Advantage of management accounting system- The use of different management
accounting system is very advantageous for GSQ because of the reason that these systems help
in proper planning and organizing for the business and its development. These management
accounting systems help GSQ in improving all the business activities and this assist the business
in building coordination among all the different business areas. Hence. This result in the
development of the business as a whole and not focusing on a single issue (Dekker, 2016).
Different methods of management accounting reporting
There are a variety of different types of management accounting reporting which helps
GSQ in reporting of all the information relating to management of business activities.
Budget report- This is a report in which all the estimated income and expenses are
recorded and management try to actually incur that much only. This will assist GSQ ltd in order
to make some estimation for all the possible income and expenses and to compare it with past
records.
Performance report- This is a type of report which is prepared by GSQ in order to
evaluate the performance of each and every individual. This help company in knowing the areas
in which company need to improve and the areas which are good.
The management accounting report is integrated with organization process because this
will enhance the process within the organization (Hopper and Bui, 2016). This is because of the
reason that all these reports will help organization in deciding all the major decision for the
betterment of the company.
LO2.
Absorption costing- It is the method that accumulates costs attached with the process of
production and apportioning them to an individual product. It is the type of costing which is

needed by an accounting standard for creating valuation of an inventory. A product might absorb
wide range of the variable and the fixed costs.
Marginal costing- It refers to the cost for an additional unit of an output and this concept
is been used for determining optimum capacity of production for GSQ in which it charges least
or minimum for producing an additional unit. Under this variable cost is only charged to cost
units whereas fixed cost for a period is entirely written off against contribution.
Cost card using Marginal costing
Particulars Cost per unit
Direct Material 8
Direct Labour hour 3
Variable production overhead 2
Marginal Cost 13
Selling Price 30
Marginal Cost 13
Contribution Profit Margin 17
Profit or loss statements using Marginal costing
Amount
Sales Revenue 50000*30 1500000
Marginal cost of sales
Direct materials (50000*8) 400000

Direct Labour hours (16667*9) 150000
Variable production overhead (50000*2) 100000 650000
Contribution 850000
Fixed production overhead 160000
Selling expenses variable (50000*4) 200000
Fixed admin and distribution 60000 420000
Net Income 430000
Cost card using Absorption Costing
Particulars Cost per unit
Direct Material 8
Direct Labour 3
Variable production overhead 2
Fixed production overhead 3.2
Absorption Cost of the product 16.2
Selling Price 30
Total Cost 16.2
Profit 13.8

Profit or loss statements using Absorption costing
Amount
Sales Revenue 50000*30 1500000
Marginal cost of sales
Direct materials 400000
Direct Labour 150000
Variable production overhead 100000
Fixed production overhead 160000 810000
Gross Profit 690000
Selling expenses variable 200000
Fixed admin and distribution 60000 260000
Net Income 430000
Calculation of Wages per hour
Wages per hour £9.00
Labour per unit 20
Number of units 50000
Time for 50000 units (minutes) 1000000
Total Hours for production 16666.67
Direct wages £150,000

Interpretation- From the above results it has been stated that net profits resulted by
employing marginal and absorption is same that is £ 430000 because opening and closing stock
are not stated. Moreover, Absorption costing is seen as better technique than marginal costing
because it gives a true picture of profitability as it includes both fixed and marginal cost as part
of its production.
LO3.
Explaining uses of different planning tools that are used in management accounting
Activity based budget- It means the budgeting method under which budgets are been
prepared by using ABC that is activity based costing after taking into account the overhead costs
(Kispal-Vitai and Wood, 2018). It is the planning tool that do not consider previous years budget
for arriving at framing budget for current period.
Advantages Disadvantages
Activity based budget helps GSQ in attaining
competitive edge by eliminating all kinds of an
unnecessary activities so that cost can be
saved. Cost saving leads to producing the
goods and the services at the low cost as
compared to its rivalry.
This budgetary tool requires deep
understanding of several functional areas of
GSQ. In case the manager is not capable in
evaluating and understanding an areas of the
business, it leads to an inaccurate preparation
of the budget.
This tool enables in viewing business as the
single unit and not in departmental form. The
top executives frames the budget for an entire
business unit under activity based budget.
It is stated as the complex system as it needs
analysis and the research of several factors.
This method consist of an estimation of the
demand and on the basis of that an estimation
relating to employing of the resources is made
in several activities.
It helps GSQ in preparing the budget after the
detailed and deep research analysis (Hirata and
Bortoletto, 2019). It helps in removing all
types of irrelevant activities of business that is
Under this, the budgeting process consumes lot
more resources of an entity. It require to
employ top top management in conducting
various analyses which resulted as a time

attached with a particular activity and this in
turn results in carrying the business operations
in a smooth way.
consuming activity.
Activity based budget assist in improving
relationship between customers and
organization. It helps in eliminating the
unnecessary activities and in serving customers
with best quality at the best price. This
enforces an employees of GSQ to serve its
customers in best possible manner and in
ensuring customer satisfaction.
Execution of this budgeting tool needs trained
and skilled employees. This leads to high cost
as GSQ needs to bear extra cost in providing
training to its employees.
Rolling budget- It is referred as the budget that is been updated continually for adding a
new period for the budget (Papke-Shields and Boyer-Wright, 2017). It involves an incremental
extension of an existing model for budget.
Advantages Disadvantages
It is the budget that helps in controlling and
planning in an accurate manner. It reduces
uncertainty of the budgeting along with
provide for short term plan. It reflects the
direction in which GSQ is moving in respect of
profitability and sales to management.
This budget needs more money, efforts and
time. Employees spends lot of time in framing
such budget.
The budget for 12 month period is counted as
long term because of the technological changes
or advancement at fast pace. It may lead GSQ
in changing with that of latest technology and
also required to be updated on the basis of
assumptions.
It demoralizes an employees as the budgetary
targets are been changing consistently.
Therefore, spending ample of time on
formulating this budget might result in
demotivation among employees.
Rolling budget acts as the guiding tool in
spending money with that of wisdom. Thus, it
The major limitation of this budget is that it is
not been updated for an entire period but only

helps the managers of GSQ in deciding for
spending wisely.
for an incremental period. This period might
comprises of some newer assumptions which
are not been counted in original budget.
Flexible budget- It is the budget that flexes or adjust changes in the activity or the
volume. This budget seems as more sophisticated and meaningful as compared to the static
budget.
Advantages Disadvantages
It helps in calculating sales, profit and cost at
various level of an operating capacity.
It requires the skilled workers as changes are
been made on a frequent basis with change in
the activity level (Benefits and limitations of
activity based budget, 2018). Availability of
the skilled workers has become a challenge for
an industry. Therefore, a company cannot use
flexible budget.
It enables in determining amount or quantity of
an output that need to be produced for helping
the firm in achieving desired level of profit.
Preparation of this budget is highly dependent
on proper accounting related disclosures.
Results generated from this budget cannot be
said as correct in case there present some
mistakes in final reports. It depends very much
on forecast of previous business performance
so historical information utilised must be
accurate.
This tool helps management of GSQ in
determining production level in different
business conditions and markets.
Flexible budget depends on factors of the
production that are not in hands of
management. Therefore, predictions could be
inaccurate because of such conditions.
This budget assist in re-classification of several
level of the budgeted cost with sales that in
turn helps the managers in identifying
Variance analysis facilitates useful information
because each and every cost is been analysed
in accordance to nature. Therefore, it became

profitable areas and act accordingly. difficult for an experts in preparing the flexible
budgets.
This budget could be re-examined based on
activity levels and is not considered as rigid.
It is expensive in nature as appointment of
skilled workers includes higher salary and
benefits expenses.
LO 4
Comparing the different management accounting system used in order to meet the financial
problems
The company faces many different types of financial problems while running its business
such as poor accounting practices, lack of cash flows, issues in use of accounting practices and
many other problems (Bromwich and Scapens, 2016). For managing these issues there are many
different systems which can be used like as follows-
Benchmarking- This is a system through which GSQ compare its position with that of
their competitors and try to evaluate their performance. Here GSQ can use this system to solve
the problem of quality of product. This is because of the reason that GSQ can compare the
quality of their products with that of the competitors and can know that where their product is
lacking.
Variance analysis- This is also a technique of dealing with the financial problems faced
by GSQ. Under this technique company first set some standards in order to provide direction to
the employees in which they have to work. Thus, this will help GSQ in properly budgeting the
income and expenses. But in contrast to this, KEF ltd uses this technique for setting target for
increasing the profits and the employees in every condition has to attain that.
Key performance indicator- This is a technique in which some key points are considered
and the performance of the company is measured against that only. For this GSQ has taken the
indicator of profits and it uses this and compares the current profit with past year profits and with
competitors (Christ and Burritt, 2017). But in contrast to this KEF ltd uses this for comparing the
number of consumers. These number of consumers are compared of KEF with competitors and
also with the past year data.

CONCLUSION
From the above it has been concluded that MA systems plays an essential role in
managing and maintaining an adequate inventory level with optimum use of resources. MA
reports helps in the preparing for the standards on the basis of which task are been performed
that in turn helps in ensuring proper controlling and gaining higher sales or revenue. Planning
tools enables the managers to focus on most crucial areas of the business and reviewing the
performance of an employees in order to eliminate variances. Further, there are different MA
systems such as benchmarking, balanced scorecard, variance analysis and key performance
indicators that helps GSQ in resolving its financial problem in an effective manner.

REFERENCES
Books and journals
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Christ, K.L. and Burritt, R.L., 2017. Water management accounting: A framework for corporate
practice. Journal of cleaner production. 152. pp.379-386.
Dekker, H.C., 2016. On the boundaries between intrafirm and interfirm management accounting
research. Management Accounting Research. 31. pp.86-99.
Hirata, E. I. and Bortoletto, W. W., 2019. PLANNING OUR EVERYDAY USING TOOLS
AND TECHNIQUES OF PROJECT MANAGEMENT. Iberoamerican Journal of Project
Management. 10(2). pp.14-29.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Kispal-Vitai, Z. and Wood, G. T., 2018. HR planning: Institutions, strategy, tools and
techniques. In Human Resource Management (pp. 238-261). Routledge.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Papke-Shields, K. E. and Boyer-Wright, K. M., 2017. Strategic planning characteristics applied
to project management. International Journal of Project Management. 35(2). pp.169-179.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Online
Benefits and limitations of activity based budget. 2018. [Online]. Available through:
<https://efinancemanagement.com/budgeting/activity-based-budgeting>
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